As we discuss in this issue, an insurance agent’s ambiguous role permits it, in some states, to accept undisclosed compensation from insurers. In Tennessee, that ambiguity can also enable insureds to avoid basic contractual responsibilities.

In Allstate Insurance v. Tarant, the insured’s van was covered under a business insurance policy. On renewal, the van was transferred to a personal policy with lower limits. Allstate sent the insured a letter about the change and followed it with bills that described the coverage and charged correspondingly reduced premiums. After an accident, the insured sought the higher level of liability coverage, claiming his agent had transferred the van in error. In a declaratory judgment action, Allstate contended the insured had ratified the agent’s mistake when he paid the reduced premiums.

In March 2012, the Tennessee Supreme Court found in favor of the insured, relying on a Tennessee statute which states that “[a]n insurance producer who solicits or negotiates an application for insurance shall be regarded, in any controversy arising from the application for insurance. . . as the agent of the insurer and not the insured.” The Court found that the agent had, in fact, transferred the van in error, and that, under the statute, the agent’s mistake was imputable to the insurer. The Court held that Allstate was therefore estopped from denying coverage under the commercial policy.

The Court also rejected Allstate’s ratification argument, on the ground that one can ratify only the acts of one’s own agent, and, under the statute, the agent here had committed the error in the capacity of agent for the insurer. Because the insured’s receipt of Allstate’s letter and payment of reduced premiums did not constitute ratification, the court held that these acts did not prevent the insured from receiving coverage at the higher level.