Territorial Court, 17 December 2014: Litigation relating to the theory of apparent authority
An insured took out insurance to cover its tobacco store against theft. To reduce the amount of the premium, the general agent decided not to declare the tobacco sales business to the insurer, but rather declared a bookstore business. Therefore, the policy only listed the business of selling newspapers, and omitted the business of selling cigarettes.
A theft occurred on the premises several months later and €50,000 worth of tobacco and cigarettes were stolen. The insurer discovered the false declaration of the risk and refused to cover the claim. Therefore, the insured sued the insurer, contending that it was liable for the breach of duty of its agent, who was at the origin of this false declaration. The insurer argued that the breach of duty was personal to the agent and that it could not be liable therefor.
On first hearing, the insurer was held not liable for the breach of duty of its agent and won. The insured therefore appealed and the judges held that, on the contrary, the insurer should be held liable because it was answerable for the errors of its agent.
This judgment highlights the fact that despite the fact that the agent may act outside the instructions given to it by the insurer and against its wishes, the general agent is indeed considered to be the insurer’s agent. The insurer is therefore accountable for the misconduct of the agent in connection with the mandate conferred on it.