Understanding Types of Authority in Insurance Contracts

1. Types of Authority When an agent is contracted to work for an insurer, he has the authority to conduct business on behalf of that insurer. There are three types of authority granted in agency relationships. These are: Express Authority, Implied Authority, and Apparent Authority

2. Implied Authority Types of Authority The authority that the public reasonably believes the agent to have, based on the agent’s representations These representations include: • Portraying oneself as a representative • Wearing a name tag with company logo • Handing out company business cards • Words and actions that go ‘hand-in-hand’ with express authority and are usual in order to perform an agent’s duties For example, if you're wearing a name tag bearing the XYZ insurer logo, a member of the public assumes you are acting as a representative of XYZ Insurance. As a contracted agent of XYZ Insurance, your words and actions represent those of XYZ Insurance. When an agent of insurer XYZ says he can write you an insurance contract for $500, any member of the public will believe the agent because he acts as a representative of the company. The agent has the implied authority to write that contract whether or not he has the express authority to do so, and his actions bind the insurer to his decision. Express Authority Implied Authority Apparent Authority

3. Agent AuthorityExpress AuthorityApparent AuthorityImplied Authority Don is wearing an ABC Insurance jacket and has an ABC Insurance sign over his rented office. The walk-in customer could reasonably believe that he has the authority to write an insurance contract because of his:

4. REVIEW of Authority Remember, authority is given to agents both directly and indirectly. The three types of Authority are: express authority, implied authority, and apparent authority. The insurer directly or indirectly gives its agents authority to act on its behalf. Express authority - is specifically granted in writing within the agents contract where the agent receives the authority to act on its behalf. Implied authority - is authority granted to do the usual and proper activities that are reasonable for the public to believe the agent has, even if it is not expressly granted in writing. Apparent authority - refers to when the insurer is bound by the agent’s actions and judgment, even when the agent has made a mistake. Express Authority Implied Authority Apparent Authority

5. Implied Authority

6. Apparent AuthorityFull AuthorityImplied AuthorityExpress Authority James signed a contract with Drew Insurance that enables him to sell insurance policies and collect premiums on their behalf. What authority has James been granted?

7. Express Authority Types of Authority Authority that is directly granted to the agent in writing via the agent’s contract Agents usually have express authority to: • Sell policies • Collect premiums • Issue binders • Offer discounts (ex bundled policies) • Cancel insurance Let's say Sarah decides to visit her local XYZ Insurance office. She meets with Jack, who sells her a new automobile insurance policy. Jack helps Sarah select all the coverages available with her new policy, collects a check from Sarah for her premium payment, and issues Sarah a binder. Jack then explains that he can offer her a discount on her homeowners’ policy, because XYZ Insurance discounts premiums for consumers who package all their insurance needs with XYZ Insurance. These are all examples of Jack's express authority. Jack's contract specifically grants, in writing, that he can sell policies, establish premiums within certain limits, and offer discounts for purchasing multiple insurance policies. Express Authority Implied Authority Apparent Authority

8. Express Authority

9. Express AuthorityApparent AuthorityAgency AuthorityExpert Authority After her business suffered damage in a fire, Jane filed a claim with Cocoa Insurance, which dispatched Bob to adjuster it, even though he was not allowed to adjust commercial claims. He investigated Jane’s losses and submitted his estimate to Acme Insurance, which issued her a settlement check based on that estimate. Bob had ______ because Coco Insurance accepted his estimate and paid Jane’s claim.

10. Apparent Authority Types of Authority Indirect authority that is granted when the insurer does not correct its agent, even though the agent may be acting in error • Granted when the insurer does NOT act • By not correcting the agent, the insurer implies consent For example, let's say an agent writes an insurance policy for automobile coverage on a Ferrari and takes a premium payment from the consumer. However, in the agent's contract with the insurer, he was expressly not allowed to write insurance contracts on exotic cars such as a Ferrari. The insurer temporarily overlooks this fact, and cashes the premium check the client wrote for coverage on his Ferrari. When the insurer cashes the premium check, it automatically grants apparent authority to the agent. And by cashing the premium check, the insurer has become complicit in the authority of the agent to grant an insurance contract for the Ferrari owner. Express Authority Implied Authority Apparent Authority

11. Apparent Authority

12. 1. Represent the insured if a claim goes to court2. Provide Dove insurance with complete claim documentation3. Always use reasonable care and judgement4. Adhere to the terms of his contract Don works as an adjuster for Dove Insurance. Which of the following is most likely Not one of Don’s responsibilities?

13. Represent the Insured if a claim goes to Court

14. Express AuthorityApparent AuthorityContract AuthorityImplied Authority __________ is what the public or community reasonably believes the agent has, based on the agent’s representations.

15. Implied

16. An insurance adjuster receives her authority to sell products on behalf of the insurer through a written contractAn insurance adjuster who settles claims on behalf of an insurer has the power to bind that insurer, even if she makes a mistakeAn insurance adjuster is an agentan insurance adjuster must always use reasonable judgement for both the insurer and the claimant. Which of the following statements is NOT true of an insurance adjuster?

17. 1.

18. No; Jake was unaware of the policy’s hail coverage exclusionNo; jack had no authority to promise coverage that was listed in Olivia’s policyYes; Jack exercised implied authority when he wrote that Olivia had hail coverageYes; hail coverage is standard in property policies, and the insurer should have included it in the first place. Jake is selling insurance policies for XYZ Insurance. Olivia buys a homeowners policy from Jake and asks him to write down on a separate piece of paper all the perils the policy covers so she can show her husband. Jake writes “hail”, but when Olivia house is damaged by hail, the adjuster says “hail isn’t covered in your policy”. Olivia produces the piece of paper and threatens to sue Haul insurance if they don’t pay. Does she have grounds for a lawsuit?

19. Yes; Jake exercised implied authority when he wrote that Olivia had hail coverage

20. Section 2 – Adjusting Practices and Common Policy Provisions

21. 4 Types of Sales Agent Insurer employ four types of sales agents • Independent Insurance Sales Agent • Exclusive Agent • General Agent • Direct Writer Each sales agent plays a different role in the company

22. 4 Types of Sales Agent Independent Insurance Sales Agent: • Self-employed • Offer insurance from more than one company at the same time • They can compare and give rate quotes from different companies • Find a policy that best suits the customer Independent Insurance Sales Agent Exclusive Agent General Agent Direct Writer

23. 4 Types of Sales Agent Exclusive Agent: • Also called Captive Agent • Commissioned • Represents only one insurer and only their policies Independent Insurance Sales Agent Exclusive Agent General Agent Direct Writer

24. 4 Types of Sales Agent General Agent: • Works for one insurance company • Supervises other exclusive agents • Trains other agents Independent Insurance Sales Agent Exclusive Agent General Agent Direct Writer

25. 4 Types of Sales Agent Direct Writer: • Salaried Employee • Works for only one company • The Direct Writer is similar to an Exclusive Agent in that she works for only one company, selling insurance directly to customers. • But unlike Exclusive Agents, who work mainly for commission, Direct Writers are salaried employees. Independent Insurance Sales Agent Exclusive Agent General Agent Direct Writer

26. Captive AgentDirect WriterIndependent Sales AgentGeneral Agent Susan calls herself an insurance broker. She sells multiple lines of insurance from a variety of insurance companies. What type of agent is Susan?

27. Independent Sales Agent

28. Types of Sales Agent Here is a summary of the four types of sales agent: the Independent Agent, the Exclusive (or Captive) Agent, the General Agent, and the Direct Writer. Now that you have an idea of the different roles that sales agents can fill, let's go over their typical activities and responsibilities, as well as what it takes to become licensed as an agent.

29. Which of the following is NOT a duty of a captive agent? • Selling insurance policies • Servicing policies • Negotiating settlements • Representing the insurer

30. Negotiate Settlements

31. General AgentIndependent AgentCaptive AgentDirect Writer Tom is looking for a job in the insurance industry. He wants to work for only one insurance company, selling policies on commission basis. Which type of insurance agent position best fits what Tom is looking for?

32. Captive Agent

33. Sam works on commission only, selling only insurance product from XYZ Insurance. What type of agent is Sam? • Direct Writer • General Agent • Exclusive Agent • Independent Sales Agent

34. Exclusive Agent

35. This Agent works for only one insurer and is paid commission • Independent Agent • General Agent • Exclusive Agent • Independent Adjuster

36. Exclusive

37. This agent works for only one insurer, and supervises and trains other agents • General Agent • Direct Writer • Captive Agent • Exclusive Agent

38. General Agent

39. Which of the following statements is FALSE? • An agent is authorized to act as a representative of another party • An agent may represent more than one party • An agent always has a fiduciary duty to defend the claimant • An agent’s action are construed as those of the party she represents

40. An agent always has a fiduciary duty to defend the claimant

41. Example – Agent’s Apparent Authority For example, let's say an agent writes an insurance policy for automobile coverage on a Ferrari and takes a premium payment from the consumer. However, in the agent's contract with the insurer, he was expressly not allowed to write insurance contracts on exotic cars such as a Ferrari. The insurer temporarily overlooks this fact, and cashes the premium check the client wrote for coverage on his Ferrari. When the insurer cashes the premium check, it automatically grants apparent authority to the agent. And by cashing the premium check, the insurer has become complicit in the authority of the agent to grant an insurance contract for the Ferrari owner. • Agent’s contract forbids the agent from selling insurance on exotic cars • Agent sells insurance for exotic car anyway • Insurer ignores the mistake and cashes the check. • Apparent Authority is granted

42. Review of Agents Let's review the different types of insurance agent. Recall that an agent is one who receives the authority to act on behalf of another. Insurance companies employ sales agents and adjusters. An agent has three major responsibilities. First, he must adhere to his contract at all times. Second, he must utilize reasonable judgment when conducting insurance transactions. And, third, he must supply all pertinent information regarding a potential client or case to the insurer. There are four kinds of insurance agents. These are: Independent Insurance Sales Agent, Exclusive Agent, General Agent, and Direct Writer. Agent Receives the authority to act on behalf of another Responsibilities of an Agent • Adhere to contract at all times • Use reasonable judgment • Supply all pertinent information to the insurer Independent Agent Self-employed: sells insurance from many insurers Exclusive Agent (Captive Agent) Commissioned; offers products from only one insurer General Agent Trains and supervises exclusive agents for an insurer Direct Writer Salaried employee; works for one company