The Agent's Authority

You can buy insurance without direct contact with the insurer. This is essential for financial services. The law of agency authorizes an agent to bind the principal (insurer) into a contractual relationship with a 3rd party (you).

The agency contract is the arrangement between the principal and the agent

  • principal
    • gives instructions to the agent
    • pays the agent
  • agent agrees to follow the instructions of the principal
    • else the agent could be liable for resulting damages
  • so the agent negotiates contracts with third parties on behalf of the principal

The agent's authority is actual and apparent (implied).

The insurer can grant authority retroactively by ratifying actions taken in its name.

Actual Authority

What the principal (insurer) instructs the agent to do (verbally or in writing)

The insurer gives the agent authority to perform certain tasks. This is straightforward. Actual authority is generally limited to

  • prospecting (soliciting insurance applications)
  • collection of the initial premium
  • delivery of the policy contract

The agent is also prohibited from performing certain tasks, such as

  • modifying a policy contract
  • extending a premium dues date

Apparent Authority

How the agent carries out the actual authority

Problems arise from apparent authority

  • principal implies or suggests that agent has been granted certain powers … even if unintended
  • contract with agent designed to limit this
  • determines the insurer’s liability to you (as the insured)

When you (as the client) don't know the limitations on an agent's authority, the insurer is bound by the agent's apparent authority.

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