Examkin

Question

Difficulty: MediumProducer Authority and Agency Law

Under the legal principles of agency law, if an insurance agent issues a temporary coverage binder to an applicant in direct violation of the specific restrictions outlined in their agency agreement, the principal (insurer) is legally absolved of any obligation to honor claims that occur during that temporary period.

Answer: Answer

Answer

False
The statement is false. Agency law dictates that a principal is bound by the acts of its agent when the agent operates under apparent authority. Because the agent possesses the forms and the outward appearance of authority to issue a binder, the insurer must honor the coverage for the innocent third party, even though the agent violated their express written authority.

Step-by-Step Solution

1
Analyze the legal relationship between the insurer, the agent, and the applicant.
The agent is acting on behalf of the insurer, and the applicant is an innocent third party seeking coverage.
Establishing the tripartite relationship is required to apply the correct agency law principles.
2
Determine the impact of the agent violating their specific agency agreement.
The agent breached their express authority, but they still possessed the apparent authority to issue a binder from the perspective of the applicant.
Agency law distinguishes between the private contract limits (express authority) and what the public reasonably perceives (apparent authority).
3
Evaluate the insurer's liability for the claim.
The insurer remains liable to the applicant for the claim under apparent authority, though they may separately penalize or sue the agent for the breach.
The law protects innocent third parties who rely on the outward authority granted to an agent by the principal.

Key Concept

Apparent Authority and Principal Liability
Rate this question

Topics

Producer Authority and Agency Law

More questions from this topic