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Difficulty: EasyAgent Authority and Agency Law

A property and casualty insurer recently terminated its agency agreement with a producer. However, the insurer failed to retrieve its application forms, rate manuals, and company signs from the producer's office. The producer subsequently uses these materials to sell a new homeowner's policy to an unsuspecting applicant and collects the initial premium.

If the insurer is legally required to honor this coverage, it is an example of which type of producer authority?

  1. A
    Express authority
  2. B
    Implied authority
  3. Apparent authorityAnswer
  4. D
    Fiduciary authority

Answer

Apparent authority
The correct answer is apparent authority. This type of authority exists when an agent's actions, or the principal's failure to act (such as not retrieving company materials after termination), leads a reasonable third party to believe the agent has the authority to act on behalf of the principal.

Step-by-Step Solution

1
Identify the current status of the agency contract.
The contract has been terminated, meaning no written or formally assumed authority currently exists between the insurer and the producer.
This rules out express and implied authority, which both require an active contract.
2
Analyze the insurer's actions and the applicant's perspective.
The insurer left official materials with the producer. This failure to act caused the unsuspecting applicant to reasonably believe the producer still represented the company.
To determine if the public perception creates a legal obligation for the insurer.
3
Match the scenario to the correct legal doctrine.
The situation perfectly demonstrates apparent authority.
Apparent authority is created when the principal's actions or inactions lead a third party to reasonably believe authority exists.

Key Concept

Apparent Authority
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Topics

Agent Authority and Agency Law

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