Court Opinion

ID: 4714931
Source: CourtListenerOpinion
Date Created: 2021-08-12 00:42:47.458229+00
Date Added: 2024-06-11T08:07:24.930889
License: Public Domain

J.M. Johnson, J.
¶48 (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.
*146¶49 In this case, two distinct business entities recognized a need for title insurance in rural Washington communities, a need that 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, while Chicago Title Insurance Company (CTIC) has the requisite capital to underwrite the small risk that a title search has been performed incorrectly.10 CTIC and Land Title entered into a contract that limited the agency relationship and allocated the risk of regulatory noncompliance solely to Land Title.
¶50 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 OIC should be forced to directly pursue the entity violating the anti-inducement laws.
¶51 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 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 liabil*147ity. I would remand to the OIC with instructions to enter an appropriate final order.11
Analysis
¶52 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.
¶53 The use of the term “agent,” without more, cannot create per se liability. Kroshus v. Koury, 30 Wn. App. 258, 263, 633 P.2d 909 (1981) (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. Department of Revenue, 144 Wn.2d 300, 304, 27 P.3d 604 (2001),12 we noted that the activities of title insurers and UTCs are separate business services. We recognized that “ ‘[The UTC] gener*148ates business for its own account. It places the relatively small insurance 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.’ ” Id. (alterations in original) (quoting Fid. Title Co. v. Dep’t of Revenue, 49 Wn. 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 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.
¶54 “Agent” has been defined in the insurance code for the past 100 years,13 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.
¶55 American Fidelity & Casualty Co. v. Backstrom, 47 Wn.2d 77, 287 P.2d 124 (1955), followed Milleds lead. Both cases quoted from 2 Floyd R. Mechem, A Treatise on the Law of Agency (2d ed. 1914) in using the 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 *149American 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
¶56 Under common law principles, an agent’s actual authority can be implied or express. King v. Riveland, 125 Wn.2d 500, 507, 886 P.2d 160 (1994). The main consideration for actual authority is the right to control. Hollingbery v. Dunn, 68 Wn.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 Wn.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 party, then he cannot be held liable for the negligent acts of the subordinate party.” Larner, 93 Wn.2d at 804-05.
¶57 This common law right to control analysis allows contracting entities to choose the structure, with the attendant liability, that 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.
¶58 Here, Land Title and CTIC contractually entered an independent contractor relationship, allowing Land Title to *150retain 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. AR at 520. CTIC does not have input in or oversight of Land Title’s marketing practices. AR at 499 (Decl. of Gene 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. of Don 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 actual authority (express or implied), it is improper to impute Land Title’s noncompliance with the anti-inducement laws to CTIC.
¶59 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 136. 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 have allocated the risk of regulatory noncompliance in the most efficient way possible. In this situation, Land Title is the cheapest cost avoider.14
*151¶60 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.
¶61 While minimizing the cost of oversight, the agreement simultaneously aligns Land Title’s incentives to comply with the law.15 All of this is achieved without impermissibly “waiving” liability. Instead of imputing 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.
¶62 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.
¶63 It is difficult to understand that this statewide elected insurance commissioner holds nothing more important to Washington insured citizens than the de minimis *152golf games or baseball tickets underlying this case — with the expenditure of thousands of dollars in attorney fees, most funded by taxpayers.
¶64 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.
Owens, J., concurs with J.M. Johnson, J.

 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 at 469 (Decl. of James E. 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.

 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. Office of Ins. Comm’r, 166 Wn. 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.

 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. 144 Wn.2d at 304 n.l. 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. Id.

 See Day v. St. Paul Fire & Marine Ins. Co., 111 Wash. 49, 51-52, 189 P. 95 (1920).

 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 *151combinations 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.

 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 142. This type of inefficient oversight is precisely what the entities sought to avoid by allocating the risk of noncompliance solely to Land Title.