Court of Cassation, Decision No. 12662, 23 May 2018: the courts clarify the liability of sub-agents
The Italian intermediation market features a large number of agents, who often market their products through one or more sub-agents they appoint directly. Therefore, an issue arises as to who is liable for the wrongful acts of the sub-agents, and to what extent.
An insured took out a life insurance policy with an insurance agent and made a first payment thereon. Subsequently, he decided to make an additional payment on this contract, and transferred the premium to a sub-agent of the intermediary. The sub-agent did not credit the funds to the insurance contract and kept them for himself. Several years later, when the insured cashed in his contract, he was astonished to receive only a tiny fraction of the funds invested. He then sued the insurer claiming the proceeds of the funds paid to the sub-agent. The insurer argued that no additional premium had been transferred to it and that, in any event, it should be the agent – who according to the insurer was liable for the actions of its own agent – who should be held liable in this case, not the insurer.
The court ruling on the merits denied the insurer’s arguments and held that, although the premium had not been transferred to the insurance company, the insurer was nevertheless liable for the acts committed by the sub-agent representing it. The insurer then appealed to the Court of Cassation, contending that it was not liable for the acts of the sub-agent.
The Italian Court of Cassation affirmed the decision of the Court of Appeal, holding that a premium paid to the agent or its associates is deemed to have been paid directly to the insurer and that the insurer bears sole responsibility for returning the funds to the client.
This decision marks a major change in terms of liability for the acts of sub-agents as until now only the agent had been held liable in the event of a sub-agent’s embezzlement. In this case, the court’s reasoning is based on a syllogism. The court noted that insurance companies are liable for acts committed by the intermediaries they appoint, and that those intermediaries are themselves liable for acts committed by sub-agents, and deduced thereby that insurers are ultimately liable for acts committed by sub-agents. Undoubtedly, this decision is also motivated by a desire to better protect insurance consumers, who, whether they contact an agent or sub-agent, should be able to legitimately think they are dealing with an official representative of the insurer.
In cases of fraud, the Italian courts have now established a solid case law that distinguishes two circumstances:
- The insured pays funds under a policy validly issued by the insurer but the insured’s payment is embezzled: in this case the insurer is solely liable for reimbursing the funds and may potentially proceed against its agent. This agent’s liability may be covered by its fidelity insurance if the agent has taken out such insurance (unlike professional liability insurance, fidelity insurance is not mandatory in Italy).
- The courts have a different approach if the insured pays funds to a sub-agent under a false policy that the insurer has never issued. In such case, it is the professional liability policy of the agent that appoints this sub-agent that will cover this fraud.