Chi. Title Ins. Co. v. Office of Ins. Comm'r ( 2013 )

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CHICAGO TITLE INSURANCE COMPANY, an )
Authorized Insurer, )
) No. 87215-5
Respondent, )
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v. )
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WASHINGTON STATE OFFICE OF THE ) Fi1 ---fJA~-V-~.UGt~--V-0-!--18::20Hil13e-_- -
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INSURANCE COMMISSIONER, )
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Petitioner. )
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WIGGINS, J.- Washington State strictly regulates how insurance may be
provided and marketed in order to protect the consumer. Applicable statutes and
regulations prohibit an insurer or its agent from giving out inducements for the
purpose of obtaining title insurance business. Chicago Title Insurance Company
(CTIC) appointed Land Title Insurance Company as its agent for the purpose of
soliciting and effectuating CTIC's insurance policies. Land Title violated the anti-
inducement laws. We hold that CTIC is responsible for Land Title's regulatory
violations, pursuant to statutory and common-law theories of agency. When the
statute forbids the insurer or its agent from certain conduct, it means that the insurer
No. 87215-5
may not do indirectly-through its agent-what it may not do directly. We reverse the
Court of Appeals.
FACTS
I. Background- Title Insurance
Typically, insurance protects against a contingency that might occur in the
future, such as a fire or flood. Title insurance is different-it protects against past
claims against the insured real estate, such as forged signatures on transfer
documents, unpaid real estate taxes, and liens that cloud title on the property. Title
insurance is also unique in two ways significant to this case: first, in how it is
provided and, second, in how it is marketed and regulated.
Before a title company issues a title insurance policy, it must research the
state of title to the property in question, which is done using an archive called a tract
index or "title plant." 1 Admin. R. (AR) at 469, 514. The Washington Insurance Code
requires a title insurance company to own, lease, or maintain a complete set of tract
indexes in every county where it transacts business. RCW 48.29.020(2), .040(1 ). A
title company can satisfy this requirement by retaining a "duly authorized agent" with
a complete set of tract indexes in a county where it transacts business. RCW
48.29.040(1 ). An agent is "any person appointed by an insurer to solicit applications
for insurance on its behalf." Former RCW 48.17.010 (1985). 2 The insurance code
also governs the process for appointing an agent. RCW 48.17. 160.
1
This process is called "abstracting." First Am. Title Ins. Co. v. Oep't of Revenue, 144
Wash. 2d 300, 302, 27 P.3d 604 (2001).
2
This definition was in effect at the time of the administrative proceedings at issue in this
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No. 87215-5
Some title insurers utilize a type of agent called an underwritten title company
(UTC). A title insurer that wishes to market its policies in a small county might not
own a title plant there; a prospective UTC might own a title plant in that county but
be legally unable to sell insurance. 3 Therefore, the title insurer and the UTC agree to
sell their services as a bundle. The consumer buys the title insurer's policy,
supported by the UTC's abstracting work. First Am. Title Ins. Co. v. Oep't of
Revenue, 144 Wash. 2d 300, 304, 27 P.3d 604 (2001 ). A UTC may offer other services
as well. For tax purposes, "a UTC is not a mere insurance agent or broker, but rather
generates business for its own account .... "4 /d. at 305.
Title insurance is also special in that it is purchased as part of the closing of a
real estate transaction. Sometimes title insurance is mandatory in order to secure
the funds to close on the transaction. In many cases, consumers have little real
opportunity to shop around or to make an informed decision about what title
insurance policy to buy; to the consumer, title insurance is "just one more expensive
step in the dizzying, convoluted and often confusing flurry of paperwork and signings
that culminate in the closing of the home purchase." AR at 469-70. Many consumers
case. The present statute defines a "title insurance agent" as "a business entity licensed
under the laws of this state and appointed by an authorized title insurance company to sell,
solicit, or negotiate insurance on behalf of the title insurance company." RCW
48.17.01 0(16).
3
For instance, the UTC might not meet the insurance code's minimum capital stock
requirements to sell title insurance. RCW 48.29.020(3); RCW 48.05.340.
4
In First American Title Insurance Company, we specifically disclaimed any reliance on
principles of agency. 144 Wn.2d at 304 n. 1. Therefore, First American Title is not controlling
authority as to our agency analysis below and is not further discussed in this opinion.
3
No. 87215-5
ultimately buy title insurance from whomever a real estate agent, bank, or other
major party to the transaction recommends.
This model is called "reverse competition" because title companies do not
cater to their consumers' needs, but to the needs of the middlemen who can
recommend a consumer to a title insurer. AR at 470. Indeed, title companies spend
nearly all of their marketing budgets "wining and dining" middlemen in order to gain
referrals. /d. Because this model creates significant potential for abuse, both the
legislature and Office of the Insurance Commissioner (OIC) impose strict restrictions
on gifts and other inducements to middlemen. At the time of the administrative
proceedings below, former RCW 48.30.150 (1990) provided that
[n]o insurer, general agent, agent, broker, solicitor, or other person
shall, as an inducement to insurance, or in connection with any
insurance transaction, provide in any policy for, or offer, or sell, buy, or
offer or promise to buy or give, or promise, or allow to, or on behalf of,
the insured or prospective insured in any manner whatsoever:
(3) Any prizes, goods, wares, or merchandise of an aggregate
value in excess of twenty-five dollars.
Similarly, OIC enjoys broad authority to define unfair or deceptive trade practices,
RCW 48.30.01 0(2), and the commissioner has clarified through rule making that
(1) RCW 48.30.140 and 48.30.150, pertaining to "rebating" and
"illegal inducements," are applicable to title insurers and their agents.
(2) It is an unfair method of competition and an unfair or
deceptive act or practice for a title insurer or its agent, directly or
indirectly, to offer, promise, allow, give, set off, or pay anything of value
exceeding twenty-five dollars, calculated in the aggregate over a
twelve-month period on a per person basis in the manner specified in
RCW 48.30.140(4), to any person as an inducement, payment, or
reward for placing or causing title insurance business to be given to the
title insurer.
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No. 87215-5
Former WAC 284-30-800 (1990) (emphasis added). 5 The present case involves
alleged violations of former WAC 284-30-800 on the part of CTIC's duly appointed
agent, as described below.
II. Land Title's Relationship with CTIC
Land Title is one of several duly appointed agents of CTIC. Land Title is not
authorized to sell insurance in Washington; rather, it is a UTC of CTIC. According to
OIC's records, Land Title is authorized to issue title insurance for only one insurer:
CTIC. AR at 347. Aside from selling CTIC's title insurance policies, Land Title
markets escrow services, which constitute 28 percent of its total revenue. Land Title
requires all of its escrow customers to purchase title insurance as well. AR at 510
("TITLE INSURANCE . . . Must be provided in conjunction with every escrow
transaction provided by this office.").
Land Title and CTIC entered into an "Issuing Agency Agreement" (Agreement)
providing for Land Title to issue CTIC's title assurances in four Washington counties:
Kitsap, Clallam, Jefferson, and Mason. In these four counties, CTIC conducts no
direct operations.
The Agreement authorizes Land Title to "sign, countersign and issue
Principal's title assurances on forms supplied and approved by Principal and only on
real property located in the County or Counties listed above, and in such other
Counties as may be designated in writing by Principal .... " AR at 519, at 1f 3.
5
This section of the Washington Administrative Code has since been repealed and
superseded by RCW 48.29.210 and WAC 284-29-200 through 284-29-260. Wash. St. Reg.
09-05-077 (Mar. 20, 2009).
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No. 87215-5
However, Land Title is not authorized to do "any other act for principal not expressly
authorized herein." /d. Land Title must use forms supplied by CTIC and charge only
premiums approved by CTIC, but may not use CTIC's name in any advertising or
printing other than to indicate its status as CTIC's policy issuing agent.
CTIC retains the power to decide questions of risk for Land Title and is "fully
authorized and empowered in its absolute discretion, to defend, settle, compromise
or dispose of any claim for which any party to this Agreement may be liable." AR at
521, at1J10.B.
Ill. Inducement Violations and OIC Enforcement
In 2005, OIC launched an investigation into the marketing practices of several
major title insurers operating in Washington. Over the 10-month investigation, OIC
found that violations of former RCW 48.30.140 (1994) and former 48.30.150 were
"widespread and pervasive" and that the entire industry was "rife with practices gone
haywire. . . . [T]he consumer, who ultimately pays for the coverage, is the only
source of money for these illegal expenses." AR at 473-E. OIC further found that
"some of the major offenders view the law as little more than a nuisance standing
between them and their ability to have business steered to them from their
middlemen, go-betweens and associates in the real estate business." AR at 473-L.
CTIC was no exception. Over a period of 18 months, CTIC co-advertised with
middlemen (a cost of $100 to $4,300) over 150 times. CTIC bought food for
hundreds of middlemen meetings and broker opens, sponsored golf tournaments
(over $3,000), hosted receptions and hospitality suites ($13,000), and, on one
occasion, purchased 26 seats ($2,400) at a Seahawks game. These unlawful
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No. 87215-5
expenditures were not atypical, but rather CTIC's violations were "somewhere in the
middle of the pack when [CTIC]'s violation record is compared to other companies."
AR at 473-H. OIC did not act on the violations it found at that time, but published its
findings in a written report, AR at 473-A through 473-N. In November 2006, OIC
issued a technical assistance advisory to all Washington title insurers and title
insurance agents, intended to "clarify requirements [of the anti-inducement laws] for
title insurers and their agents." AR at 473AF.
In 2007, OIC began investigating Land Title. For purposes of the motion now
on review, CTIC has stipulated that Land Title violated the anti-inducement statutes
through "'wining and dining' of real estate agents, builders, and mortgage lenders
with meals, golf tournaments, advertising for one real estate agent; purchases at a
Board of Realtors auction; and professional football championship game tickets, in
amounts over the $25.00 limit allowed by [former] WAC 284-30-800." AR at 279.
In November 2007, the OIC approached CTIC with a "Consent Order Levying
Fine," which provided for CTIC to
(1) stipulate that Land Title's conduct violated the Inducement
Regulation, (2) agree to pay a fine of $114,500 based on Land Title's
alleged violations, and (3) enter into a Compliance Plan that required
specific tracking of expenditures, semi-annual internal audits and
related reporting and corrective actions and to represent that Chicago
title[sic] has "the authority to comply fully with the terms and conditions
of the [Compliance] Plan."
AR at 514. CTIC refused to sign the consent order.
IV. Administrative Proceedings
OIC brought disciplinary proceedings against CTIC. The parties agreed to
bifurcate the action into a phase I, concerning only CTIC's vicarious liability for Land
7
No. 87215-5
Title's actions, and a phase II, concerning only whether Land Title had violated the
law 6
•'
CTIC moved for summary judgment on phase I, and Administrative Law
Judge (ALJ) Cindy L. Burdue granted CTIC's motion. The ALJ held that the
Agreement created between CTIC and Land Title a "traditional agency relationship,
which specifically limited the control by the principal to those items specifically set
out in the contract." AR at 290. Therefore, CTIC had no right to control Land Title's
marketing practices.
OIC Review Judge Patricia D. Petersen reversed the ALJ's decision. The
review judge held that regardless of any private contract terms between CTIC and
Land Title, Land Title was performing within its statutory authority as an "agent"
under former RCW 48.17.01 0. Thus, whether or not the Agreement allowed Land
Title to solicit or market insurance was irrelevant. Rather, "[w]hether or not Chicago
chooses to be involved or otherwise participate in these activities which are
conducted on its behalf does not affect the relationship of Chicago as the appointing
insurer and Land Title as its appointed agent." AR at 133.
V. Judicial Proceedings
CTIC petitioned for review and the superior court affirmed the review judge's
order without opinion. Clerk's Papers at 163-64. CTIC then appealed to Division Two
6
On October 5, 2009, while the petition for judicial review was pending, OIC and CTIC
entered into a stipulation and agreement admitting that Land Title violated former WAC 284-
30-800 and settling the phase II adjudication in full. Whether Land Title committed the
alleged violations is no longer an issue in this case. For our purposes, we may assume it
did.
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No. 87215-5
of the Court of Appeals, which reversed the superior court in a published opinion,
Chi. Title Ins. Co. v. Office of Ins. Comm'r, 166 Wash. App. 844, 271 P.3d 373 (2012).
The Court of Appeals held that CTIC was not vicariously liable for Land Title's
actions, either through statute or through the common law.
First, the Court of Appeals agreed with the ALJ that the insurance code only
created the agency relationship without defining what acts were within the scope of
agency authority: "Washington's insurance code is silent regarding both the scope of
agency generally and vicarious liability specifically." Chi. Title, 166 Wn. App. at 853.
Second, the Court of Appeals held that CTIC bore no vicarious liability at common
law because it had no '"input in, or oversight of, Land Title's marketing practices or
procedures."' /d. at 855 (quoting AR at 499). Finally, the Court of Appeals rejected
OIC's argument that Land Title had apparent authority to market on CTIC's behalf,
holding that CTIC's registration of Land Title as its agent pursuant to RCW
48.17.160 did not amount to a "specific objective manifestation" that CTIC
authorized Land Title to violate the anti-inducement laws. Chi. Title, 166 Wn. App. at
857. Therefore, the Court of Appeals reversed the OIC review judge and reinstated
the ALJ's order granting summary judgment. OIC timely appealed, and this court
granted review. Chi. Title Ins. Co. v. Office of Ins. Comm'r, 174 Wash. 2d 1012, 281
P.3d 687 (2012).
ANALYSIS
Land Title's unlawful inducements constituted solicitation, for which CTIC is
responsible as Land Title's principal. Whatever CTIC and Land Title believed about
their agency relationship, the statute makes the authority to solicit an inherent part of
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No. 87215-5
Land Title's agency. But even without the statute, CTIC would be vicariously liable at
common law. When CTIC gave Land Title the authority to sell its insurance, CTIC
also gave Land Title implied authority to perform other acts necessary to the sale of
insurance and to act in accordance with industry norms. Solicitation was necessary
to effectuate Land Title's authority to sell CTIC insurance under the Agreement, and
violating the anti-inducement provisions was customary in the title insurance
industry. Having found statutory and implied authority, we need not reach the
alternative test of whether CTIC had the right to control Land Title's marketing
practices.
I. Standard of Review
Judicial review of the commissioner's final order is governed by RCW
34.05.570(3). That statute enumerates nine circumstances under which the court
may grant relief from an agency order in an adjudicative proceeding. CTIC alleges
that the OIC review judge's order was outside the "statutory authority or jurisdiction
of the agency," RCW 34.05.570(3)(b); that OIC "erroneously interpreted or applied
the law," RCW 34.05.570(3)(d); and that the order was arbitrary or capricious, RCW
34.05.570(3)(i). In reviewing an agency order, this court sits in the same position as
the superior court and applies the standards of the Administrative Procedure Act
(APA), chapter 34.05 RCW, to the agency record. City of Redmond v. Cent. Puget
Sound Growth Mgmt. Hearings Bd., 136 Wash. 2d 38, 45, 959 P.2d 1091 (1998). This
court reviews an agency's interpretation or application of the law de novo. Legal
determinations are reviewed using the "'error of law"' standard, which allows the
court to substitute its view of the law for that of the OIC. Verizon Nw., Inc. v. Emp't
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No. 87215-5
Sec. Oep't, 164 Wash. 2d 909, 915, 194 P.3d 255 (2008) (quoting former RCW
34.05.570(3)(d) (2004)). This court "accord[s] deference to an agency interpretation
of the law where the agency has specialized expertise in dealing with such issues,
but ... [is] not bound by an agency's interpretation of a statute." Cent. Puget Sound
Growth Mgmt. Hearings Bd., 136 Wn.2d at 46. The agency's interpretation of pure
questions of law is not accorded deference. Hunter v. Univ. of Wash., 101 Wash. App.
283, 292, 2 P.3d 1022 (2000).
II. Arguments of the Parties
OIC argues that the insurance code and its own regulations displace the
common law and establish the scope of CTIC's vicarious liability. Under OIC's
theory, the statute places solicitation within the scope of an appointed agent's
authority, meaning that the principal is necessarily liable for its appointed agent's
solicitation activities. Furthermore, the "directly or indirectly" language of former
WAC 284-30-800(2) makes CTIC liable for Land Title's unlawful inducements
notwithstanding common law agency.
But even if common law agency applies, OIC asserts, CTIC had the right to
control Land Title's actions because it retained the right to inspect Land Title's
records and would have discovered the illegal inducements had it done so.
Furthermore, CTIC clothed Land Title with apparent authority to solicit insurance and
thus to carry out an unlawful inducement scheme.
In response, CTIC asserts that Land Title's marketing activities were both
outside the scope of the agency relationship and outside of CTIC's control. CTIC
contends that the statute merely establishes that Land Title is an agent, but the
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No. 87215-5
statute has no bearing on the scope of Land Title's agency. Rather, in CTIC's view,
the right to control is dispositive. Because CTIC played no part and had no control
over Land Title's marketing practices, CTIC should not be held liable for Land Title's
unlawful inducements.
Ill. The Insurance Code and Regulations
Whatever the principal and agent believe, by definition, an insurance agent in
Washington has authority to solicit. The insurance code comprehensively governs
the relationship between agent and insurer, specifically enumerating the duties and
powers an agent possesses. Day v. St. Paul Fire & Marine Ins. Co., 111 Wash. 49,
52, 189 P. 95 (1920). Solicitation is one such power: former RCW 48.17.010. 7
defines an agent as "any person appointed by an insurer to solicit applications for
insurance on its behalf." Under the plain language of the statute, a duly appointed
agent is necessarily authorized to solicit insurance for its appointing insurer-
whatever other activities the agent may conduct on the side.
CTIC concedes that Land Title is an agent but characterizes it as a "limited
agent" with no authority to market for CTIC. Suppl. Br. of Resp't at 1. But the
authority to solicit necessarily includes the authority to market. The meaning of
solicitation "includes inviting, requesting, urging, or advising a person to subscribe to
insurance, endeavoring to obtain such a subscription, or approaching a person for
the purpose of receiving an application for insurance coverage." Nat'/ Fed'n of
7
The statute governing the proceedings at issue here has since been amended to define a
"title insurance agent" as an entity appointed by a title insurance company "to sell, solicit, or
negotiate insurance on behalf of the title insurance company." RCW 48.17.01 0(16).
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No. 87215-5
Retired Persons v. Ins. Comm'r, 120 Wash. 2d 101, 110-11, 838 P.2d 680 (1992)
(NFRP) (citing Paulson v. W Life Ins. Co., 292 Or. 38, 62, 636 P.2d 935 (1981 )). We
define "solicitation" broadly, and we do not require that the person approached be an
end consumer, nor that the solicitor seek applications for its own insurance. When
Land Title approaches a middleman for the purpose of receiving an application (from
that middleman's customers) for a CTIC insurance policy, Land Title is soliciting for
CTIC. In other words, Land Title is doing what CTIC appointed it to do pursuant to
statute. When Land Title solicits in an unlawful way, CTIC is responsible.
CTIC argues that the Agreement controls over the statute and withdraws Land
Title's authority to engage in solicitation. See AR at 519, at 1f 3 ("Issuing Agent shall
not be deemed or construed to be authorized to do any other act for principal not
expressly authorized herein."); AR at 520, 1f 6(G) ("Issuing Agent shall not, without
prior written consent of Principal ... Use the name of the Principal in any advertising
or printing other than to indicate the Issuing Agent is a policy issuing agent of the
Principal."). This argument overlooks the fact that solicitation is inherently part of
Land Title's authority to sell title insurance. In any event, CTIC's argument founders
on our decision in Pagni, where we held that
an insurance company is bound by all acts, contracts, or
representations of its agent, whether general or special, which are
within the scope of his real or apparent authority, notwithstanding they
are in violation of private instructions or limitations upon his authority, of
which the person dealing with him, acting in good faith, has neither
actual nor constructive knowledge.
Pagni v. N.Y. Life Ins. Co., 173 Wash. 322, 349-50, 23 P.2d 6 (1933) (emphasis
added) (quoting 32 C.J. § 140, at 1063). That is to say, where an agent acts within
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No. 87215-5
its authority, the principal cannot excuse itself from vicarious liability through an
undisclosed private arrangement that purports to restrict that authority. Here, the
statute provides the authority, and the Agreement was an undisclosed private
contract between CTIC and Land Title.
The Pagni rule is further supported by the Ninth Circuit Court of Appeal's
interpretation of a comparable Oregon statute. In NFRP, we looked to the Oregon
Supreme Court's interpretation of the term "solicit" in Oregon Revised Statutes
744.165 to aid us in interpreting the same term in our own insurance code. In turn,
federal courts have interpreted the same Oregon statute to indicate a legislative
intent to "make acts or statements of one who solicits or procures an application of
insurance from the insured, binding on the company whose coverage is being sold,
regardless of 'waivers' to the contrary by either the insurer or the intermediary." Lien
Ho Hsing Steel Enter. Co. v. Weihtag, 738 F.2d 1455, 1459 (9th Cir. 1984 ).
Here, too, the purpose of the statute would be defeated if an insurer could
gain the benefits of appointing an agent (here, the ability to sell insurance in a locale
where it lacks a title plant) while waiving any attendant liability through contract. As
we recognized in Day, the insurance code creates a statutory standard of agency
that agents and their principals cannot opt out of at their own discretion.
IV. Common Law: Inherent or Implied Agency Power
Independent of the statute, Land Title had the authority to solicit insurance for
CTIC and to bind CTIC by its unlawful solicitations. This court has recognized that a
principal's grant of authority may come with implied authority to perform other acts
that are necessary steps to achieving the principal's objective or that are customary
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No. 87215-5
for agents performing the work. In Debentures, Inc. v. Zech, 192 Wash. 339, 348, 73
P.2d 1314 (1937), an agent was left in possession of a building and authorized to
collect rents and manage, operate, and maintain the building. We held that this grant
of authority also gave the agent "implied authority as a necessary incident to the
exercise of his powers, to order and to direct that reasonable expenditures be made
for the purpose of redecoration." /d. We have also held that an agent who is
empowered to sell is presumptively empowered to make a warranty as "necessary
to consummate the contract ... " so long as "it is usual in the market to give a
warranty .... " Johns v. Jaycox, 67 Wash. 403, 406, 121 P. 854 (1912). We have
held that a real estate agent "employed for the sole purpose of procuring a purchase
for real property ... " nevertheless had the authority to exhibit the property and make
representations about its area and boundary lines, because negotiation would be
impossible otherwise. Yarnall v. Knickerbocker Co., 120 Wash. 205, 209-10, 205 P.
936 (1922); see also Walker v. Pac. Mobile Homes, Inc., 68 Wash. 2d 347, 351, 413
P.2d 3 (1966) ("Authority to perform particular services for a principal carries with it
the implied authority to perform the usual and necessary acts essential to carry out
the authorized services."); Hoglund v. Meeks, 139 Wash. App. 854, 866, 170 P.3d 37(2007) ("Nonetheless, actual authority to perform certain services on a principal's
behalf results in implied authority to perform the usual and necessary acts
associated with the authorized services."); Cameron v. Downs, 32 Wash. App. 875,
881, 650 P.2d 260 (1982) ("To be within the scope of one's agency, conduct must be
of the same general nature as that authorized, or incidental to the conduct
authorized.").
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No. 87215-5
The idea that an agent's authority expands to cover necessary or customary
acts is not novel but is well supported by the Third Restatements of Agency
(Second) and (Third). The Second Restatement defines "[i]nherent agency power,"
which arises not from the principal's authorization to perform the acts at issue, nor
from apparent authority or estoppel, "but solely from the agency relation and exists
for the protection of persons harmed by or dealing with a servant or other agent."
RESTATEMENT (SECOND) OF AGENCY § 8A (1958). 8 The theory of inherent agency
power recognizes that agents may be overzealous or careless in doing the work
assigned by the principal and may harm third parties as a result. In that case, "[it]
would be unfair for an enterprise to have the benefit of the work of its agents without
making it responsible to some extent for their excesses and failures to act carefully."
/d. cmt. a. Therefore, the Second Restatement makes the principal liable on a
transaction where "a general agent does something similar to what he is authorized
to do, but in violation of orders." /d. cmt. b. As the Second Restatement goes on to
explain,
[a] general agent for a disclosed or partially disclosed principal subjects
his principal to liability for acts done on his account which usually
accompany or are incidental to transactions which the agent is
authorized to conduct if, although they are forbidden by the principal,
the other party reasonably believes that the agent is authorized to do
them and has no notice that he is not so authorized.
8
This section has been superseded by Restatement (Third) of Agency § 2.02 (2006),
discussed infra.
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No. 87215-5
RESTATEMENT (SECOND) OF AGENCY§ 161. 9 This rule is especially pertinent where
an agent comprises an "essential part[] of [the principal's] business enterprise." !d. at
cmt. a. We applied this principle in Miller v. United Pacific Casualty Insurance Co.,
187 Wash. 629, 636, 60 P.2d 714 (1936), where we held that if an insurer could do
business only through an authorized agent, that agent acted as the insurer's "alter
ego" and could bind the insurer through its acts.
Likewise, the Third Restatement includes acts "necessary or incidental to
achieving the principal's objectives" within the actual authority of an agent.
RESTATEMENT (THIRD) OF AGENCY§ 2.02(1) (2006). The Third Restatement approach
considers that an agent may reasonably assume "that the principal wishes, as an
incidental matter, that the agent take the steps necessary and that the agent
proceed in the usual and ordinary way, if such has been established, unless the
principal directs otherwise." /d. cmt. d at 9. Even if the principal purports to forbid
certain acts on the part of an agent, the agent may reasonably believe itself to be
authorized if the principal "affirmatively approve[s] of the agent's unauthorized act or
silently acquiesce[s] in it by failing to voice affirmative disapproval." !d. cmt. fat 100.
Similarly, Mechem states that "every delegation of authority whether 'general'
or 'special,' carries with it, unless the contrary be expressed, implied authority to do
all of those acts, naturally and ordinarily done in such cases, which are reasonably
necessary and proper to be done in this case in order to carry into effect the main
authority conferred." 1 FLOYD R. MECHEM, A TREATISE ON THE LAW OF AGENCY§ 715
9
See id.
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No. 87215-5
(2d ed. 1914). Like the Third Restatement, Mechem points out that the principal
presumably means for the agent to perform those acts reasonably necessary to
carry out those acts the principal expressly authorizes and also for the agent to do
business in the "usual and ordinary way." !d. Therefore, even if the statute did not
control, Land Title was implicitly authorized to solicit applications for insurance as a
necessary act in executing its authority to issue and effectuate insurance for CTIC.
CTIC carried out no direct operations in those counties where Land Title was
employed to sell its insurance. If CTIC was not advertising in those areas, and Land
Title could not advertise for title insurance, then no one would purchase CTIC
insurance from Land Title. This cannot be the result that CTIC intended when it
appointed Land Title as its agent. Just as we found a selling agent had the implied
authority to exhibit the property in Yarnall, 120 Wash. at 209-10, we hold that Land
Title, as an issuing agent, must have the authority to solicit applications for
insurance. If it had no authority to attract consumers in the first instance, then its
authority to issue and effectuate insurance contracts would be meaningless.
Land Title is authorized to solicit for CTIC under both statute and common
law. Following the Restatement (Second) of Agency § 161 test, we now turn to
whether Land Title was a general agent and whether unlawful inducements were
necessary or customary in executing the authority to solicit.
A. Land Title was a general agent of CTIC
A "general agent" is "'an agent authorized to conduct a series of transactions
involving a continuity of service.'" Costco Wholesale Corp. v. World Wide Licensing
Corp., 78 Wash. App. 637, 646, 898 P.2d 347 (1995) (quoting RESTATEMENT (SECOND)
18
No. 87215-5
OF AGENCY§ 3(1 )). A "general agent" is to be distinguished from a "special agent," or
'"an agent authorized to conduct a single transaction or a series of transactions not
involving continuity of service."' /d. (quoting RESTATEMENT (SECOND) OF AGENCY §
3(2)). Some factors that aid in determining an agent's status include "the number of
acts performed, number of persons with whom the agent must deal, and the length
of service." /d. (citing RESTATEMENT (SECOND) OF AGENCY§ 3 cmt. a).
These factors weigh heavily toward Land Title being CTIC's general agent.
Land Title and CTIC were involved in a long-standing relationship; the Agreement
had been in force since 1992. Moreover, their relationship was exclusive. Land Title
could only issue CTIC's title insurance; it is not licensed to issue insurance on its
own. Land Title was appointed only by CTIC and no other insurer, and the
Agreement further barred Land Title from issuing assurances by any insurer other
than CTIC. On CTIC's end, the insurer conducted no operations in those counties
where Land Title sold CTIC insurance policies.
Finally, Land Title created business for CTIC every time it did business with
anyone. Aside from title insurance, Land Title's only other offering was escrow
services, which constituted only 28 percent of Land Title's revenue. Even Land
Title's escrow services were sold only in conjunction with title insurance. Thus, every
one of Land Title's customers ultimately walked away with a CTIC title insurance
policy, whether they bought the insurance directly or were required to purchase it in
conjunction with an escrow transaction.
Land Title's agency relationship with CTIC was not a discrete, arm's length
contract assignment but involved continuous service. Land Title did no business that
19
No. 87215-5
did not result in a sale for CTIC, and within Kitsap, Clallam, Jefferson, and Mason
Counties, CTIC did no business other than through Land Title. As far as these four
counties were concerned, Land Title was an integrated part of CTIC's operations.
Land Title was a general agent of CTIC, and thus under the doctrine of implied
authority, could bind CTIC through acts necessary to or customary with those
transactions that CTIC authorized.
B. Unlawful inducements were customary in Land Title's industry
In keeping with the common law, we presume that when a principal gives its
agent authority to perform a certain act, the principal also grants implied authority to
carry out that act in the usual and customary way. See Johns, 67 Wash. at 406.
Here, unlawful inducements were the norm in the title insurance industry, CTIC was
aware of the pervasiveness of unlawful inducements in the industry, and CTIC took
no affirmative steps to stop Land Title from engaging in unlawful inducements. CTIC
should have foreseen Land Title's unlawful inducements, and CTIC is vicariously
liable for those acts.
In the Washington title insurance industry, vendors of title insurance frequently
used unlawful inducements as part of their marketing. Indeed, OIC brought the
present enforcement action precisely because unlawful inducements were
"widespread and pervasive [and] occur[ring] throughout this industry .... " AR at
473-E. CTIC does not challenge OIC's finding that "[the title insurance] industry is
rife with practices gone haywire." /d. In fact, CTIC itself was directly implicated in
numerous transgressions of the anti-inducement laws.
20
No. 87215-5
CTIC appointed Land Title as an agent to solicit applications for its title
insurance. Because Land Title sold a CTIC insurance policy with every transaction it
engaged in, it solicited for CTIC's title insurance whenever it did any marketing.
CTIC cannot have failed to realize that inducements to middlemen were typical in
the industry, having engaged in unlawful inducements itself. Yet CTIC did not
attempt to dissuade Land Title from engaging in the usual practice of unlawful
inducements, outside of boilerplate language in the Agreement. There is no
evidence that CTIC exercised its right to investigate Land Title's records or reminded
Land Title of its obligation to obey the anti-inducement laws. CTIC cannot now
evade liability by willfully blinding itself to Land Title's unlawful marketing practices.
CTIC argues that it would be absurd to apply per se vicarious liability every
time a statute used the label "agent." As CTIC points out, the term "agent" appears
thousands of times in Washington statutes; for example, RCW 23B.05.01 0 requires
a corporation to register an "agent" for accepting service of process. But we do not
suggest that all acts of a process agent should be binding on the corporation. There
must be some nexus between the act at issue and the prescribed duties of the
agent. As we have explained above, there is clearly such a nexus between soliciting
applications for insurance and inducing middlemen to direct end-consumers to an
insurer. As we held in NFRP, '"solicits' includes inviting, requesting, urging, or
advising a person to subscribe to insurance, endeavoring to obtain such a
subscription, or approaching a person for the purpose of receiving an application for
insurance coverage." 120 Wn.2d at 110-11 (citing Paulson, 292 Or. at 62). This
definition requires neither that the soliciting party approach the end-consumer, nor
21
No. 87215-5
that the insurance application be for the party's own insurance. It clearly
encompasses a situation where a UTC approaches a middleman for the purpose of
receiving an application (from that middleman's consumers) for insurance coverage
(provided by the UTC's parent insurer).
V. Right To Control
CTIC argues that we should apply the right-to-control test: the principal is
accountable for the agent's actions only if the principal had the right to control the
details of the agent's performance. Lamer v. Torgerson, 93 Wash. 2d 801, 804-05, 613
P.2d 780 (1980). Right of control is not the only test for vicarious liability. We have
generally considered right of control in tort cases, where the agent's negligence is at
issue. See Kamla v. Space Needle Corp., 147 Wash. 2d 114, 119, 52 P.3d 472 (2002);
Lamer, 93 Wn.2d at 804; see also 16 DAVID K. DEWOLF & KELLER W. ALLEN,
WASHINGTON PRACTICE: TORT LAW AND PRACTICE § 3.12 (2012). The right-to-control
test makes sense in the tort context because it is based in the assumption that the
agent's act "would be non-tortious if done carefully .... " RESTATEMENT (SECOND) OF
AGENCY § 250 cmt. b. Here, Land Title's actions were unlawful, not negligent. Land
Title did not wine and dine the real estate middlemen by accident. Rather, whether
out of overzealousness or ignorance of the law, Land Title engaged in intentional
conduct that violated the law.
Because the right-of-control test is not a proper fit for every principal-agent
situation, the common law treats it as an alternative test that coexists with implied
authority. See RESTATEMENT (SECOND) OF AGENCY § 8A cmt. b. (master-servant
theory is one of two ways to determine inherent agency power); RESTATEMENT
22
No. 87215-5
(THIRD) OF AGENCY ch. 2 INTRODUCTORY NOTE at 79 (actual authority, apparent
authority, and respondeat superior are the "three distinct bases for attribution"). We
have already determined that Land Title's unlawful inducements were within the
purview of its agency by way of statutory and implied common-law authority. That is
enough to establish vicarious liability without any need to engage in a respondeat
superior analysis or to determine whether CTIC had the right to control Land Title's
actions.
VI. OIC Did Not Engage in De Facto Rule Making in Violation of the APA and the
Washington Constitution
Finally, CTIC argues that the OIC attempted to circumvent the APP\s directive
that rules be adopted only after notice and the opportunity for comment. An agency
may not circumvent the APA by announcing new rules through adjudication. Budget
Rent A Car Corp. v. Dep't of Licensing, 100 Wash. App. 381, 387-88, 997 P.2d 420(2000). The OIC responds that the commissioner was simply enforcing a properly
promulgated rule pursuant to constitutionally delegated authority. The legislature
may delegate rulemaking authority if
(1) the legislature has set forth guidelines defining in general terms
what is to be done and what administrative body or officer is to do it,
and (2) adequate procedural safeguards exist to control arbitrary
administrative action and the abuse of discretionary power ....
Barry & Barry, Inc. v. Dep't of Motor Vehicles, 81 Wash. 2d 155, 164, 500 P.2d 540(1972). The legislature delegated broad authority to the commissioner to promulgate
rules defining unfair or deceptive trade practices. RCW 48.30.01 0(2). The rule in the
instant case, former WAC 284-30-800, was properly adopted following the statutory
23
No. 87215-5
notice and comment procedures set forth in RCW 48.30.010 and RCW 34.05.310-
.395.
We agree with the OIC. The rule was properly promulgated in accordance
with the APA. The current enforcement action against CTIC was simply the
commissioner's interpretation and application of the rule. The commissioner did not
engage in de facto rule making in violation of the APA and the Washington
Constitution.
CONCLUSION
Former WAC 284-30-800 means what it says: an insurer may not make
inducements exceeding $25.00, "directly or indirectly," through its own channels or
through an appointed agent that carries sole responsibility for soliciting and
effectuating the parent insurer's policies in a locality. We reverse the Court of
Appeals and remand for proceedings consistent with this opinion.
24
No. 87215-5
WE CONCUR.
25
Chicago Title Ins. Co. v. Wash. State Office of Insurance Commissioner, No. 87215-5
Dissent by J.M. Johnson, J.
No. 87215-5
J.M. JOHNSON, J. (dissenting)-In Washington State, the freedom of
contract is one of our most highly prized liberties. Indeed, impairment of
contracts is constitutionally prohibited in article I, section 23 of the
Washington Constitution. The simple knowledge that legal contracts will be
enforced by the rule of law in courts encourages entrepreneurs to innovate,
increasing the quality of life for our citizens. The actions of the Office of
the Insurance Commissioner (OIC) and today's majority opinion undermine
this bedrock principle. Because the majority fails to respect a business
relationship that properly limits vicarious liability, I respectfully dissent.
In this case, two distinct business entities recognized a need for title
insurance in rural Washington communities, a need which is in part
generated by burdensome insurance regulation. Each entity could supply
one of the two necessary components to remedy this title insurance shortage:
Land Title Insurance Company has tract indexes to perform the title searches
1
No. 87215-5
while Chicago Title Insurance Company (CTIC) has the requisite capital to
underwrite the small risk that a title search has been performed incorrectly. 1
CTIC and Land Title entered into a contract that limited the agency
relationship and allocated the risk of regulatory noncompliance solely to
Land Title.
Business relationships such as the one at issue here thrive on the
freedom of contract and often result in lowered costs and increased services
for our state's citizens. As long as the business relationship properly limits
the scope of agency and leaves open avenues for punishing noncompliance,
the ore should be forced to directly pursue the entity violating the anti-
inducement laws.
I would hold that the Washington Insurance Code's provisions for the
appointment of agents do not, without more, allow for the imposition of
vicarious liability for regulatory violations. Instead, agencies and courts
1
Under the Washington Insurance Code, a title insurer that does not have a title plant in a
given county must rely on a title agent that owns or leases a title plant in order to transact
business in that county. Administrative Record (AR) at 469 (Decl. Tompkins ~ 4). A
title insurer must also maintain a minimum amount of capital stock and surplus. RCW
48.29.020(3); RCW 48.05.340. For these reasons, large title companies often underwrite
policies issued by small title companies in rural areas. The underwritten companies are
referred to as "independent agents" or "underwritten title companies" (UTCs). The
insurance code requires title companies in such arrangements to appoint UTCs as their
agents, file the appointment with the commissioner, and notify the commissioner if the
appointment is ever revoked. RCW 48.17.160.
2
No. 87215-5
must turn to common law agency principles to determine whether vicarious
liability is appropriate. Where, as here, an entity does not have a right to
control the aspect of the other entity's business under which the regulatory
violation occurred, the commissioner may not impose vicarious liability. I
would remand to the ore with instructions to enter an appropriate final
order. 2
ANALYSIS
The Washington Insurance Code is silent as to the general scope of
agency and, in particular, vicarious liability. Thus, common law principles
of agency are necessary to determine whether vicarious liability is
appropriate. Pursuant to the entities' agreement, CTIC has no right to
control the marketing practices of its appointed agent, Land Title. For this
reason, CTIC cannot be held vicariously liable for Land Title's violations of
the illegal inducement regulation.
The use of the term "agent," without more, cannot create per se
liability. Kroshus v. Koury, 30 Wash. App. 258, 263, 633 P.2d 909 (1981)
2
The relief granted by the Court of Appeals was improper because it was not available
under the Administrative Procedure Act, chapter 34.05 RCW. See Chi. Title Ins. Co. v.
Wash. State Office of Ins. Comm'r, 166 Wash. App. 844, 858, 271 P.3d 373 (2012); see also
RCW 34.05.570, .574(1), .464(7). Accordingly, instead of affirming the Court of
Appeals, I would remand to the OIC with instructions to enter an appropriate final order.
Although the procedural routes are different, the result is substantively similar to
affirming the Court of Appeals.
3
No. 87215-5
(concluding that the label "employee" or "agent" does not create per se
vicarious liability). Furthermore, Land Title does not have implied authority
to market on CTIC's behalf. While former RCW 48.17.010 (1985) defines
an agent as "any person appointed by an insurer to solicit applications for
insurance on its behalf," our precedent recognizes the unique relationship
between an underwritten title company (UTC) and an insurer. In First
American Title Insurance Co. v. State, Dep 't of Revenue, 144 Wash. 2d 300,
304,27 P.3d 604 (2001), 3 we noted that the activities of title insurers and
UTCs are separate business services. We recognized that "'[The UTC]
generates business for its own account. It places the relatively small
msurance component with an insurer qualified, by reason of compliance
with financial requirements, to underwrite the slight risk that [the UTC] has
not properly done its work."' I d. (alterations in original) (quoting Fid. Title
Co. v. Dep't of Revenue, 49 Wash. App. 662, 669-70, 745 P.2d 530 (1987)).
We further noted that "a UTC is not a mere insurance agent or broker, but
rather generates business for its own account." Id. at 305. Although UTCs
3
Footnote 1 of First American Title indicates that sometimes the statutory scheme will
fully dispose of the agency issue, eliminating the need for a common law analysis.
However, where, as here, the statutory scheme does not define the scope of agency and,
in particular, provide for vicarious liability, a common law analysis is necessary. 144
Wn.2d at 304 n. 1.
4
No. 87215-5
are required to be registered as an appointed agent of the underwriting
company, our precedent firmly establishes the separateness of the two
entities. Where, as here, marketing is done by the UTC on its own behalf,
former RCW 48.17.010 does not establish implied authority.
"Agent" has been defined in the insurance code for the past 100
years, 4 and courts have continued to apply common law agency principles to
determine the appropriateness of vicarious liability. In Miller v. United
Pacific Casualty Insurance Co., 187 Wash. 629, 60 P.2d 714 (1936), we
established the existence of the agency relationship through the insurance
code and then went on to analyze common law agency principles to
determine whether the agent's acts could bind the insurer. Id. at 636. In
determining the appropriateness of vicarious liability, a court may look to
the statutory agency relationship. However, particularly if the statute is
silent as to the scope of agency, an analysis of common law principles is
necessary.
American Fidelity & Casualty Co. v. Backstrom, 47 Wash. 2d 77, 287
P.2d 124 (1955), followed Miller's lead. Both cases quoted from 2 Floyd R.
Mechem, A Treatise on the Law of Agency (2d ed. 1914) in using the
4
See Day v. St. Paul Fire & Marine Ins. Co., 111 Wash. 49, 51-52, 189 P. 95 (1920).
5
No. 87215-5
common law of agency to determine whether the agent's actions fell within
the scope of agency. Am. Fid., 47 Wn.2d at 82; Miller, 187 Wash. at 639.
American Fidelity also quoted from the first Restatement of Agency. Am.
Fid., 47 Wn.2d at 83. In this way, both American Fidelity and Miller relied
on common law agency principles, not solely the statutory definition of
"agent" to determine the scope of the agency relationship.
Right To Control
Under common law principles, an agent's actual authority can be
implied or express. King v. Rive/and, 125 Wash. 2d 500, 507, 886 P.2d 160(1994). The main consideration for actual authority is the right to control.
Hollingbery v. Dunn, 68 Wash. 2d 75, 80, 411 P.2d 431 (1966). Whenever
superior and subordinate business parties enter into a relationship, the
relationship is either one of master and servant or one of independent
contractor. Larner v. Torgerson, 93 Wash. 2d 801, 804, 613 P .2d 780 (1980).
"An independent contractor . . . may be generally defined as one who
contractually undertakes to perform services for another, but who is not
controlled by the other nor subject to the other's right to control with respect
to his physical conduct in performing the services." Hollingbery, 68 Wn.2d
at 79-80. "When a superior business party has retained no right of control
and there is no reason to infer a right of control over a subordinate business
6
No. 87215-5
party, then he cannot be held liable for the negligent acts of the subordinate
party." Larner, 93 Wn.2d at 804-05.
This common law right to control analysis allows contracting entities
to choose the structure, with the attendant liability, which best suits their
needs. The decision regarding which party should retain the risk of liability
or regulatory noncompliance is often complex. It can include factors such as
which party is in a better position to obtain insurance, and the party retaining
the risk of liability is generally compensated through higher remuneration or
better terms. The right to control principle is critical to the freedom of
contract. Business liability is not "one size fits all," governed exclusively by
statute and subject to second guessing by courts.
Here, Land Title and CTIC contractually entered an independent
contractor relationship, allowing Land Title to retain its own risk of
regulatory noncompliance. Governed by their agreement, Land Title accepts
and processes applications for title insurance and issues policies
underwritten by CTIC. The agreement provides that Land Title "shall not be
deemed or construed to be authorized to do any other act for principal not
expressly authorized herein." Administrative Record (AR) at 519. The
agreement prohibits Land Title from using CTIC's name in its advertising,
other than to indicate its authority to issue policies underwritten by CTIC.
7
No. 87215-5
AR at 520. CTIC does not have input in or oversight of Land Title's
marketing practices. AR at 499 (Decl. Kennedy ~ 9). CTIC simply
underwrites the risk for title policies issued by Land Title in exchange for 12
percent of the policy premium. AR at 517 (Decl. Randolph ~ 8). We should
respect the entities' independent contractor relationship, recognizing that
CTIC does not have the right to control Land Title's marketing practices.
Because there is no statutorily defined agency relationship, or actually
authority (express or implied), it is improper to impute Land Title's
noncompliance with the anti-inducement laws to CTIC.
The majority asserts that "the purpose of the statute would be defeated
if an insurer could gain the benefits of appointing an agent (here, the ability
to sell insurance in a locale where it lacks a title plant) while 'waiving' any
attendant liability through contract." Majority at 14. However, there is
nothing resembling waiver here. Instead, Land Title and CTIC have chosen
a specific allocation of risk between them, with Land Title maintaining full
liability for its own regulatory noncompliance. In fact, the two companies
8
No. 87215-5
have allocated the risk of regulatory noncompliance in the most efficient
way possible. In this situation, Land Title is the cheapest cost avoider. 5
Here, Land Title's management is in the best position to monitor the
company's marketing practices for compliance with the anti-inducement
laws. Oversight by CTIC would most certainly result in unnecessary
administrative costs. Therefore, the most efficient allocation of risk for
noncompliance is to avoid vicarious liability and hold Land Title responsible
for its own violations. This is the best way to incentivize compliance with
the least transaction costs.
While minimizing the cost of oversight, the agreement simultaneously
aligns Land Title's incentives to comply with the law. 6 All of this is
achieved without impermissibly "waiving" liability. Instead of imputing
5
The terms "cheapest cost avoider" and "least cost avoider" are interchangeable. It is a
concept first developed by law and economics scholars such as Ronald Coase and Guido
Calabresi. "A pure market approach to primary accident cost avoidance would require
allocation of accident costs to those acts or activities (or combinations of them) which
could avoid the accident costs most cheaply." GUIDO CALABRESI, THE COSTS OF
ACCIDENTS: A LEGAL AND ECONOMIC ANALYSIS 135 (1970). For example, if we assume
that pedestrians are in a better position to avoid car accidents than drivers (by not darting
into the street without looking), we should assign liability for accidents to pedestrians.
Having to bear the risk of an accident incentivizes looking both ways before crossing the
street. Although generally used in the tort context, this principle is also applicable to
regulatory compliance.
6
The majority notes, "There is no evidence that CTIC exercised its right to investigate
Land Title's records or reminded Land Title of its obligation to obey the anti-inducement
laws." Majority at 20-21. This type of inefficient oversight is precisely what the entities
sought to avoid by allocating the risk of noncompliance solely to Land Title.
9
No. 87215-5
liability to CTIC, Land Title is responsible for its own noncompliance. If
OIC wishes to fine an entity for Land Title's noncompliance, it is free to do
so. It must simply go after Land Title directly.
I see no wisdom in this court second-guessing efficient and effective
business relationships that leave open avenues for punishing regulatory or
statutory noncompliance. This court's decision will likely result in the
reduced availability of title insurance in rural Washington counties.
Shortages of reasonably priced title insurance will most certainly hurt
consumers more than offering a free game of golf to their real estate agents.
It is difficult to understand that this statewide elected insurance
commissioner holds nothing more important to Washington insured citizens
than the de minimis golf games or baseball tickets underlying this case-
with the expenditure of thousands of dollars in attorney fees, most funded by
taxpayers.
Because their contractual relationship bars CTIC from having any
control over Land Title's marketing practices, it is improper to impute Land
Title's liability for regulatory noncompliance to CTIC. I, therefore, dissent.
10
No. 87215-5
11