Opinion Released February 23, 2017

In this weekly blog, the Law Offices of Brandy Wingate Voss, PLLC will summarize recent decisions from the Thirteenth Court of Appeals and provide links to decisions on the court’s website.

Hubbard v. Jackson National Life Insurance Co., No. 13-15-00138-CV (Memorandum Opinion by Justice Contreras; Panel Members: Justices Rodriguez and Longoria)

In this appeal from a summary judgment, the Thirteenth Court analyzed whether a plaintiff could hold an insurance company liable for representations made by an unauthorized broker.

In March 2009, John Hubbard purchased a variable annuity from Jackson National Life Insurance (“JNL”), through William Erik Byrne, who represented himself as a broker. Byrne claimed that he would make and manage the investments to ensure an annual return of at least 5%. A year later, in June 2010, Hubbard received a statement from JNL showing that his annuity had decreased, and stating that his broker was CUE Financial Group with Patrick Douglas Way as his personal representative. Soon thereafter, Hubbard learned that Byrne was not actually a licensed broker and could not guarantee the promised 5% return. Hubbard also learned that Byrne conducted multiple trades of Hubbard’s annuity by calling JNL and pretending to be Hubbard.

Hubbard sued Byrne, JNL, CUE, and Foothill Securities—Way’s new brokerage firm. Hubbard claimed that JNL was vicariously liable for fraud and violations of various insurance and securities law. Hubbard also claimed that JNL was liable for negligence and breach of contract by failing to create procedures to protect customers from unauthorized trading, causing $300,000 in “trading losses.”

JNL moved for summary judgment, claiming that Byrne was not acting with apparent or actual authority, and that Way’s actions were outside the scope of his authority. JNL attached excerpts of the depositions of Hubbard, Byrne, and Way, which collectively established that Byrne gave Hubbard’s annuity application to Way, who submitted it to JNL. Hubbard insisted that Way and Byrne were acting on JNL’s behalf. Hubbard then amended his petition to add a claim under the federal Securities Act, and JNL filed a second motion for summary judgment regarding the new claim. The trial court granted JNL’s motions for summary judgment.

Hubbard appealed, arguing that the trial court erred by holding, (1) that neither Byrne nor Way were not JNL’s agents; and (2) that JNL was not negligent.

Held: JNL could not be held directly or vicariously liable for Byrne’s representations. The trial court’s judgment was affirmed.

First, the Thirteenth Court analyzed the trial court’s finding that neither Byrne nor Way were acting as JNL’s agents. The court noted that an agent can have either actual or apparent authority. However, to establish a claim for apparent authority, the plaintiff must show that the principal had full knowledge of all material facts, and that the principal’s actions—not those of the alleged agent—would lead a reasonably prudent third party to assume that authority exists. Here, the parties agreed that CUE had actual authority to sell JNL annuities, through Way as a CUE representative, but that Byrne lacked actual authority. Moreover, JNL did nothing to give Hubbard the impression that Byrne possessed the authority to sell annuities. Both Way and Byrne testified that Byrne did not have authority, and Way admitted that JNL did not authorize him to delegate the sales. Hubbard in turn, testified that he knew Byrne was not employed by JNL and admitted that he did not rely on any representations from JNL when purchasing the annuity. Thus, neither Byrne nor Way had actual or apparent authority for which JNL could be held vicariously liable.

Next, the court turned to Hubbard’s argument that JNL was negligent for failing to implement procedures to protect against unauthorized trades. However, Hubbard testified that he relied entirely on Byrne’s representations about the annuity and its expected return. Thus, Hubbard’s second issue was also overruled.

Read the Full Opinion Here