Property and Casualty Insurance Practice Exam

In insurance, what is Express Authority?

1. Authority inferred from the agent's actions

2. Authority granted without formal communication

3. Specifically granted authority by the principal

4. Authority that is assumed by consumers

The correct answer is: Specifically granted authority by the principal

Express authority in insurance refers to the specific powers that the principal (or insurer) explicitly grants to the agent through verbal or written communication. This authority is clearly defined, leaving no ambiguity about what the agent is permitted to do on behalf of the principal. Examples of express authority include the ability to bind coverage, negotiate policy terms, or accept payments. This type of authority is critical in defining the scope of the agent's role and responsibilities, ensuring that both the principal and the insured understand what actions the agent is authorized to take. Without express authority, agents may face limitations in their ability to act effectively on behalf of the insurer, potentially leading to misunderstandings or disputes regarding coverage or policy management. The other options focus on different types of authority. Inferred authority relates to the authority an agent might possess based on their actions or the nature of the position, while the idea of authority granted without formal communication speaks to implied authority, which relies more on assumptions rather than specific instructions. Lastly, authority that is assumed by consumers does not directly pertain to the legal relationship established between an agent and the principal. Understanding express authority is fundamental for clarity and legal compliance in insurance practices.