When can insurers be held liable for their appointed licensees' misconduct? Drew v. Pacific Life Insurance Co. Explained

The Utah Supreme Court’s decision in Drew v. Pacific Life Insurance Co. provides important guidance on when insurance companies can be held liable for the misconduct of their appointed licensees. The case involved elderly retirees who claimed they were defrauded by an insurance producer that allegedly misrepresented life insurance policies as profitable investment vehicles.

Background and Facts

LaMar and LaRene Drew purchased life insurance policies from Pacific Life Insurance Company based on representations by R. Scott National, Inc. (RSN) that they could resell the policies on the secondary market for substantial profits. The Drews also took out a reverse mortgage on their home to fund the premiums, following RSN’s advice. When the promised profits never materialized and the policies lapsed, the Drews sued both RSN and Pacific Life for various torts including fraud and negligent misrepresentation.

Key Legal Issues

The central question was whether Pacific Life could be held liable for RSN’s alleged misconduct. The district court granted summary judgment to Pacific Life, finding that RSN lacked both actual and apparent authority. The court of appeals reversed, but relied on respondeat superior principles rather than the specific authority doctrines outlined in Utah Code section 31A-23a-405(2).

Court’s Analysis and Holding

The Utah Supreme Court held that RSN was Pacific Life’s “appointed licensee” under section 31A-23a-405(2), which creates a rebuttable presumption that insurers are bound by their appointed licensees’ acts within the scope of their actual or apparent authority. The court rejected the court of appeals’ use of respondeat superior analysis, emphasizing that the statute specifically references “actual (express or implied) or apparent authority.”

While RSN lacked actual authority due to express contractual limitations prohibiting the specific misconduct, the court found RSN possessed apparent authority. Pacific Life’s act of providing RSN with policy application forms constituted a manifestation of consent to RSN’s authority to make representations about Pacific’s products. The Drews reasonably believed RSN had such authority based on these forms and RSN’s role as a soliciting agent.

Practice Implications

This decision clarifies that Utah Code section 31A-23a-405(2) governs insurer liability for appointed licensee misconduct, not common law respondeat superior doctrine. Practitioners must analyze whether the licensee acted with actual express authority, actual implied authority, or apparent authority using established agency law principles. The decision also demonstrates that policy forms and similar materials provided by insurers to licensees can constitute “indicia of agency” sufficient to establish apparent authority, even without direct communication between the insurer and the injured party.