PSI Ohio Insurance Practice Exam

Which type of authority holds that a producer may have whatever authority a reasonable person would assume the producer has?

1. Actual

2. Apparent

3. Implied

4. Express

The correct answer is: Apparent

The correct answer is rooted in the concept of "apparent authority." This type of authority arises when a producer's actions or the circumstances surrounding their position lead a third party to reasonably believe that the producer has the authority to act on behalf of the insurer. When a producer is given certain responsibilities and acts in a manner consistent with those responsibilities, clients and other parties may assume that the producer has the authority to make decisions in line with their role. This assumption can occur even if the insurer has not explicitly granted the producer that authority. For example, if a producer regularly interacts with clients and provides them with policy information, those clients might reasonably believe the producer can bind the insurer to those policies, regardless of the actual authority that has been formally granted. This is different from actual authority, which refers to the explicit powers that are granted to the producer, either formally in a contractual agreement or verbally by the insurer. Implied authority is similarly understood but denotes powers that are not explicitly stated or written but are necessary for the producer to carry out their duties effectively. Express authority refers to powers that are clearly defined and communicated to the producer, typically found in written form. In summary, the essence of apparent authority lies in the perceptions of third parties regarding what the