Opinion Information Sheet

			

    IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

                                       DIVISION  II

CHICAGO TITLE INSURANCE CO.,                an                   No.  40752-3-II
Authorized Insurer,

                             Appellant,

       v.

WASHINGTON STATE OFFICE OF THE                              PUBLISHED OPINION
INSURANCE COMMISSIONER,

                             Respondent.

       Johanson, J.  --  Chicago Title  seeks reversal of  an  Office of Insurance Commissioner 

(OIC) ruling, arguing that the ruling erroneously imposed vicarious liability on Chicago Title for 

the  regulatory violations  of  Land Title Insurance (Land Title) merely because Chicago Title 

underwrites Land Title's title insurance policies.  We hold that the OIC did not have statutory, 

inherent, or common law authority to impose vicarious liability on Chicago Title for regulatory 

violations Land Title committed.  We reverse the OIC judge's decision and reinstate the 

Administrative Law Judge's (ALJ) order granting summary judgment to Chicago Title. 

No. 40752-3-II

                                            FACTS

                                       I.  Title Insurance

       Title insurance insures owners of real property against loss by encumbrance, defective 

title, or adverse claim.  RCW 48.11.100.  Consumers typically select title insurance in connection 

with a "middlem[a]n," (i.e., their real estate agent, builder, banker, etc.) who may exert great 

influence on the consumer's decision.  Administrative Record (AR) at 470, 472.  In 1988, 

Washington State's OIC adopted a rule to protect consumers by limiting the gifts or inducements 

that a title insurance company or its agent could offer to a middleman in return for steering 

customers into buying title insurance from specific companies.  Former WAC 284-30-800.1

       Chicago Title provides title insurance nationally.  In eight Washington counties, Chicago 

Title  maintains direct operations,  meaning that it researches title,2   proposes the policy, 

underwrites  the policy, offers escrow and closing services, and markets all  these services to 

customers.  In smaller counties, Chicago Title maintains no direct operations and instead only 

underwrites the policies generated by independent title insurance companies, also known as 

underwritten title companies (UTC).

       In an underwritten title insurance agreement, the UTC conducts its own marketing and 

sales, maintains the title plant, performs the research for clients, determines the commitments and 

1 Former WAC 284-30-800 was in effect during the relevant period of this case.  The legislature 
enacted a new regulatory scheme effective in 2009, RCW 48.29.210 and WAC 284-29-210 
through WAC 284-29-260.  These superseding regulations still prohibit excessive inducements.

2 Title search requires that title companies maintain or subscribe to a title plant, which collects all 
documents recorded for real property in that county and indexes them by legal description or 
address.  

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No. 40752-3-II

exceptions to coverage, and collects all fees and premiums.  The underwriting insurance company 

contracts with the UTC to assume liability for title claims arising from the UTC's policies  in 

exchange  for  a percentage of the title premiums.  Generally, the underwriting title insurance 

company does not receive documents associated with closing or information about the policy or 

commitment except for (1) the policy number, (2) the internal file number, (3) the effective date of 

policy, (4) the type of policy, (5) the premium paid, and (6) the amount of liability.  UTCs may 

have agreements with several underwriting title insurance companies and underwriting title 

insurance companies may have agreements with several UTCs.  This arrangement is beneficial to 

both small and larger insurance companies because RCW 48.29.020(3) requires that title insurers 

maintain sufficient capital.  But small insurance companies generally lack the requisite capital and 

the larger title insurance companies are disinclined to maintain title plants in  smaller counties, 

which generate less business and profit. 

       Chicago Title underwrites title insurance policies for 11 independent UTCs in Washington,

including Land Title of Kitsap County.  In 1992, Chicago Title and Land Title entered into a 

written contract, naming Land Title as the issuing agent and Chicago Title as the principal.  The 

"Issuing Agency Agreement" provided:

       3.  Issuing Agent . . . shall have authority on behalf of Principal to sign, 
       countersign and issue Principal's title assurances on forms supplied and approved 
       by Principal and only on real property located in the County or Counties listed 
       above.  . . . Agent shall not be deemed or construed to be authorized to do any 
       other act for principal not expressly authorized herein.
       4.  . . . Issuing Agent shall:
               . . .
              B.  Receive and process applications for title assurances
                      (1)  In accordance with usual customary practices and procedures 
              and prudent underwriting principles; and

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                      (2)  In full compliance with instructions, rules and regulations of 
              Principal given to Issuing Agent.

AR at 519.  The agreement further specified that Land Title pay Chicago Title 12 percent of the 

gross premium and "[c]omply with all federal and state, municipal ordinances, statutes, rules and 

regulations." AR at 519.  The agreement also provided, "Issuing Agent shall not . . . [u]se the 

name of the Principal in any advertising or printing other than to indicate the Issuing Agent is a 

policy issuing agent of the Principal." AR at 520.  In the agreement, the parties allocated losses 

by designating that Chicago Title was responsible for loss connected with any failure of the title 

search and Land Title was responsible for other causes of loss.  The agreement retained Chicago 

Title's right to examine "all accounts, books, ledgers, searches, abstracts and the records which 

relate to the title insurance business." AR at 521.

       Land Title employs sales personnel who market  its services to potential customers in 

Kitsap County.  Land Title makes no mention of Chicago Title in its marketing materials, which 

emphasize that Land Title is a local company performing title insurance and escrow and closing 

services.  Land Title and Chicago Title have no relationship regarding Land Title's escrow and 

closing service, for which Land Title retains all of its fees and receives 28 percent of its total 

revenue.  Chicago Title does not compensate Land Title for marketing expenses and does not 

exercise any control over Land Title's marketing practices or procedures.  

       In 2006, the OIC published a report on violations of the anti-inducement regulation.  The 

investigation inspected 11 title insurance companies, including Chicago Title, but not Land Title.  

Prompted by its investigation, the OIC issued a technical assistance advisory to all Washington 

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No. 40752-3-II

title insurers and title insurance agents clarifying the regulation's provisions and informing them 

that the law authorized the OIC to assess penalties for violations.  The advisory did not mention 

UTCs or state that underwriting insurance companies would be liable for violations the UTCs 

commit.

       In 2007, the OIC investigated Land Title for violations of the anti-inducement regulation 

and found multiple violations.  The OIC did not contact Chicago Title during its investigation of 

Land Title.  After concluding its investigation, the OIC asked Chicago Title to sign an order (1) 

stipulating that Land Title's conduct violated the inducement regulation, (2) agreeing to pay a fine 

of $114,500 for Land Title's  alleged  violations, (3) submitting to a compliance plan, which 

included specific tracking and auditing provisions, and (4) declaring that Chicago Title has "the 

authority to comply fully with the terms and conditions of the [Compliance] Plan."   AR at 514 

(no. 6).  Chicago Title refused to sign the order.  

                                         II.  Procedure

       In January 2008, the OIC filed a notice of hearing, proposing disciplinary action against 

Chicago Title (and not Land Title) for 13 alleged violations of the anti-inducement regulation 

committed solely by Land Title.  The notice of hearing did not allege that Chicago Title 

participated or knew of the violations but indicated that Land Title acted as Chicago Title's agent.  

The Office of Administrative Hearings (OAH) granted Chicago Title's request to transfer the 

matter to an ALJ.

       Chicago Title and the OIC agreed to bifurcate the proceedings into two phases.  In phase 

I, the ALJ would consider only whether Chicago Title could be vicariously liable for Land Title's

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No. 40752-3-II

actions.  Depending on the outcome of phase I, in phase II the ALJ would consider whether Land 

Title actually violated regulatory provisions of the  insurance code.  Chicago Title moved for 

summary judgment on the vicarious liability issue.3 The OIC opposed Chicago Title's summary 

judgment motion without filing a cross motion for summary judgment.

       The ALJ granted summary judgment in favor of Chicago Title's motion and issued a 

number of "undisputed findings of fact" and conclusions of law.  AR at 279 (capitalization and 

boldface omitted).  The ALJ ruled that, although the insurance code provisions of Washington 

statutes granted the OIC "broad authority" to take action against a title insurer directly for its own 

violations, these code provisions did not authorize imposing vicarious liability where the common 

law of agency did not support such imposition.  AR at 291-92.

       The OIC hearings unit accepted OIC's petition for review of the ALJ's ruling.       After 

hearing oral argument, the OIC judge, ruling de novo, denied Chicago Title's motion for summary 

judgment.  The OIC judge ruled that the ALJ's "[u]ndisputed findings of fact" were "actually 

disputed" by the OIC and she deleted or revised them.  AR at 122.  The OIC judge also deleted or 

revised the ALJ's conclusions of law,  and rejected the ALJ's reliance on "the principles of 

common law agency," and instead adopted the conclusion that the insurance code determined the 

insurer/insurance agent relationship.  Although stating it was not necessary, the OIC judge added 

to the findings of fact that Chicago Title was vicariously liable under a strict common law

analysis, including the theories of actual authority and apparent authority.  The OIC judge 

3 On appeal, the OIC erroneously suggests that Chicago Title "stipulated" to Land Title's 
regulatory violations.  The parties merely reserved the question of Land Title's regulatory 
violation for phase II of the proceedings.

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No. 40752-3-II

determined that the OIC can hold Chicago Title responsible for Land Title's regulatory violations 

and transferred the case back to the OAH for phase II of the proceedings.  

       Chicago Title petitioned for review and the superior court upheld the OIC judge's final 

decision.  Chicago Title appeals.

                                          ANALYSIS

                                     I.  Standard of Review

       "In reviewing a superior court's final order on review of a Board decision, an appellate 

court applies the standards of the Administrative Procedures Act directly to the record before the 

agency, sitting in the same position as the superior court."   Honesty in Envtl. Analysis  & 

Legislation (HEAL) v. Cent. Puget Sound Growth Mgmt. Hearings Bd., 96 Wn. App. 522, 526, 

979 P.2d 864 (1999).   We review the OIC judge's legal determinations using the Administrative 

Procedure Act's "error of law" standard, which allows us to substitute our view of the law for 

that of the OIC.  Verizon NW, Inc. v. Emp't Sec. Dep't, 164 Wn.2d 909, 915, 194 P.3d 255 

(2008); see RCW 34.05.570(3)(d).

       We review an agency's interpretation or application of the law de novo.  HEAL, 96 Wn. 

App. at 526. "We accord deference to an agency interpretation of the law where the agency has 

specialized expertise in dealing with such issues, but we are not bound by an agency's 

interpretation of a statute." City of Redmond v. Cent. Puget Sound Growth Mgmt. Hearings Bd., 

136 Wn.2d 38, 46, 959 P.2d 1091 (1998).  Where we review purely a question of law, however, 

we do not defer to the agency's interpretation.  Hunter v. Univ. of Wash., 101 Wn. App. 283, 

292, n.3, 2 P.3d 1022 (2000), review denied, 142 Wn.2d 1021 (2001).

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No. 40752-3-II

                               II.  Statutory Provision of Agency

                        A.  Statutes Do Not Provide Vicarious Liability

       The OIC argues that when read together, the insurance code statutes establish as a matter 

of law not only the existence of an agency relationship in the insurance context but also a scope of 

agency that makes the principal vicariously liable for the agent.4  We disagree.

       Former 48.17.010 (1985)  defines an "agent" and permits an agent to "effectuate"

insurance contracts, if authorized by the principal, and to collect premiums on those insurance 

policies.5  Former RCW 48.17.160 (1994) describes the mandatory procedure for appointing an 

insurance agent, requiring filing with the commissioner and paying a fee.6

4 The OIC also argues that the legislature need not have expressly granted the OIC authority to 
hold insurers vicariously liable because it provided the commissioner with authority "reasonably 
implied from the provisions" of this code.  Br. of Resp't at 11; RCW 48.02.060 (1).  Although we 
agree that the insurance commissioner has authority to enforce provisions of the insurance code 
and to make reasonable rules and regulations according to rulemaking procedure, we disagree 
that by implication, the legislature authorized the insurance commissioner to declare one insurance 
company vicariously liable for another without a common law basis.

5 Former RCW 48.17.010 defined "agent" as:
       "Agent" means any person appointed by an insurer to solicit applications for 
       insurance on its behalf.  If authorized so to do, an agent may effectuate insurance 
       contracts.  An agent may collect premiums on insurances so applied for or 
       effectuated.

6 Former RCW 48.17.160 provides for the appointment of agents:
       (1) Each insurer on appointing an agent in this state shall file written notice thereof 
       with the commissioner on forms as prescribed and furnished by the commissioner, 
       and shall pay the filing fee therefor as provided in RCW 48.14.010.  The 
       commissioner shall return the appointment of agent form to the insurer for 
       distribution to the agent.  The commissioner may adopt regulations establishing 
       alternative appointment process for individual within licensed firms, corporations, 
       or sole proprietorships who are empowered to exercise the authority conferred by 
       the firm, corporate, or sole proprietorship license.

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       Relying on Day v. St. Paul Fire & Marine Insurance Company, 111 Wash. 49, 53, 189 P. 

95 (1920), the OIC argues that by enacting the insurance code in 1911, the legislature determined 

the scope of agency for insurance transactions as a pure issue of law.  Although the Day court 

noted that the legislature passed the insurance code "for the purpose of clearly defining the 

insurance company's duties and liabilities" as a matter of law, the opinion recognizes only that the 

insurance code established a new method to determine who the law will consider to be an agent.  

Day, 111 Wn.2d at 54.  Day does not address the scope of agency established between an 

insurance company and its appointed agent.  Day neither states nor implies that per se vicarious 

liability should attach to the principal for an agent duly appointed under the statute. Washington's 

insurance code is silent regarding both  the scope of agency generally and vicarious liability 

specifically.

       The  OIC  also  argues  that  the legislature expanded the insurance code after  the  Day 

opinion, eliminating the need for an extensive, case-by-case common law analysis to establish 

vicarious liability.  But case law does not support the conclusion that by defining the term "agent"

the legislature intended to establish the scope of every relationship authorized by former RCW 

48.17.010.  Instead, case law supports vicarious liability only on a common law basis.  Am. Fid. & 

Cas. Co. v. Backstrom, 47 Wn.2d 77, 81, 287 P.2d 124 (1955) (after determining that  an 

individual was properly considered an agent because he conformed to the statutory definition of 

"insurance agent," our Supreme Court applied common law agency principles to determine that 

the insurance agent's knowledge would be imputed to the principal), see also Miller v. United 

Pac. Cas. Ins. Co., 187 Wash. 629, 638-39, 60 P.2d 714 (1936).

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No. 40752-3-II

       No authority supports the OIC's argument that the insurance code eliminates the need for 

a case-by-case common law analysis to establish vicarious liability and we reject that argument.

                              B.  Common Law Vicarious Liability

       Chicago Title argues that, because it could not and did not control Land Title's marketing 

practices, it cannot be vicariously liable for Land Title's marketing practices under common law.  

We agree.

                                      1.  Right to control

       When the facts are not in dispute and not susceptible to more than one interpretation, we

determine vicarious liability in a business relationship as a question of law.  Larner v. Torgerson, 

93 Wn.2d 801, 804-05, 613 P.2d 780 (1980).  We consider several factors before imposing 

vicarious liability, but the most crucial factor is the right to control the manner, method, and 

means by which the work and the desired result was to be accomplished.  Hollingbery v. Dunn, 

68 Wn.2d 75, 80-81, 411 P.2d 431 (1966).  When the superior business party has retained no 

right of control over the subordinate business party and there is no reason to infer a right of 

control, we will not hold the superior business party vicariously liable for the subordinate party's

acts. Larner, 93 Wn.2d at 804-05.  The significance of the principal's right to control the agent's 

operation  pertains  particularly to the "'control or right of control over those activities from 

whence the actionable negligence flowed.'"  Kroshus v. Koury, 30 Wn. App. 258, 264, 633 P.2d 

909 (1981) (quoting Jackson v. Standard Oil Co., 8 Wn. App. 83, 91, 505 P.2d 139 (1972), 

review denied, 82 Wn.2d 1001 (1973)), review denied, 96 Wn.2d 1025 (1982).

       The agreement between Chicago Title and Land Title, which appointed Land Title as an 

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No. 40752-3-II

issuing agent to potential insured persons, also precluded Land Title from marketing on Chicago 

Title's behalf.  The OIC's identified regulatory marketing violations did not involve the insured 

person but involved the use of marketing practices that attempt to induce  realtors and other 

middlemen to influence referrals for marketing purposes.  Undisputed testimony from the 

president of Land Title included that:

       [Chicago Title] does not play any role in or exercise any control over Land Title's 
       business operations.  [Chicago Title] does not provide any advice to Land Title on 
       compliance with the Inducement Regulation.  [Chicago Title] does not have any 
       input in, or oversight of, Land Title's marketing practices or procedures.

AR at 499.

       Despite maintaining that a common law analysis is superfluous, the OIC alternatively 

argues that Chicago Title is vicariously liable for Land Title's marketing because the pertinent 

parties never affirmatively disclaimed having the right to control Land Title but merely disclaimed 

exercising that right.7 OIC's argument relies on Kamla v. Space Needle Corp., 147 Wn.2d 114, 

119-20, 52 P.3d 472 (2002).  But Kamla does not support the OIC's strained argument (that a 

party who fails to disclaim expressly the right to control, thereby acts affirmatively to establish the 

party's right to control). Additionally, the OIC misplaces its reliance on Kamla because that 

analysis involved direct, not vicarious, liability, which entails a different test.

       The evidence shows that Land Title's alleged violations of the anti-inducement regulation 

7 The OIC argues that, because the written agreement preserves Chicago Title's right to inspect 
Land Title's books, Chicago Title must affirmatively rebut the implication that it had a right to 
control Land Title.  But evidence that Chicago Title retained general contractual rights does not 
support the OIC's assertion that Chicago Title retained the specific rights at issue here, i.e., the 
right to control Land Title's marketing.

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No. 40752-3-II

involve strictly marketing issues.  The evidence also shows that Chicago Title did not control any 

aspect of Land Title's marketing.  Because Land Title's alleged violations of the anti-inducement 

regulation involve strictly marketing issues, the evidence does not support the OIC's alternative 

argument that the OIC  judge properly found Chicago Title vicariously liable under a strict 

common law agency analysis.  See Stephens v. Omni Ins. Co., 138 Wn. App. 151, 183, 159 P.3d 

10 (2007), aff'd, 166 Wn.2d 27, 204 P.3d 885 (2009).

                               2.  Doctrine of apparent authority

       The OIC argues that the OIC judge properly found Chicago Title vicariously liable under 

the theory of apparent authority8 because Chicago Title's compliance with the insurance code's 

procedure to appoint an agent objectively manifested that Land Title acted on its behalf.  We 

disagree.

       "An agent has apparent authority to act for a principal only when the principal makes 

objective manifestations of the agent's authority 'to a third person.'" Ranger Ins. Co. v. Pierce 

County, 164 Wn.2d 545, 555, 192 P.3d 886 (2008) (quoting King v. Riveland, 125 Wn.2d 500, 

507, 886 P.2d 160 (1994)).  The apparent authority doctrine protects third parties who justifiably 

rely upon the belief that another is the principal's agent. D.L.S. v. Maybin, 130 Wn. App. 94, 98, 

121 P.3d 1210 (2005).   The doctrine has three basic requirements:  (1) The putative principal's

actions must lead a reasonable third party to conclude that the actors are employees or agents; (2) 

8 The OIC also argues that, because Chicago Title did not address apparent authority in its 
opening brief, it conceded that argument.  But in its opening brief, Chicago Title assigned error to 
the OIC judge's findings of fact and conclusions of law, asserting the doctrine of apparent 
authority, and in its reply brief, Chicago Title responded fully to the OIC's apparent authority 
argument.  Thus, Chicago Title has not conceded this argument.  RAP 10.3(c); Spokane v. White, 
102 Wn. App. 955, 963, 10 P.3d 1095 (2000), review denied, 143 Wn.2d 1011 (2001).

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No. 40752-3-II

the innocent third party must believe they are agents; and (3) the third party must rely on that 

mistaken belief to  its detriment.   D.L.S., 130 Wn. App. at 98.  The innocent third party's 

subjective belief must be objectively reasonable based on the principal's  specific  objective 

manifestation.  Ranger Ins. Co., 164 Wn.2d at 555 (power of attorney to post bonds on behalf of 

principal does not constitute an objective manifestation of authorityto redirect funds).

       The apparent authority doctrine is inapplicable here because that doctrine's purpose is to 

provide judicial recourse for innocent  third parties whose reliance  has harmed  them, which 

circumstance is not present here.  See D.L.S., 130 Wn. App. at 98.  Additionally,  the OIC's 

apparent authority argument depends on its statutory authority argument and does not constitute 

a strict common law analysis.  Finally, Chicago Title's filing of the required OIC form and paying 

the required OIC fee to make Land Title its issuing agent does not constitute a specific objective 

manifestation that it authorized Land Title to violate the anti-inducement regulation.  See Ranger 

Ins. Co., 164 Wn.2d at 555.

       The OIC does not show a basis upon which to impose vicarious liability, neither on the 

doctrines of actual authority nor apparent authority.  Neither does the law support the OIC's 

argument that the insurance code, which defines and establishes the mandatory procedure for the 

appointment of an insurance agent, eliminates the need for a case-by-case common law analysis.  

Finally, the OIC fails to explain why Land Title should not be solely accountable for its own 

alleged violations of anti-inducement regulations.9 We hold that the OIC has neither statutory 

9 The OIC implies that, unless we hold title insurance underwriters vicariously liable for their 
UTCs, insurance code violations will go unregulated.  We note, however, that nothing in this 
opinion prevents the OIC from holding the UTCs solely responsible for complying with anti-
inducement regulations.

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authority to impose vicarious liability on Chicago Title for Land Title's marketing nor does it 

show that vicarious liability is proper under the common law.10

       We reverse the OIC judge's decision and reinstate the ALJ's order  granting summary 

judgment to Chicago Title.

                                                                   Johanson, J.
We concur:

                  Hunt, P.J.

                Van Deren, J.

10 Because we hold that the OIC neither has statutory authority to impose vicarious liability nor 
shows that vicarious liability is proper under the common law, we do not reach Chicago Title's 
alternative argument that the OIC judge exceeded its delegated legislative authority and 
effectively promulgated a de facto regulation.

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