Insurance agents are the legal representatives of insurers. However, an insurer is not always bound by an agent's actions. In some instances, the insurer will not be bound by misrepresentations made by the agent to the insured.

Misrepresentation alters policy

In determining whether an agent's misrepresentation will bind an insurer, some courts look to the effect that such misrepresentation would have on the policy. If the misrepresentation involves an outright alteration of the policy, the misrepresentation may not bind the insurer.

No reliance by insured

An insured must reasonably rely on an agent's misrepresentation in order to hold the insurer liable. However, statements made by agents must be considered in context, and the insured's reliance may be unreasonable under certain circumstances. For example, if an agent who is unfamiliar with an insured's policy makes a statement about a provision contained therein, it may not be reasonable for the insured to rely on the accuracy of the statement.

No agency

An insurer is not bound by the actions or misrepresentations of those who are not its agents. The determination of whether or not an agency relationship exists between the insurer and the alleged agent depends upon the circumstances of each case.

No authority

A soliciting agent generally has authority only to initiate contracts. He may not decide the terms of a new policy, consummate the policy, or change the terms of an existing policy. Thus, an insured's reliance on any misrepresentation made by the soliciting agent regarding coverage is not reasonable, especially if the application specifies the agent's limited authority.

An insured's reliance on a misrepresentation by a general agent, who has more authority than that of a soliciting agent, may still be unreasonable because a general agent usually cannot vary the policy. Thus, if the misrepresentation directly conflicts with the policy provisions and information given by the insurer to the insured, the insurer may not be bound by it.

Opinions

An agent's opinion on a matter that is not verified by an insurer may not bind the insurer. For example, an agent may state that he believes that the insurer will not assert a certain defense to a claim on the policy, but such statement is not a fact. Thus, the insurer may not be bound. In addition, the insured may not hold the agent liable for stating such an opinion if it was not made negligently or fraudulently.

When agent completes application

If an agent incorrectly completes an insured's application by failing to record all relevant information provided by the insured, the insurer may still be permitted to deny coverage for a loss based on a misrepresentation on the application if the insured signed the application knowing that it was incorrect.

Copyright 2010 LexisNexis, a division of Reed Elsevier Inc.