Celtic Life Ins. Co. v. Coats

In Celtic Life Ins. Co. v. Coats, 885 S.W.2d 96 (Tex. 1994), the supreme court held an insurer liable for the misrepresentations of one of its agents that the insured was "covered" for up to one million dollars in psychiatric benefits, when the policy actually covered only $ 10,000. After Coats's son received psychiatric treatment, Celtic Life paid but $ 10,000 of the $ 27,000 claimed. Celtic Life argued that because the agent who had made the misrepresentation did not have actual authority to bind the company, the insurer could not be held liable to the insured. The court determined that the agent did have the requisite authority. See Coats, 885 S.W.2d at 99. The jury was asked whether Celtic Life's agent had made any misrepresentations that were a producing cause of damages to Coats. Id. The jury answered yes, and Coats recovered the full amount of his son's psychiatric expenses. Coats, 885 S.W.2d at 100. The supreme court reaffirmed the principle that "an insurance company is generally liable for any misconduct by an agent that is within the actual or apparent scope of the agent's authority." 885 S.W.2d at 98. It stated that an insurer "cannot escape liability on the basis that it did not authorize particular representations concerning the policy." Id. at 99. The proper inquiry is whether the agent was acting within the scope of the agency relationship at the time of the wrongful act. Id. (holding that misrepresentation made by agent in course of explaining terms of policy was within scope of his authority).