Producer David is appointed by Zenith Life Insurance. His written agency agreement specifically prohibits him from collecting cash for initial premiums. However, Zenith Life provides David with standard, company-branded premium receipt books that do not mention any payment method restrictions. An applicant gives David $200 in cash for an initial premium, and David issues an official Zenith Life receipt. Later, David loses the cash before submitting it to the insurer. If the applicant subsequently files a valid claim, which of the following accurately describes Zenith Life's legal position?
- AZenith Life may deny the claim because the producer's written contract explicitly denied him the express authority to accept cash.
- BZenith Life may deny the claim because the applicant's failure to verify the producer's cash-handling rules constitutes a waiver of their rights.
- Zenith Life is legally bound to honor the policy because supplying the producer with unrestricted, branded receipt books created apparent authority.Cevap
- DZenith Life is legally bound to honor the policy because every appointed producer possesses the implied authority to override internal company payment rules.
Cevap
Zenith Life is legally bound to honor the policy because supplying the producer with unrestricted, branded receipt books created apparent authority.
The correct answer accurately applies the doctrine of apparent authority. Apparent authority is created by the actions or inactions of the principal (the insurer) rather than the agent. By equipping the producer with official company receipt forms that lacked any payment restrictions, the insurer created a situation where a reasonable consumer would believe the producer had the authority to accept cash. Therefore, the insurer is legally bound by the transaction.
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Apparent Authority and Insurer Liability