California Life-Only & Accident and Health AgentGeneral InsuranceHard
A newly licensed agent tells a potential client that a specific health insurance policy will cover all pre-existing conditions immediately, even though the policy has a 12-month waiting period for such conditions. This action is an example of:
- AExpress Authority
- BApparent Authority
- CImplied Authority
- DFiduciary Duty
Show answer & explanationAnswer & explanation
Correct answer: B. Apparent Authority
Apparent authority (or ostensible authority) is the authority a third party (the client) reasonably believes the agent has, based on the insurer's actions or inactions, even if the agent does not have actual express or implied authority. The insurer may be bound by the agent's statements in this case because the client reasonably believed the agent was authorized to make such claims.
Why the other options are wrong
- A. Express authority is directly granted to the agent in writing or verbally by the insurer.
- C. Implied authority is not explicitly granted but is necessary to carry out express authority.
- D. Fiduciary duty is the agent's obligation to act in the best interest of their client.
Apparent Authority
Apparent authority is the authority a third party reasonably believes an agent possesses due to the insurer's actions or representations, even if not explicitly granted.
- Based on the client's reasonable belief.
- Insurer may be held liable for agent's actions.
- Also known as ostensible authority.
Memory trick: Agents have Express, Implied, and Apparent authority – remember EIA for 'Every Insurer Authorizes'.