The opinion of the court was delivered by BEIER, J.:
This case arises out of a Kansas Insurance Department decision imposing sanctions on appellant Golden Rule Insurance Company for unfair claim settlement practices. The Department's final order was upheld in district court. Then, on appeal to our Court of Appeals, the panel reversed. We accepted a petition for review filed by appellees, Assistant Commissioner of Insurance Robert M. Tomlinson and the Department.
Although the underlying facts in this case are undisputed, the Court of Appeals' conclusion that Dirk McClary was not acting as Golden Rule's soliciting agent when he submitted an application for health insurance that failed to disclose proposed insured Patti Denney's preexisting condition is not inevitable under the governing law. We reverse the Court of Appeals' decision on the agency question. On the further issue of whether Golden Rule engaged in unfair claim settlement practices, we affirm in part and reverse in part the district court's judgment, which means that we also affirm in part and reverse in part the Department's order. We affirm the remedy granted to Denney by the district court and the Department.
The Court of Appeals' opinion effectively captures the facts of this case as well as its lengthy and somewhat unusual procedural history. The parties do not take issue with the panel's summary; we therefore adopt the summary for purposes of our decision.
Before the Court of Appeals, Golden Rule continued to assert that McClary was an independent broker who represented Denney. Relying on the Uniform Insurance Agents Licensing Act, K.S.A.2013 Supp. 40-4901 et seq., and caselaw, the Department maintained that McClary was Golden Rule's agent.
The Court of Appeals rejected the Department's licensing argument, concluding that "[t]he issuance of a license does not define an agent's powers to bind an insurance company, nor does it change the general law of agency." Golden Rule Ins. Co. v. Tomlinson, 47 Kan.App.2d 408, 422, 277 P.3d 421 (2012). Then, turning to the common law, the panel stated that a broker employed to procure insurance generally becomes the agent of the person for whom the insurance is procured. 47 Kan.App.2d at 423, 277 P.3d 421. It disapproved of the district court's reliance "on the notion that McClary was a `soliciting agent' as described in" Earth Scientists v. United States Fidelity & Guar., 619 F.Supp. 1465 (D.Kan.1985), and it discussed caselaw defining brokers and soliciting agents. Golden Rule, 47 Kan.App.2d at 425-27, 277 P.3d 421.
The panel concluded that "[t]he description of the insurance broker in Rosedale fits McClary to a T." 47 Kan.App.2d at 427, 277 P.3d 421.
Because McClary was viewed as an independent broker rather than Golden Rule's agent, the panel held that Golden Rule was not responsible for McClary's omissions on Denney's application. The panel thus summarily rejected the Department's argument that Golden Rule committed unfair claim settlement practices in its dealings with Denney, noting that Golden Rule "initiated a prompt and reasonable investigation from January 2008 to April 2008." 47 Kan.App.2d at 428, 277 P.3d 421.
In order to decide whether Denney and thus the Department can bind Golden Rule through the acts of McClary, we must first decide whether the evidence before the Department supported the existence of an agency relationship between Golden Rule as principal
The Court of Appeals, because it ruled that no agency relationship between Golden Rule and McClary existed, did not directly determine the scope of McClary's authority. It was prompted in the direction it took by the common law and statutory arguments advanced by the parties, which focused on the relationship question alone — specifically, whether McClary was a soliciting agent or an insurance broker, terms that we will define and discuss in more detail below. This focus was understandable, given some historical imprecision in Kansas agency law, particularly as articulated and applied in insurance cases. In this opinion, on the way to resolving the parties' particular dispute, we attempt to improve upon the clarity of Kansas agency law.
We begin with a statement of the applicable standards of review.
The Kansas Judicial Review Act (KJRA), K.S.A. 77-601 et seq., establishes the standard of review for appeals from state administrative agency decisions. It enumerates eight circumstances in which a court shall grant relief. K.S.A.2013 Supp. 77-621(c). Golden Rule, as the party asserting the invalidity of an agency's action, bears the burden of proving invalidity. K.S.A.2013 Supp. 77-621(a)(1). Although Golden Rule sets forth the eight circumstances enumerated in K.S.A.2013 Supp. 77-621(c), it fails to specify which provision or provisions should lead to the appellate relief it seeks.
For its part, the Court of Appeals, in Golden Rule, 47 Kan.App.2d at 416, 277 P.3d 421, identified three "relevant" subsections in K.S.A.2013 Supp. 77-621(c):
We focus on the first two of these three subsections.
The legislature's use of the phrase "in light of the record as a whole" in subsection (7) of K.S.A.2013 Supp. 77-621(c) means that we must review evidence both supporting and contradicting the agency's findings; examine the presiding officer's credibility determination, if any; and review the agency's explanation as to why the evidence supports its findings. K.S.A.2013 Supp. 77-621(d); Redd v. Kansas Truck Center, 291 Kan. 176, 182, 239 P.3d 66 (2010). While conducting this analysis, the court does not reweigh the evidence or engage in de novo review. K.S.A. 2013 Supp. 77-621(d).
In Barbara Oil Co. v. Kansas Gas Supply Corp., 250 Kan. 438, 446-47, 827 P.2d 24 (1992), this court explained:
The nature and scope of an agent's authority and the inclusion within the scope of that authority of a particular act are ordinarily questions to be determined by the "`trier of facts in accordance with the evidence adduced in the particular case.'" Citibank, N.A. v. Data Lease Financial Corp., 828 F.2d 686, 691 (11th Cir.1987).
One further standard of review has bearing on resolution of this case: Statutory interpretation is subject to unlimited review on appeal. Kansas Dept. of Revenue v. Powell, 290 Kan. 564, 567, 232 P.3d 856 (2010) (reviewing agency action under KJRA). No deference is paid to an agency's statutory interpretation. 290 Kan. at 567, 232 P.3d 856. Rather,
Because the Department depends upon common law for one of its alternative arguments for the existence of a principal-agent relationship between Golden Rule and McClary in this case, a brief review of general common law agency principles provides helpful context.
The Third Restatement of Agency, published in 2006, defines agency as "the fiduciary relationship that arises when one person (a `principal') manifests assent to another person (an `agent') that the agent shall act on the principal's behalf and subject to the principal's control, and the agent manifests assent or otherwise consents so to act." Restatement (Third) of Agency § 1.01 (2005); see Sullivan v. Finch, 140 Kan. 399, 404, 36 P.2d 1023 (1934) (defining agency in similar terms; citing Restatement [First] of Agency § 1 [1933]). Although "manifestation" was not defined in either the First or Second Restatement, the Third Restatement defines it as follows: "A person manifests assent or intention through written or spoken words or other conduct." Restatement (Third) of Agency § 1.03 (2005). "Agency encompasses a wide and diverse range of relationships and circumstances." Restatement (Third) of Agency § 1.01, comment c; see also 2A C.J.S., Agency § 3 ("Agency is a comprehensive term which, in its broadest sense, includes every relationship in which one person acts for or represents another by his or her authority.").
The common law of agency recognizes three distinct bases on which the legal consequences of the agent's action are attributable to the principal — actual authority, apparent authority, and respondeat superior. Restatement (Third) of Agency, ch. 2 Introductory Note at 79 (2005).
"An agent acts with actual authority when, at the time of taking action that has legal consequences for the principal, the agent reasonably believes, in accordance with the principal's manifestations to the agent, that the principal wishes the agent so to act." Restatement (Third) of Agency § 2.01 (2005). An agent's actual authority can either be express, i.e., "stated in very specific or detailed language," or implied, i.e.,
See 2A C.J.S., Agency § 139.
In contrast, "[a]pparent authority is the power held by an agent or other actor to affect a principal's legal relations with third parties when a third party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to the principal's manifestations." Restatement (Third) of Agency § 2.03 (2005). Apparent authority "does not presuppose the present or prior existence of an agency relationship." Restatement (Third) of Agency § 2.03, comment a. Thus, an actor who appears to be an agent but is not may nevertheless bind a principal in certain instances. Similarly, agents with actual authority who act beyond the scope of their authority may also bind a principal under the doctrine of apparent authority. Whether an actor or an agent, a principal's liability requires that the third party reasonably believe the agent to be authorized and that such belief be traceable to a manifestation of the principal. Unlike an agent acting with actual authority, an actor or agent with apparent authority may be liable to a principal for any loss incurred. Restatement (Third) of Agency § 2.03, comment a.
Respondeat superior assigns liability to an employer for the torts committed by its employees while acting within the scope of their employment. Restatement (Third) of Agency § 2.04 (2005).
Accordingly, any agency analysis begins by first identifying whether a principal-agent relationship exists and, if so, determining the nature and scope of the agent's authority. If no principal-agent relationship exists or an agent has acted outside of his or her actual authority, the inquiry moves to whether the actor or agent had apparent authority to act.
Kansas caselaw has been consistent with the general common law agency principles outlined above in substance if not always in form. A notable difference between Kansas cases and the Restatements is our jurisdiction's focus on "types of agencies" rather than types of authority.
For example, in Professional Lens Plan, Inc. v. Polaris Leasing Corp., this court stated:
This court's statements in Professional Lens Plan, Inc. had their genesis in much older caselaw, which in turn relied on then current statements of agency law made in various treatises. See, e.g., Greep v. Bruns, 160 Kan. 48, 54-56, 159 P.2d 803 (1945) (citing 1 Mechem on Agency, 2d ed.; 2 C.J.S., Agency; and 2 Am.Jur., Agency, to describe basic agency principles).
The most notable distinction between the terminology of our caselaw and that employed by the Third Restatement of Agency is that our terminology often identifies types of agencies based on the actor's or agent's
Under common law, "[i]nsurance intermediaries are generally characterized as either `agents' or `brokers.'" 1 Thomas & Mootz, New Appleman on Insurance Law § 2.03[4][a] (Library ed.2014); see Rosedale Securities Co. v. Home Ins. Co., 120 Kan. 415, 243 P. 1023 (1926); Pettijohn v. Insurance Co., 100 Kan. 482, 164 P. 1096 (1917); see also Restatement (Third) of Agency § 3.14, comment c (2005). "Traditionally, an `agent' is the representative of the insurer, while the `broker' is the representative of the insured, except that the `broker' is a representative of the insurer for the purpose of receiving the first premium." 1 Harnett, Responsibilities of Insurance Agents and Brokers § 2.02 (2008); see Rosedale, 120 Kan. at 418-19, 243 P. 1023. But it is not these characterizations that are important for our inquiry; it is the intentions of the insurer and intermediary in creating an agency relationship and the authority the insurer vests with the intermediary that are critical. See Curran v. Industrial Com'n of Arizona, 156 Ariz. 434, 437, 752 P.2d 523 (Ct.App.1988) ("Where the insurer's actions create actual or apparent authority for a broker to act on its behalf, the broker becomes the agent of the insurer." [citing Couch on Insurance and Appleman]). Moreover, "the distinction between brokers and agents does not prevent a broker from acting as an agent, and a person may be both an insurance agent and an insurance broker, functioning at different times in different capacities." 3 Plitt, Maldonado & Rogers, Couch on Insurance 3d § 45:3 (2011); see Stamps v. Consolidated Underwriters, 205 Kan. 187, 197, 468 P.2d 84 (1970) ("For some purposes and under certain circumstances, a broker may represent either the insured or insurer, or both."); Rosedale, 120 Kan. at 421-22, 243 P. 1023 (broker may be agent of insurer under some conditions); Restatement (Third) of Agency § 3.14, comment c ("The same actor may occupy different roles at successive points in an ongoing interaction among the same parties.").
Determining whether an intermediary was acting as a representative of the insured or the insurer is important because it can determine whether an intermediary's knowledge and acts are imputable to the insured or the insurer. 1 Appleman § 2.03[2] (noting general agency principles apply); 3 Couch § 45:1; see Restatement (Third) of Agency § 5.03 (2005) (knowledge of fact agent knows or has reason to know imputed to principal if knowledge of fact material to agent's duties to principal).
Both this court and other jurisdictions have identified and defined several common relationships in the insurance industry, e.g., soliciting agent and broker. These identifiers and accompanying definitions are useful for referring to particular agency relationships characterized by particular grants of authority. Nevertheless, the appropriate industry label to apply is secondary to conducting an agency analysis based on the facts of a case.
In Earth Scientists v. United States Fidelity & Guar., Chief Judge Earl E. O'Connor of the federal District of Kansas defined a soliciting agent as "one who takes applications for insurance, forwards them to the company that issued the policy, collects the premiums and delivers the policies to the insured." 619 F.Supp. 1465, 1472 (D.Kan. 1985) (citing Pettijohn, 100 Kan. at 485, 164 P. 1096). Judge O'Connor noted that a soliciting
We agree with the Earth Scientists definition of soliciting agent, which is in line with several other authorities. See 3 Couch § 45:23 ("A soliciting agent is authorized by an insurer to sell insurance, receive applications, deliver policies, and collect premiums but has no authority to bind the insurer.") (citing Earth Scientists opinion, others); 1 Harnett § 2.02[2][a] (soliciting agent is "[t]he salesman type operative who sells, gets applications and forwards them to the general agent or insurer, delivers policies, and picks up the premium"); Black's Law Dictionary 70 (8th ed.2004) (defining soliciting agent as "[a]n agent with limited authority relating to the solicitation or submission of applications to an insurance company but usu[ally] without authority to bind the insurer, as by accepting the applications on behalf of the company"); 43 Am.Jur.2d, Insurance § 133, p. 178-79 ("[A soliciting agent's] authority is limited to soliciting insurance, submitting applications, and performing acts incidental to that power, including collecting the first premium. A soliciting agent would be expected to have the power to explain the lines of insurance sold by the company, take applications, quote premium rates, and explain the terms and limitations of the insurer's products.").
Our acceptance of the Earth Scientists definition of soliciting agent means we must reject the Court of Appeals panel's evident effort to expand it by adding requirements based on a distinguishable case. See Golden Rule Ins. Co. v. Tomlinson, 47 Kan.App.2d 408, 426-27, 277 P.3d 421 (2012) (citing Pettijohn v. Insurance Co., 100 Kan. 482, 483-84, 164 P. 1096 [1917]).
We also discern that the Court of Appeals erred in applying our definition of broker.
In Rosedale, this court defined broker as "one who acts as middleman between the insured and the insurer; one who solicits contracts from the public under no employment from any special company, but, having secured an order, places the insurance with a company selected by the insured, or, in the absence of any selection by him, then with the company selected by such broker." 120 Kan. 415, Syl. ¶ 1, 243 P. 1023; see 3 Couch § 45:1 ("A broker represents the insured by acting as a middleman between the insured and the insurer; soliciting insurance from the public under no employment from any special company; and, upon securing an order, places it with a company selected by the insured, or if the insured has no preference, with a company selected by the broker."). The Rosedale court held that generally "an insurance broker is the agent and representative of the insured for the purpose of making the application and procuring the policy." 120 Kan. 415, Syl. ¶ 2, 243 P. 1023. The major distinction between the definition of a soliciting agent and a broker is the broker's ability to place insurance, in the absence of any selection by the client, with a company selected by such broker.
The Court of Appeals erred when it concluded that McClary's "recommendation and ultimate selection of Golden Rule did not alter the fact that in doing so he was acting on behalf of Denney, not on behalf of Golden Rule." (Emphasis added.) Golden Rule, 47 Kan.App.2d at 427, 277 P.3d 421. The record simply contains no support for the idea that McClary had authority, in the absence of any choice by Denney, to select an insurer to provide her health coverage. The only evidence demonstrates exactly the contrary. Before submitting the application, McClary contacted Denney and asked for her permission to submit it to Golden Rule. McClary could not unilaterally select a company.
Finally, we also disagree with the panel's conclusion that the description of an insurance broker as outlined in Rosedale fit "McClary to a T." Golden Rule, 47 Kan. App.2d at 427, 277 P.3d 421. There are several key factual differences between McClary and the broker in that case. The broker in Rosedale was in no way affiliated with the defendant insurance company. The insured had directed the broker to apply for insurance on his automobile, but "he did not designate the kind of insurance to apply for." 120 Kan. at 417, 243 P. 1023. The broker
The Department's alternative argument for the existence of a principal-agent relationship between Golden Rule and McClary is based on current Kansas statutes.
In its decision, the Court of Appeals summarily dismissed the Department's assertion of a statutory basis for McClary's status as agent for Golden Rule, relying on this court's 1920 decision in Eikelberger v. Insurance Co., 107 Kan. 9, 12, 190 P. 611 (1920). Golden Rule, 47 Kan.App.2d at 422, 277 P.3d 421.
In Eikelberger, this court reviewed two statutes, one of which required insurance agents be licensed by the state insurance department. As the Court of Appeals noted in Golden Rule, Eikelberger held that "the license issued by the insurance department to a local insurance agent, at the request of his principal, is merely the state's permit for him to ply his business, and a tacit admission by the insurance superintendent that so far as he is advised the licensee is an honest man, or at least a man of fair business reputation." 107 Kan. at 11, 190 P. 611. Accordingly, the Court of Appeals held that "[t]he issuance of a license does not define the agent's powers to bind an insurance company, nor does it change the general law of agency." Golden Rule, 47 Kan.App.2d at 422, 277 P.3d 421.
The Department discounts the Court of Appeals' reliance on Eikelberger, because the opinion predated the current statutory scheme for insurance agent licensing and appointment "by eight decades."
The Kansas Uniform Insurance Agents Licensing Act makes it unlawful for any person to "sell, solicit or negotiate any insurance within this state unless such person has been issued a license as an insurance agent in accordance with this act." K.S.A.2013 Supp. 40-4905(a). The Act defines "insurance agent" and "agent" as "any person required to be licensed [under the insurance code] to sell, solicit or negotiate insurance." K.S.A. 2013 Supp. 40-4902(k). A "broker" is "any individual who acts or aids in any manner in negotiating contracts of insurance, or in placing risks or in soliciting or effecting contracts of insurance as an agent for an insured other than such individual and not as an agent of an insurance company or any other type of insurance carrier." K.S.A.2013 Supp. 40-4902(d). The Act also provides that "[f]or the purposes of this act, whenever the terms `agent' or `broker' appear [in the insurance code], each term shall mean insurance agent unless the context requires otherwise." K.S.A.2013 Supp. 40-4902(k). We read these statutes to mean that a principal-agent relationship, as defined at common law, may exist between an insurance agent and an insurer or between an insurance agent and an insured. Thus statutory definitions of agent and broker cover more than insurance agents clothed with express actual authority by a principal insurance company.
In addition, as for the effect of licensing under the Act, it appears the Court of Appeals was correct. Although the current Act is more detailed on the ins and outs of the licensing process than its predecessor statutes in effect at the time of the Eikelberger decision, licensing remains a mere permitting process. It does not affect the viability or applicability of the general common law of agency on particular facts.
Under the Act, licensing is distinct from appointment. An insurance company may appoint a licensed insurance agent "as the insurance agent of the company under the license in effect for the insurance agent." K.S.A.2013 Supp. 40-4912(a). In fact, such appointment and certification is required in order for an agent or broker to transact business of the insurer. K.S.A.2013 Supp. 40-241 (issuance of license confers no authority until agent certified by company); K.S.A. 2013 Supp. 40-4912.
Golden Rule suggests that no particular agency status should be read into the undisputed fact of its appointment of McClary, because it views appointment as simply a feature of the Kansas permitting process. But this suggestion blurs the statutory distinction between licensing and appointment. Golden Rule was not required to appoint
That being said, Golden Rule's appointment of McClary also does not automatically dispose of the agency issue in the Department's favor. The Department contends that the appointment under K.S.A.2013 Supp. 40-4912 was enough on its own to bind Golden Rule to the acts and representations of McClary, seemingly without limitation. But such an interpretation is not supported by the plain language of the statute. And we see no other indication that the legislature intended to supplant the whole of agency common law and make insurance companies strictly liable for the acts of their appointed agents. At most, K.S.A.2013 Supp. 40-4912 and K.S.A.2013 Supp. 40-4910(d) provide modest assistance in determining when an insurance intermediary is acting for the insurer or for the insured. Appointment is a fact but not the only fact to be considered in determining the existence of a principal-agent relationship. More importantly, appointment also does not define the scope of any appointed agent's authority.
We now turn to application of the law as we have clarified it, particularly whether the evidence supporting the Department's conclusion that McClary acted as Golden Rule's agent is substantial when viewed in light of the record as a whole. Again, our obligation to examine the record includes the responsibility to consider evidence contrary to the Department's position. See K.S.A.2013 Supp. 77-621(d).
We recognize, as did the Court of Appeals, that the Department's explicit factual findings are sparse. But Golden Rule has not challenged the adequacy of the findings, presumably because the parties treat the underlying evidence as undisputed. That evidence includes:
The evidence also includes Golden Rule's independent broker contract signed by McClary. That contract states in pertinent part:
The contract also specifies that McClary is "authorized to: ... Obtain and submit applications for Insurance Products to Us for Our consideration on behalf of persons for whom You are acting as broker."
It is on these facts that the Department ruled that McClary was an agent of Golden Rule and that Golden Rule was liable for McClary's omission. We must affirm if substantial evidence, when viewed in light of the record as a whole, supports the Department's decision under the agency analysis we have outlined above.
On the initial question of whether a principal-agent relationship existed, we note that Golden Rule made McClary its appointed agent under K.S.A.2013 Supp. 40-4912. In addition, Golden Rule and McClary entered into an agreement that set forth duties for each party.
Golden Rule argues that the contract "clearly prohibits McClary from acting as an agent of Golden Rule or in any capacity except as an independent broker on behalf of his own clients or prospective clients." But that portion of the contract does not necessarily settle the issue of whether Golden Rule and McClary had a principal-agent relationship.
See 43 Am.Jur.2d, Insurance § 134, p. 179 (contract identifying intermediary as independent contractor "does not preclude the possibility that, in procuring information for an insurer, the soliciting agent was acting as an agent of the insurer"); see also In re Tax Appeal of Scholastic Book Clubs, Inc., 260 Kan. 528, 541, 920 P.2d 947 (1996) (implied agency relationship may exist notwithstanding denial by alleged principal).
Here, the contract expressly provides for McClary's independent status and identifies him as both a broker and an independent contractor, but it also authorizes McClary to "[o]btain and submit," i.e., solicit, applications for insurance and to collect initial premiums in exchange for commissions paid by Golden Rule. The contract provides that McClary is "prohibited from engaging in any act not expressly authorized by [Golden Rule]." The contract binds McClary to a confidentiality agreement, requires that he ensure the accuracy of applications he submits, and allows him to use Golden Rule advertising material, provided he does not combine the company's advertising material with another company's advertising material. All of these elements of the contract demonstrate Golden Rule's control of McClary's behavior and its delineation of the limits of his authority. They could certainly be relied upon by a factfinder to prove an agency relationship between Golden Rule and McClary.
We conclude that substantial evidence supported the existence of a principal-agent relationship. But the existence of a principal-agent
Determining the scope of an agent's actual authority will often require looking at the same evidence that established the existence of the relationship in the first place. Here, as mentioned above, the agreement between McClary and Golden Rule authorized McClary to "[o]btain and submit" applications for insurance. This express declaration vested McClary with actual authority to solicit and submit applications to Golden Rule. In addition, Golden Rule's appointment of McClary under the statute allowed him to submit insurance applications directly to Golden Rule, and Golden Rule provided him an online portal to do so. Substantial evidence supports the conclusion that McClary had the actual authority to solicit and submit applications directly to Golden Rule. This is the type of relationship and the scope of authority commonly held by a soliciting agent, as that term has been defined in the caselaw.
In its brief, Golden Rule emphasized that McClary was able to sell policies for multiple insurance companies and quoted Damon's Missouri, Inc. v. Davis, 63 Ohio St.3d 605, 611, 590 N.E.2d 254 (1992). Damon's states that "an insurance agent has a fixed, permanent and exclusive relationship with the insurance company that the agent represents." But Golden Rule failed to quote the additional holding from the case:
It thus appears that, on the same facts as those before us here, an Ohio court would hold that an agency relationship between Golden Rule and McClary existed. McClary clearly was not a captive or exclusive agent, but his simultaneous appointment by other insurance companies did not make it impossible for him to qualify as a soliciting agent for Golden Rule. This is exactly the conclusion reached by two other sister states examining Golden Rule's activities in their jurisdictions. See Golden Rule Ins. Co. v. Montgomery, 435 F.Supp.2d 980, 991-92 (D.Ariz.2006) (holding sufficient evidence to raise question of fact whether broker agent of insurance company under similar facts); Tassin v. Golden Rule Ins. Co., 94-0362 (La.App. 1 Cir. 12/22/94), 649 So.2d 1050, 1055-56 (holding broker agent of insurance company under similar facts).
Our decision on the existence and scope of McClary's actual authority eliminates the need for this court to examine apparent authority. We pause only to recognize again that actual authority does not preclude the existence of apparent authority, and certain of the facts in this case would support its existence as well.
Because we have decided that substantial evidence when considered in light of the record as a whole supported the Department's determination that McClary was Golden Rule's agent and that his actions were within his authority, we must review the Department's identification of two violations of K.S.A.2013 Supp. 40-2404(9) and the remedy it ordered under K.S.A. 40-2407(a)(3).
K.S.A.2013 Supp. 40-2404(9) provides:
On subsection (d), in the Department's view, Golden Rule violated K.S.A. 40-2404(9)(d) when it effectively refused to pay any claim associated with Denney's preexisting condition, instead coupling a demand for an exclusionary rider redefining the insurance coverage with a threat of policy termination.
As the Court of Appeals noted, Golden Rule conducted a 4-month investigation after Denney sought preapproval for surgery. The Court of Appeals characterized this investigation as "prompt and reasonable." 47 Kan.App.2d at 428, 277 P.3d 421. But there is a problem with that characterization. The investigation's sole focus was verification of Denney's preexisting medical condition. No investigation of the nature of the relationship between Golden Rule and its appointed agent, McClary, was pursued, even after Golden Rule became aware that McClary, rather than Denney, was likely to blame for the misleading omission in Denney's insurance application. Golden Rule's lack of any effort to reasonably investigate the agency relationship provides a sufficient basis for the Department's finding of a K.S.A.2013 Supp. 40-2404(9)(d) violation, as Golden Rule's stonewalling conduct qualified as gross and flagrant in light of the circumstances of this case.
On subsection (f), in contrast, we cannot affirm the Department's determination that Golden Rule did not "attempt[] in good faith to effectuate prompt, fair and equitable settlements of claims" on which liability had become "reasonably clear." The Department did not identify facts in the record that support this ruling, and our review does not uncover any. The agency status at the heart of this case needed to be investigated, but it remained in valid dispute up to today. In other words, Golden Rule's liability had not become "reasonably clear." We must therefore reverse the Department and district court on their ruling that Golden Rule violated subsection (f).
Because we affirm the finding of a violation of K.S.A.2013 Supp. 40-2404(9)(d), the Department was authorized to order a remedy under K.S.A. 40-2407. Its subsection (a)(3) permits the commissioner to order "redress of the injury by requiring the refund of any premiums paid by, the payment of any moneys withheld from, any consumer...." The phrase "moneys withheld" necessarily includes payments authorized under an insurance policy but unpaid by the insurance company. We therefore affirm the Department's authorized and appropriate remedy.
Under the authorities and rationales described above, we (a) reverse the Court of Appeals' opinion reversing the district court's judgment affirming the Kansas Insurance Department's final order; (b) affirm the district court's judgment in part and reverse in part; and (c) affirm the Kansas Insurance Department's final order in part and reverse in part.
MORITZ, J., not participating.
MICHAEL E. WARD, District Judge, assigned.
