Which entity is responsible when an agent acts outside their designated authority with apparent authority?

Apparent authority refers to a situation where an agent appears to have the authority to act on behalf of a principal (in this case, the insurer) based on the principal's representations or conduct. When an agent acts in a way that is outside their actual authority but within the limits of what the third party believes is authorized based on the principal's behavior, the principal (insurer) can be held responsible for the actions of the agent.

This principle is grounded in the idea that the principal has a duty to clearly define the authority of their agents and to convey that information to the public or interested parties. If a third party reasonably relies on the agent's apparent authority and suffers a loss due to the agent's actions, it is the principal who must bear the consequences because they created the impression of authority.

In this scenario, since the agent was acting with apparent authority, the insurer—the principal—holds responsibility for the agent's actions, regardless of whether the actions were actually within the scope of the agent's designated authority. This underscores the importance of clear communication and defined limits of authority in the agency relationship.