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Difficulty: EasyAgent Authority and Agency Law

Sarah operates an independent insurance agency and recently signed a contract to represent Horizon Casualty. Under the fundamental rules of agency law, which of the following principles correctly describe the legal relationship between Sarah (the agent) and Horizon Casualty (the principal)? (Select all that apply.)

  1. Information that Sarah learns about a client's risk while gathering application data is legally considered to be known by Horizon Casualty.Answer
  2. If Horizon Casualty later terminates Sarah's appointment but fails to collect their official blank policies and signs from her office, she might still bind the company through apparent authority.Answer
  3. C
    Sarah's implied authority is strictly limited to the duties explicitly written word-for-word in her agency contract.
  4. D
    Sarah has the authority to unilaterally cross out and correct inaccurate answers on a submitted application to ensure Horizon Casualty receives proper data.

Answer

The correct principles are that the agent's knowledge is legally presumed to be the principal's knowledge, and that leaving official materials with a terminated agent can bind the insurer through apparent authority.
Under the law of agency, the acts and knowledge of the agent are considered the acts and knowledge of the principal. Consequently, information gathered by the agent is legally known by the insurer. Furthermore, if a principal fails to retrieve branded materials after terminating an agent, they can be held liable under apparent authority because a reasonable third party would assume the agent is still fully authorized.

Step-by-Step Solution

1
Analyze the principle of agent knowledge.
An agent acts directly on behalf of the principal. Therefore, any information the agent acquires within their scope of authority is legally presumed to be known by the insurer.
To evaluate the legal standard for information gathered during the application process.
2
Analyze the concept of apparent authority.
If an insurer terminates an agent but leaves company-branded materials behind, a reasonable consumer would assume the agent is still authorized, binding the insurer under apparent authority.
To evaluate the insurer's liability for a terminated agent's actions.
3
Evaluate the definitions of implied and express authority.
Implied authority is unwritten and assumed for normal business operations, whereas express authority is specifically written in the contract.
To identify the misconception regarding contractually written duties.
4
Assess the rules for application modifications.
An agent cannot alter an application independently; all changes require the applicant's initials or a new application.
To identify the error regarding correcting inaccurate answers.

Key Concept

Agency Law Principles and Producer Authority
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Topics

Agent Authority and Agency Law

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