Unformatted text preview: iation from
its practice with respect to group policies.
In Elfstrom vs. New York Life Insurance Company, the California Supreme Court explicitly ruled that in
group insurance policies, the employer is the agent of the insurer. Thus: We are convinced that the
employer is the agent of the insurer in performing the duties of administering group insurance policies. It
cannot be said that the employer acts entirely for its own benefit or for the benefit of its employees in
undertaking administrative functions. While a reduced premium may result if the employer relieves the
insurer of these tasks, and this, of course, is advantageous to both the employer and the employees, the
insurer also enjoys significant advantages from the arrangement. The reduction in the premium which results 46 from employeradministration permits the insurer to realize a larger volume of sales, and at the same time
the insurer's own administrative costs are markedly reduced.
The most persuasive rationale for adopting the view that the employer acts as the agent of the insurer,
however, is that the employee has no knowledge of or control over the employer's actions in handling the
policy or its administration. An agency relationship is based upon consent by one person that another shall
act in his behalf and be subject to his control. It is clear from the evidence regarding procedural techniques
here that the insureremployer relationship meets this agency test with regard to the administration of the
policy, whereas that between the employer and its employees fails to reflect true agency. The insurer
directs the performance of the employer's administrative acts, and if these duties are not undertaken
properly the insurer is in a position to exercise more constricted control over the employer's conduct.
In Neider vs. Continental Assurance Company, which was cited in Elfstrom, it was held that: [t]he employer
owes to the employee the duty of good faith and due care in attending to the policy, and that the employer
should make clear to the employee anything required of...
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This document was uploaded on 03/11/2014.
- Fall '14