Which authority governs the relationship between the agent and the customer?

• A. Expressed Authority
• B. Implied Authority
• C. Apparent Authority
• D. Utmost Good Faith

Answer: (C)

Understanding how authority is communicated to customers helps explain this. Apparent authority is the authority the customer reasonably believes the agent has because of the insurer’s representations or the agent’s role, even if the agent doesn’t actually have that authority. In insurance, a customer may rely on the agent to bind coverage or handle policies because the insurer has given the appearance that the agent is authorized to do so. If a reasonable person would conclude the agent can perform certain acts based on the insurer’s conduct, the insurer may be bound by those acts through apparent authority.

Expressed authority is explicit permission the insurer gives the agent to act, which defines the agent’s actual authority, not what a customer perceives. Implied authority comes from the agent’s duties and the necessities of carrying out the expressed authority. Utmost Good Faith is a general ethical standard for insurance contracts, not a mechanism for defining the agent’s authority to customers.