Group Insurance: Employer as Agent v. Independent

Posted 3 years 40 days ago ago by hesterd@ksbrlaw.com

Insurance companies providing group insurance often rely on the employer to oversee the benefits program and make sure employees are compliant with the group policy.  But if the employer messes up and causes an employee to lose coverage, who is responsible?   The employer argues, "insurance policies are complicated, and we thought the policy meant X" (when in fact the insurer meant Y).  The insurance company replies, "not our fault--you should have carefully read the policy."  The dispute is further confounded if there is a written declaration that no agency relationship exists between the insurance company and the employer.


An agent is a person (or entity) who acts for or in place of another by authority from the latter.  An agency relationship can be created even when there is no intent to do so.  Barrilleaux v. Franklin Found. Hosp., 96-0343 (La. App. 1st Cir. 11/8/96), 683 So. 2d 348, 353-54.  Whether an agency relationship exists is considered to be a question of fact, as opposed to a question of law, so the court will evaluate the particular circumstances of the case and the conduct of the parties.  Tiner v. Aetna Life Ins. Co., 291 So. 2d 774, 778 (La. 1974).


The leading case on the agency relationship between an insurer and an employer is Neider v. Continental Assur. Co., 35 So. 2d 237 (La. 1948).  Neider and later opinions in accord find that, when the employer performs multiple administrative functions for the group policy (deducting premiums from employee paychecks, assisting employees with forms, disseminating information, etc.), with the knowledge and consent of the insurer, Louisiana law considers the employer to be the agent of the insurer, and the employer’s negligent administration of the policy is attributable to the insurer.  But to thwart these consequences, some insurance companies now insert language in their policies which states the employer is not the agent for the insurer.


Compare this situation to the test for determining the employment status of an individual for purposes of workers' compensation.  The court will weigh specific factors to decide if the individual is an employee.  See Sones v. Mut. of Omaha Ins. Co., 272 So. 2d 739 (La. App. 2d Cir. 1972).  Even a written provision expressly negating an employment relationship is only one factor to be considered in determining the status of the individual; it is not of itself conclusive.  Id. at 744.  Group insurance should receive the same treatment.  The existence (or non-existence) of an agreement should be only one of several factors to consider.  The true test must be to what extent the insurer makes the employer responsible for performing all functions necessary to assure proper coverage for the employee, in which case the insurer should be held vicariously liable.  Otherwise, insurance companies can continue to thrust their responsibilities onto Louisiana employers (with little to no guidance) and suffer no consequences if the employer negligently administers the policy.

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