In Allstate Insurance Co. v. Tarrant, 363 S.W.3d 508 (Tenn. 2012), the Supreme Court of Tennessee held that a change made to an insured’s policy of insurance by his insurance agent was not subject to ratification by the insured because the insurance agent was not acting in the insured’s stead or for his benefit when it made the change and that the insurance company was estopped from denying coverage.

The relevant facts in Tarrant are as follows: On June 17, 2005, Charles Leatherwood was allegedly injured when the motorcycle he was driving collided with a van driven by Diana Lynn Tarrant. Mr. Leatherwood subsequently filed a lawsuit against Diana and John Tarrant, alleging that the accident was caused by Mrs. Tarrant’s negligence.

After the negligence lawsuit was filed against the Tarrants, a dispute arose between the Tarrants and Allstate Insurance Company (“Allstate”), their vehicle insurer, as to the amount of liability insurance coverage that was available on the van. Allstate’s position was that the van was covered under a personal policy with liability limits of $100,000 person and $300,000 per accident. Meanwhile, the Tarrants maintained that the van was covered under a commercial policy with liability limits of $500,000.

In October 2008, Allstate filed a declaratory judgment action seeking a ruling that the van was covered under the personal policy and, therefore, subject to the lower liability coverage of $100,000/$300,000. Allstate’s complaint alleged that in March 2005, before the accident, Mr. Tarrant requested that his Allstate agent, the Lonnie Jones Agency (“the Jones Agency”), move the van from the commercial policy to the personal policy because he wanted to save money on premiums and that, accordingly, the Jones Agency moved the van and two other vehicles from the commercial policy to the personal policy. In their answer, the Tarrants denied that Mr. Tarrant directed the Jones Agency to move the van to the personal policy, alleged that transfer to the personal policy was the Jones Agency’s mistake, and requested a declaratory judgment that at the time of the accident the van was covered under the commercial policy.

The trial court ruled that because Allstate had sent Mr. Tarrant a letter and premium bills reflecting the change in coverage and because Mr. Tarrant had paid the premium bills without objection, he had ratified the change in coverage and the van was covered under the personal policy. The Court of Appeals reversed the trial court, holding that Allstate failed to follow Mr. Tarrant’s instruction that the van be covered under the commercial policy and that Mr. Tarrant’s receipt of notification of the change in coverage and payment of premium bills reflecting the change did not absolve Allstate from liability.

The Supreme Court granted Allstate’s application for permission to appeal to address two issues: (1) whether Mr. Tarrant ratified the transfer of the van from the commercial policy to the personal policy and (2) if Mr. Tarrant did not ratify the transfer, whether Allstate was estopped from denying coverage of the van under the commercial policy.

Reviewing the trial court’s findings of fact de novo with a presumption of correctness, the Supreme Court concluded that Mr. Tarrant did in fact instruct the Jones Agency to place the van on the commercial policy and that the Jones Agency mistakenly failed to do so. Thus, the issue before the Supreme Court was whether Mr. Tarrant had ratified the transfer of the van to the personal policy.

In order for Mr. Tarrant to ratify the Jones Agency’s mistake, the Supreme Court acknowledged that the Jones Agency must have been acting in the stead of Mr. Tarrant and for his benefit when the van was transferred to the personal policy.

Noting that the Jones Agency, by performing the clerical tasks necessary to implement Mr. Tarrant’s request, acted in the place of Allstate, not Mr. Tarrant, and relying on Tenn. Code Ann. § 56-6-115(b), which provides that an insurance producer who solicits or negotiates an application for insurance shall be regarded as the agent of the insurer and not the insured, the Supreme Court determined that the Jones Agency did not assume the place of Mr. Tarrant and was, in fact, statutorily precluded from acting in Mr. Tarrant’s stead.

The Supreme Court further concluded that the Jones Agency did not act for the benefit of Mr. Tarrant because Mr. Tarrant did not realize a profit or gain from the Jones Agency’s actions. To the contrary, the Supreme Court determined that, because Mr. Tarrant had threatened to take his insurance business elsewhere if nothing could be done to lower his insurance premiums; it was Allstate that benefited as a result of the Jones Agency’s mistake, as it was able to retain Mr. Tarrant’s business.

Because the Jones Agency acted neither in the place or stead of Mr. Tarrant nor for his benefit, the Supreme Court determined that Mr. Tarrant could not have ratified the Jones Agency’s mistake by continuing to pay his insurance premiums after receiving premium notices indicating that the van had been moved to the personal policy.

Having concluded that Mr. Tarrant did not ratify the Jones Agency’s mistake, the final issue requiring determination was whether Allstate was estopped from denying coverage of the van under the commercial policy. Acknowledging the common law rule that an insurance company is generally deemed estopped to deny policy liability on a matter arising out of the negligence or mistake of its agent on the ground that an insurer – not the insured – should bear the consequences of an error by the insurer’s agent, the Supreme Court held that Allstate was estopped from denying coverage of the van under the commercial policy because the van was transferred from the commercial policy to the personal policy as the result of a mistake by the Jones Agency.

So, what should insurance companies take away from the Supreme Court’s findings in Tarrant? That an insurance producer is deemed to be the agent of the insurer, not the insured, and, hence, the consequences of any mistake made by an insurance producer will be borne by the insurance company, not the insured.