Valencia Territorial Court, judgment of 30 October 2018: the insurer held liable for embezzlement by an employee of its single-tied agent

In line with the legislature’s consumer protection objectives, the Spanish courts tend to hold insurance companies liable in the event of embezzlement by their agents’ employees.

Facts

A self-employed person wished to take out a policy covering him against the risks of incapacity/disability. For this purpose, he contacted a single-tied agent, forwarded to it all documents required to finalise the policy and paid the insurance premium to one of its employees. The employee embezzled the funds but provided the client with a payment receipt, leading the client to believe he was insured. However, neither the premium nor the documents necessary to underwrite the policy were forwarded to the insurer and, therefore, the policy was not issued. Several months later, due to an accident, the insured suffered a temporary work incapacity and requested payment pursuant to the covers under the terms of the policy. The insurer declined payment on the grounds that the policy had not been finalised. The fraud committed by the single-tied agent’s employee was thus discovered and the insured therefore sued the single-tied agent and the insurer.

Decision

The court found that because the insurer had not received the premium and the policy had never been issued it could not have detected the embezzlement, and it could not exercise any control over the actions of the single-tied agent’s employee.

Nevertheless, the insurer was held liable for the acts of the single-tied agent’s employee on the grounds that the insured had acted in good faith and acted correctly and taken the steps and submitted the documents necessary to take out the policy.

Moreover, the court held that, because the insurer benefits from the work of its single-tied agent, it should also be liable for the consequences if the single-tied agent harms a third party. The insurer was therefore liable for any damages the employee was ordered to pay the client.

CGPA comments

This judgment is an illustration of the principle of respondeat superior, i.e. that a company (a legal entity) or an employer (an individual) is liable for acts performed by their employees in the performance of their duties. The insurance company was thus held liable for acts committed by the agent’s employee, despite the fact that it had never received either the documents necessary to underwrite the policy or the insurance premium. However, in such circumstances, the insurer may proceed against its agent to obtain reimbursement of the sums paid, which highlights how important it is for the agent to have an insurance policy covering its professional liability.