An insurance company may be liable for the fraudulent conduct of an independent contractor whom the company has held out as being an agent.
The Defendant Palmer was an independent insurance agent for the Great West Life Assurance Company. The plaintiffs had invested money in insurance annuities through Palmer. Palmer persuaded the plaintiffs to withdraw money from their annuities and transfer the funds to a corporation he controlled. He led the plaintiffs to believe that the money was being invested in a different product at a higher return. In fact, he was using the funds to pay his personal and business expenses. Palmer was eventually convicted of fraud and jailed. The plaintiffs pursued a claim against Great West Life on the basis of agency and negligence.
Held: Palmer was acting as an agent for Great West Life when he made the transfers of the funds. Although Palmer was an independent contractor for tax and employment law purposes, it was still possible for him to be an agent on the basis of apparent authority.
The various documents which Great West Life provided to Palmer to give to his clients consistently described him as an agent. The conduct of Great West Life clothed Palmer with apparent authority to transfer funds between annuities. Great West Life was therefore vicariously liable for Palmer’s fraud.