Unfair Trade Practices Unfair to Insurance Agents

Here is a tale of two sellers. A realtor sold a home in a quiet neighborhood to a nice family. Shortly after settling in, the new homeowners begin to discover certain defects in the property, which had not been disclosed at time of sale to the family by the realtor. As a recourse under the law, the new homeowner filed a lawsuit against the realtor for failure to disclose defects in property sold to a consumer.

Not long afterward in another part of town an insurance agent wraps up a new homeowners policy for someone else. A couple of months later the rains come hard and fast and the new policyholder discovers that his policy excludes flood coverage. Angered, the policyholder sues the insurance agent for failure to disclose exclusions in an insurance policy.

While the two lawsuits may appear similar, there are two separate and distinct laws under which they will likely be filed. And those laws are quite different.

What is the difference?
The realtor will be sued under the Texas Deceptive Trade Practices Act (DTPA), which is part of the Business and Commerce Code. Part of the realtor’s defense might be that the consumer did not properly read the disclosure statement provided by the owner and thus the realtor may be held only partially liable. If the jury agrees, she may be liable to the consumer for only part of the damages or even none at all.

On the other hand, however, the insurance agent is likely to be sued under Article 21.21 of the Texas Insurance Code, titled the Unfair Trade Practices Act, and not DTPA. His defense under 21.21 does not include protections afforded the realtor who was sued under DTPA.

Unlike the realtor, if the insurance agent is found to be only partially at fault for the consumer’s loss, he may still be held responsible for the full amount of damages.

The Independent Insurance Agents of Texas (IIAT) believes strongly that the disparity in these two statutes is unfair to insurance agents. Both statutes were created to protect consumers from unscrupulous sales practices. Both involve the same allegations of wrongdoing. The difference is in the exemptions, the definition of damages and the access to contributory negligence provisions–differences that continue to increase both claims frequency and severity against insurance agents. It is an important reason Texas insurance agents pay as much as 80 percent more for E&O insurance protection than do insurance agents in other states.

IIAT believes the two statutes constitute an egregious inequity–clearly unfair by any standard, legal or otherwise. It is well beyond time for a change.

Article 21.21 of the Insurance Code and the DTPA statutes were enacted together in 1973 as parts of the same legislation. Originally, the statues were largely the same. In the three decades since their original enactment, the DTPA has been amended substantially both by the legislature and through judicial interpretation. Article 21.21 has not been similarly amended, and the differences between the two statutes are now substantial.

During the coming legislative session that begins in barely two months, IIAT will work with legislators to enact changes in Article 21.21 to erase the inequities and give insurance agents a fighting chance in court.

The proposed changes would borrow language from DTPA in two critical areas. Exemptions that exist in DTPA, such as an exemption for professional advice, should be a part of Article 21.21. In addition, the definition of damages should be consistent in the two statutes, so that consumers and agents are treated fairly in both. Furthermore, the legislation would amend the Texas Civil Practices and Remedies code to clarify that contributory negligence rules apply to violations of Article 21.21 of the Texas Insurance Code. While many courts have applied contributory negligence rules to claims against agents under 21.21, it is time that we were guaranteed that right by statute.

None of the changes would affect a consumer’s right to sue an insurance agent or modify the amount of awards for economic damages.

IIAT is not asking legislators to make new law or reduce an insurance agent’s responsibility to the consumer. IIAT is simply arguing that Article 21.21 of the Unfair Trade Practices Act read the same as the DTPA reads. Both laws were established to afford the same protections to the public.

Bill Harrison Jr. is president of the Independent Insurance Agents of Texas, as well as president of Coleman Company Insurance Services in San Antonio, Texas. The IIAT is one of the nation’s largest state associations of independent insurance agencies. More than 1,800 agencies representing a network of some 12,000 agents and their employees are members. For more information visit the Web site at
www.iiat.org.

Topics Lawsuits Texas Agencies Legislation