Property and Casualty Insurance Practice Exam

Which authority is typically stated in the agency agreement between the agent and the principal?

1. Express Authority

2. Implied Authority

3. Apparent Authority

4. General Rule of Agency

The correct answer is: Express Authority

The concept of Express Authority is a fundamental element in the relationship between an agent and a principal as outlined in their agency agreement. Express Authority is explicitly defined within the contract; it outlines the specific powers and duties that the agent has been granted by the principal. This authority can include specific tasks, limitations, and the scope of representation the agent is permitted to exercise on behalf of the principal. The distinction of Express Authority lies in its clarity and preciseness, as it is explicitly stated in the written agreement or verbally communicated between the parties. This ensures that both parties have a clear understanding of the expectations and can avoid ambiguity in their interactions. For example, if an agent is given express authority to sell a particular insurance policy, they are fully empowered to engage in that transaction on the principal's behalf. In contrast, Implied Authority refers to powers that are not explicitly stated but are necessary for the agent to perform the duties as outlined in the agency agreement. Apparent Authority relates more to the perception of authority by third parties, based on the principal's conduct, which may mislead them into believing the agent has authority that is not granted within the agency agreement. The General Rule of Agency encompasses the broader principles governing the agency relationship but does not specifically identify the