Agency Law: Insurance Applications

Broker

An independent producer who represents insurance customers.

Describe the roles of insurance brokers.

An insurance broker typically helps large insured obtain coverage from competing insurers. Some insurance brokers have expanded their roles to come risk consultants who advise clients how to handle their loss exposures. Brokers may also offer risk control or claims services, or assist insurers in obtaining reinsurance coverage.

Compare the degree of discretion the three categories of agents - general agent, special agent, and soliciting agent - have in carrying out their functions.

A general agent has broad powers within underwriting guidelines. A special agent has more restricted authority than a general agent; it is restricted by express agreement with an insurer. A soliciting agent has narrow authority derived directly from an agency contract.

Insurance agent

A legal representative of one or more insurers for which the representative has a contractual agreement to sell insurance.

Contrast a producer's duty to procure insurance with the duty to follow instructions.

The duty to follow instructions may involve non discretionary acts. However, the duty to procure insurance involves care, skill, effort, and diligence on the insurance producer's part. The producer has a duty notably to procure insurance, but also to procure the appropriate coverage.

Is there imputed knowledge if an insured provides false information whiteout the agent being ware that the information is false?

If an agent is unaware that information provided by an insurance customer is false, no knowledge is imputed to the insurer. The insurer can avoid liability under the policy if it can prove fraud or misrepresentation.

Describe the producer's liability if the insurer would have issued the policy but with a higher premium.

If the insurer would have issued the policy but with a higher premium, the producer would be liable to the insurer for the different in the premium.

Special agent

A person or an entity that is employed to act for the principal in a specific transaction or only for a particular purpose or class of work.

Describe liabilities that could result from a producer's failure to follow instructions.

A producer must strictly follow the customer's instructions and is able to the customer for any damages that result from not doing so. A producer who fails to add an available coverage requested by an insured is liable for a subsequent loss that the policy would have covered had the producer followed instructions. Also, a producer who fails to add newly acquired property to the list of the insured's covered properties at he insured's request would be liable for the financial consequences resulting from any uninsured loss involving the property.

General agent

An agent that transacts all of a principal's business of a particular kind or in a particular place.

Describe the producer's liability if the insurer would not have issued a policy to the insured if the producer had fully disclosed the risks and hazards.

If the insurer establishes that it would not have issued the policy had it received the appropriate information, the producer is liable to the insurer for the amount of the loss the insure must pay to the insured.

How does an insurance producer/insurer agency relationship terminate?

A producer/insurer agency relationship usually terminates under circumstances specified in the contract. The relationship can also terminate when one of the parties acts in a way that the other party might reasonably construe as showing the intent to terminate. The agency relationship can also terminate by other means, including operation of law, the producer's death or insanity, or the insurer's insolvency.

Describe actual authority in regard to insurance producers.

Actual authority is that which the principal (insurer) intentionally confers upon the producer or allows the producer to believe he or she possesses.

Is there imputed knowledge in the broker-insurer relationship?

An agent's knowledge is not imputed to an insurer if no agency relationship exists between them. Under most circumstances, an insurance brokers' knowledge is not imputed. The broker's agency relationship is with the insured, not the insurer.

Contrast the roles of insurance agent and insurance broker.

An insurance agent represents an insurer. An insurance broker usually represents an insurance customer.

Soliciting agent

An insurance producer whose authority is limited by contract with an insurer to soliciting applications for insurance and performing other acts directly incident to those activities.

Describe apparent authority of insurance producers.

An insurer does not give apparent authority to the producer )nor does the producer create this authority), but appearances may lead a third party to believe that a producer has authority.

Insurance producer

Any of several kinds of insurance personnel who place insurance business with insurers and who represent either insurers or insureds, or both.

Describe the two types of circumstances that usually give rise to apparent authority for insurance producers.

Apparent authority usually arises in one of two overlapping circumstances. First, an insurer may grant less actual authority to the producer than producers in the same position in that business usually have. Second, the method of operation of the principal's business differs from the method of operation of other businesses of he same kind of principal's area..

Explain how apparent authority can arise after termination of a producer/insurer agency relationship.

If a third party who has dealt with the producer does not receive notification of the termination, the producer's act might bind the insurer. The producer can also bind the insurer regarding third parties with whom he or she has not dealt with previously if these parties had prior knowledge of the former agency relationship but no notice of the termination.

Describe the two instances in which a broker can be both an agent and insured's representative.

First, through apparent authority, the broker is legally the insurer's agent if the singer allows the broker to act in a manner leading a reasonable third party to believe that the broker is the insurer's agent. Second, some state statues provide that, for specific purposes, such as receipt of premium payments, a broker is the insurer's agent.

Compare the typical insurance duties of a general agent and a broker.

General agents typically can accept loss exposures, agree on and settle the terms of insurance, waive policy provisions, issue and renew policies, collect premiums, and adjust claims. A broker's typical duties include procuring insurance for the insurance customer-principal, selecting the insurer to provide the desired coverage, arranging for the payment of premiums, canceling and receiving unearned premiums on a policy the broker has obtained, and obtaining a new policy upon cancellation of on previously obtained.

Describe the standard of care and skill that is required of insurance producers and the five duties that producers owe their customers.

Insurance producer have a duty to exercise reasonable care and skill in performing their duties, to deal with their customers in good faith, and to exercise reasonable diligence on their customers' behalf. They also have a duty to have reasonable knowledge about the insurance policies they sell, the policy terms,and the coverages available in the areas for which their customers seek insurance protection. Insurance producers also have a duty to follow their customers' instructions. Duty to follow instructions. Duty to procure insurance. Duty to maintain coverage. Duty to place insurance with a solvent insurer. Duty to advise.

Explain why an insured's failure to read the policy is not always an adequate producer defense against liability.

Some state courts do not allow this defense, reasoning that the customer has the right to rely on the producer's expertise and that policy language is often difficult to understand.

Compare the extent of authority for the different types of insurance producers - general agents, special agents, and brokers.

Th extend of a producer's authority varies depending on whether the producer is a general agent, special agent, or broker. The general agent represents an insurer and has the broadest authority of all insurance agents. Any action the general agent takes according to the agreed-on authority binds the insurer. A special agent's authority is usually restricted to soliciting and forwarding prospective business to an insurer. Any action the special agent takes beyond soliciting and forwarding business will usually not bind an insurer unless an insured can establish apparent authority. A broker has not authority to act on behalf of an insurer because broker represent insured, not insurers. A broker typically has authority to bind an insured.

Is there imputed knowledge if an agent is aware that information provided by an insured was false?

The agent's decision to act adversely to the insurer's interests breaks the agency relationship, which is the basis of the imputed knowledge rule.

Explain whether apparent authority applies to an insurance producer's sub-agents.

The doctrine of apparent authority can apply to subagents. To the public, an insurance producer's subagents appear to have authorization to act for the insurer, even when they do not have such authority. In many such circumstances, these subagents' acts bind the insurer under the doctrine of apparent authority.

Describe the typical authority of insurance producers to issue temporary oral or written policies.

The need of immediate insurance coverage arises frequently. However, insurers usually undertake underwriting process that an take several weeks or longer to complete before issuing a policy. Because this delay leaves applicants unprotected, many insurers authorize producers to issue temporary oral or written policies pending acceptance of the application.

Describe the extent of an agent's duty to determine an insurer's solvency.

The producer should make reasonable attempts to inquire into prospective insurer's solvency and should disclose to the customer any information revealing a weak financial condition. The producer should also document any disclosures made to a customer regarding an insurer's solvency.

Describe methods an insurer can use to prevent a producer's exercise of apparent authority after termination of the producer/insurer agency relationship.

The safest way for an insurer to avoid the possible adverse consequences of apparent authority is for the insurer to notify all their parties known to have dealt with the producer and repossess from the producer any evidence of the agency relationship, such as application forms and insurer stationery.

Compare an insurance producer's express authority with implied authority.

Typically, express authority is granted through a formal written contract that establishes the terms of the principal/agent relationship between the insurance producer and the insurer. This agency contract states the producer's powers and authority and specifies any restrictions on that authority. The parties, however, can agree to a relationship by less formal means, creating implied authority. For example, an agent's submission of an insurance application can create an agency relationship if the producer has solicited and forwarded insurance application to the insurer previous, and the insurer has accepted them.

Describe the typical termination procedures that end a producer's authority.

Typically, termination occurs through a written or oral communication, which severs the producer's actual authority to bind the insurance principal.