Presented by the Insurance Agents & Brokers Liability Practice Group

Risks From Employee Fraud: Vicarious Liability Concerns for Insurance Agencies

by Lawrence Berg, Esq. and Michael Rosenthal, Law Clerk 

In Commissioner v. MTS, No. A-297-19, (N.J. Sup. Ct. App. Div. Nov 18, 2021), the New Jersey Appellate Division concluded that Michael Tepedino & Sons Insurance Agency (MTS) was vicariously liable for the insurance fraud committed by one their employees. MTS employed Andrew Tepedino, who sold insurance for the company. During the course of his employment, Tepedino committed several fraudulent acts for which he was paid a commission. MTS unsuccessfully attempted to avoid liability by arguing that it was unaware of any fraudulent conduct, it did not share in any commission, the fraudulent acts were committed outside the scope of Tepedino’s employment and the fraudulent acts were not “insurance-related.”

Undercutting these arguments was the fact that Tepedino was using MTS’s office space, he had access to MTS’s bank accounts and was using company resources to help perpetuate these violations. The Commissioner of the New Jersey Department of Banking and Insurance concluded that Tepedino was holding himself out as an employee of MTS when he committed the insurance-related and fraudulent acts. In short, MTS was vicariously liable for the fraudulent acts of their employee. 

The Appellate Division ultimately affirmed this decision and invoked a well-established analysis for holding an insurance provider liable for fraud committed by its employee. Under New Jersey law, an employer shall be responsible for the insurance-related conduct of an employee. See N.J. Ann. Code 11:17-2.10(b)(4). In other words, an employer is vicariously liable for the tortious actions of its employee when acting within the scope of his or her employment. See Carter v. Reynolds, 175 N.J. 403, 408-09 (N.J. Sup. Ct. 2003).

The MTS decision reinforces the idea that employers are subject to liability based on fraudulent conduct committed by their employees within the scope of their employment. Further, it demonstrates that an employer cannot avoid responsibility by turning a blind eye to the fraudulent conduct of an employee taking place in their offices and through the use of their resources. Insurance agents and representatives act in a fiduciary capacity and are held to a higher standard of conduct and responsibility compared to other industries. Thus, agents and representatives should continue to be cognizant of their role in insurance procurement and be sure to monitor employees for any conduct that can put the company at risk for substantial damages. 

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