This is a deceptive trade practice case. The principal question presented on this appeal is whether a misrepresentation about coverage afforded by a policy of insurance, made by the insurance company's local recording agent, is a deceptive trade practice under Texas statutes for which the insurance company as principal is liable for treble damages.
Petitioner Royal Globe Insurance Company, defendant in the trial court, is appealing from a judgment obtained by Plaintiff and Respondent, Bar Consultants, Inc., for violation of the Deceptive Trade Practices Act
Bar Consultants, Inc. operated a bar near the campus of The University of Texas known as "The Bucket." The president of Bar Consultants, Inc., John Barber, testified that he purchased a policy of insurance from Tully Embrey, an agent of Royal Globe, sometime prior to September 1975.
On January 31, 1974, during the policy year 1973-74, Royal Globe paid a vandalism claim filed by Bar Consultants. The description of the damage on the proof of loss form was "Vandals inflicted damage in the bathroom area for which insured is liable under lease contract."
On the night of March 5, 1976, the men's rest room at The Bucket sustained extensive damage. The main sewer line was stopped up by one or more plastic cups; the flush valve part of the urinal had been torn away. The stoppage in the main sewer line caused the facilities in both men's and women's rest rooms to overflow. The partitions between the commodes were torn down, water was nearly an inch deep on the floor of the rest room and out into the hall. The acoustical ceiling had been torn down, as had the light fixtures. In addition, the floor tiles came loose and the carpet was ruined. The trial court found that the damage was caused by vandalism or malicious mischief and that it cost $1,735.15 to repair.
The day following the damage Barber called Embrey's office. Embrey was not in, but his secretary, after a discussion with Barber, told Barber to "go ahead; have the work done. You're covered under the policy." Later Barber talked with Embrey who told him the same thing. Subsequently, Royal Globe refused the claim, and Bar Consultants filed this suit against Embrey and Royal Globe.
Bar Consultants alleged that the damages were covered by its policy and asked for actual damages plus a penalty of 12% interest and attorney's fees, or in the alternative for actual and exemplary damages because of the fraudulent misrepresentations of the agent, and in the further alternative for treble damages, attorney's fees and return of premiums because, if in fact the policy did not cover such damage, then such representations and policy terms were false, deceptive and misleading, in violation of Article 21.21, Section 4(1), Texas Insurance Code, and Section 17.46(a)(12)
The trial court found that under Article 21.02 and under the facts and circumstances of this case Tully Embrey was "at all times an agent" for Royal Globe; that Embrey, as Royal Globe's agent, represented to Bar Consultants that the policy covered all damages caused by vandalism, including the damage in question; and that the policy did
In order to determine what is a deceptive trade practice or act, as that term applies to a local recording agent for an insurance company, it is necessary to look at the definition of such act or practice given by the legislature. Section 16 of Article 21.21 declares that a cause of action for treble the actual damages may be brought by:
We will therefore examine each of the three cumulative definitions of deceptive trade practices or acts. The first is set out in Section 4 of Article 21.21 which declares in part:
The second reference to a deceptive trade practice or act made by Section 16 is "in rules or regulations lawfully adopted by the [State] Board [of Insurance] under this Article...." Pursuant to Section 13 of Article 21.21 the Board in 1971 adopted rules and regulations prohibiting "any trade practice that is a misrepresentation of an insurance policy," including both material misrepresentations of fact and of law, whether done "directly or indirectly," and irrespective of "capacity or connection with such insurer."
Royal Globe by its first point of error contends that there is no evidence that its agent Embrey had authority to make statements and representations that were binding upon Royal Globe. Having determined what activity is prohibited, it is necessary to examine Embrey's legal relationship with Royal Globe and to determine the extent to which Royal Globe is responsible in law for his actions in misrepresenting policy coverage.
It is clear from the record before us that Tully Embrey was the local recording agent of Royal Globe as that term is defined in Article 21.14, Section 2:
Embrey issued the policy in question from the "Tully Embrey Insurance Agency"; he signed the policy for Royal Globe as its agent and Royal Globe has not denied his authority to do so.
In describing the circumstances of a local recording agent's authority, this Court said in Shaller v. Commercial Standard Insurance Co., 158 Tex. 143, 309 S.W.2d 59 (1958), at page 63:
The trial court found that Embrey was Royal Globe's agent under the provisions of Article 21.02, which says:
The final words, "in this chapter," refer to Chapter 21, which includes Article 21.21, the article prohibiting deceptive acts or practices.
Royal Globe cites Hartford Fire Insurance Company v. Walker, 94 Tex. 473, 61 S.W. 711 (1901), in which this Court held that the predecessor of Article 21.02 did not confer any power or authority to contract beyond what the law and the terms of his appointment already gave him. Not only was this case decided before Article 21.21 was enacted,
We are not to be understood as holding that the statutory authority granted an agent under Article 21.02 authorizes that agent to misrepresent policy coverage and bind the company to terms contrary to those of the written policy; that question was decided by us in International Security Life Ins. Co. v. Finck, supra. However, an insurance company that authorizes an agent to sell its policies may not escape liability for the misrepresentations made by that agent which violate Article 21.21 or Section 17.46 merely by establishing that the agent had no actual authority to make any such misrepresentation.
Neither Article 21.21 nor Section 17.46(b)(12) require either expressly or by implication that an agent have actual authority before an insurance company can be found to have vicariously committed a deceptive act or practice. Section 1 of the regulations of the Board of Insurance impliedly negates such a requirement when they include acts
To require actual authority would emasculate both Article 21.21 and Section 17.46 and provide a violator with an easily manufactured defense. It would only be necessary for a corporate principal to deny that an agent had actual authority to perform
There is even stronger evidence of legislative intent that the absence of actual authority of an agent is not a defense to a violation of Section 17.46 when the agent is clothed with apparent authority to do the act or make the representation. Section 17.46(c)(2) provides that in construing actions brought under the Act, the legislative intent is that:
Numerous federal decisions made applicable to this case by Section 17.46(c), hold that lack of actual authority is not a defense if the agent is acting within the apparent scope of his authority, and not even instructions not to mislead nor diligence in preventing the misrepresentations will exculpate the corporate principal. Standard Distributors v. F.T.C., 211 F.2d 7 (2nd Cir. 1954); Goodman v. F.T.C., 244 F.2d 584, 591-3 (9th Cir. 1957). See Maxwell, Public and Private Rights and Remedies Under the Deceptive Trade Practices—Consumer Protection Act, 8 St. Mary's L.J. 617, 638-39 (1977).
Embrey as a local recording agent for Royal Globe, had statutory authority under Article 21.02 and Article 21.14(2) to sell insurance policies for the company and by necessary implication to represent the coverage afforded by such policies to the consumer. If his representations were false as the trial court here found, under the explicit language of Section 16, Article 21.21 and Section 17.46(b)(12) of the DTPA, his actions constituted a deceptive act or practice for which his principal is accountable.
Though it may be harsh to hold a principal liable for the deceptive acts of his agents where he does not authorize or have knowledge that they occurred, such result is clearly called for by the legislature's enactment of the DTPA. Woods v. Littleton, 554 S.W.2d 662, 669-71 (Tex.1977). The rationale behind this agency principle is expressed by Justice Learned Hand when he wrote:
By its next point of error, Royal Globe argues that Bar Consultants has presented no evidence that it was "injured" or suffered damages as a result of Embrey's representations. We agree with Petitioner's contention with regard to the post-loss representation of coverage made on March 6, but hold that there is evidence that Bar Consultants was "adversely affected" and "injured" when it relied on the misrepresentations of coverage made by Embrey at the time of the initial policy in 1973 and impliedly made each time the policy was renewed. The injury to Bar Consultants was that it believed it was covered by a policy of insurance from any loss caused by vandalism when it was not so covered. Bar Consultants' damage was the reasonable and necessary cost of repairs made necessary by the vandalism. That belief was made even more logical and reasonable by the knowledge that, prior to renewing the policy, Royal Globe paid a claim for the same type damage to the bathroom area without questioning coverage, thus giving credence to the agent's previous misrepresentations.
Accordingly, the representations made by agent Embrey at the time the policy was sold in September 1973 and impliedly made to Bar Consultants upon each renewal do furnish a basis for deceptive act or practice liability of Royal Globe, and there is evidence to support the trial court's findings in this regard.
We disagree with the Court of Civil Appeals' holding that the representations made by Tully Embrey and his secretary after the loss had occurred constituted a deceptive trade act or practice. In the
The judgment of the Court of Civil Appeals is affirmed.
"Q. When you secured the first policy from Mr. Embrey, did you sit down and discuss with him what your needs and concerns were concerning what coverage you wanted?
"A. Yes, we did. We sat down with him at length and described all the problems that we—or I had occur over the past years that I had been in this business, and one of the things that we stressed was vandalism, liability insurance and fire. And numerous times, we had discussed this while he was in the process of selling us the policy. We had gone out to his office at a time I believe he was in the Franklin Savings and Loan Building handling a lot of their work, and he came very highly recommended to us. And we sat down many different times and explained to him exactly what we wanted, and he assured us that we would be covered for everything that we had discussed.
"Q. And he never told you that you would be covered for everything except somebody destroying leasehold improvements?
"A. No, he did not tell us that.
"Q. He told you—there were no exclusions as far as his representations to you?
"A. In fact, we sat down and went over the lease with them, and I believe in the lease it says that we are responsible for all of the property within the confines of the walls of what was then called The Bucket.
"Q. And he assured you you were totally covered?
"A. Yes, he did."
"Sec. 1. DECEPTIVE ACTS OR PRACTICES OF INSURERS, AGENTS, AND CONNECTED PERSONS. PURPOSE OF REGULATION. It is the purpose of these Rules and Regulations to further define and state the standards that are necessary to prohibit deceptive acts or deceptive practices by insurers and insurance agents and other persons in their conduct of the business of insurance or in connection therewith, whether done directly or indirectly, and irrespective of whether the person is acting as insurer, principal, agent, employer, or employee, or in other capacity or connection with such insurer.
". . .
"Sec. 4. UNFAIR TRADE PRACTICES PROHIBITED. (a) Misrepresentation of insurance policies, unfair competition, and unfair practices by insurers, agents and other connected persons are prohibited by Article 21.20 and Article 21.21 or by other provisions of the Insurance Code of Texas and by the rules and regulations of the State Board of Insurance. No person shall engage in this State in any trade practice that is a misrepresentation of an insurance policy, that is an unfair method of competition, or that is an unfair or deceptive act or practice as defined by these and other Rules and Regulations of the State Board of Insurance authorized by the Code.
"(b) Irrespective of the fact that the improper trade practice is not defined in any other section of these Rules and Regulations, no person shall engage in this State in any trade practice which is determined pursuant by law to be an unfair method of competition or an unfair or deceptive act or practice in the business of insurance.
"Sec. 5. MISREPRESENTATION DEFINED. STANDARDS FOR DETERMINING MISREPRESENTATION. The term misrepresentation, or the prohibited conduct, act or practice that constitutes misrepresentation by a person subject to the provisions of this regulation, is defined as any one of the following acts or omissions:
"(a) any untrue statement of a material fact; or
"(b) any omission to state a material fact necessary to make the statements made (considered in the light of the circumstances under which they are made) not misleading; or
"(c) the making of any statement in such manner or order as to mislead a reasonably prudent person to a false conclusion of a material fact; or
"(d) any material misstatement of law; or
"(e) any failure to disclose any matter required by law to be disclosed, including failure to make disclosure in accordance with the provisions of these and other applicable regulations of the State Board of Insurance."