Under what principle is an insurer typically bound by the actions of its agent?

The principle that binds an insurer by the actions of its agent is known as apparent authority. Apparent authority arises when a third party reasonably believes that an agent has the authority to act on behalf of the insurer, based on the agent's conduct or the insurer's representations. This means that if an insurer has previously allowed an agent to act in a certain manner and has not effectively communicated any limitations on the agent’s authority, the insurer may still be held liable for the agent's actions.

In practical terms, if an agent, for example, consistently accepts premiums or issues endorsements without formal limitations being communicated to the public or the insured, both the insurer and the insured may operate under the expectation that the agent has the authority to perform those actions. Therefore, if a third party engages with the insurer through the agent, the insurer cannot later deny the agent's authority if the third party was led to believe that the agent had such authority.

The other options describe different concepts. Independent authority would imply that the agent operates entirely on their own without any connection to the insurer, which does not hold in this context. Limited authority refers to constraints put on an agent's actions, while automatic authority is not a recognized principle in agency law. Thus, the concept of apparent