Author: VU Faculty

Question: "We are wholesale agents. One of our retail agents has invoked the "law of agency" as a rationale for submitting applications with his signature only, in lieu of the policyholder's. Our contention is that the broker is not a party to the insurance contract, hence any representations in an application signed only by the broker are irrelevant and would have no bearing in the event of a disputed claim or audit. What do you think?"

 

"We are wholesale agents. 99% of our business is produced by independent agents, "retail" brokers in our parlance, with whom we have no written or implied agency agreements. As an S.O.P. we require the insured's signature on every insurance application.

"One of our brokers has invoked the "law of agency" as a rationale for submitting apps with his signature only, in lieu of the policyholder's. Our contention is that the broker is not a party to the insurance contract, hence any representations in an app signed only by the broker are irrelevant and would have no bearing in the event of a disputed claim or audit.

"We have often seen cases where insurers challenge representations made in the application, but find they have no recourse if the app was not signed by the insured. Would a broker need to have written power-of-attorney to sign on behalf of an insured, in order for his representations to be as binding as the insured's?

"Or is there an accepted principle of agency here, where the broker's signature is tantamount to the insured's? Appreciate your help on this - it's an issue we battle almost daily."

First of all, to some extent, your questions are legal ones that may depend on statutes, regulations, or case law in your state. We cannot give you legal advice. However, we can comment from a procedural and E&O perspective. As such, below are some comments from the VU faculty.

The law of agency takes a year to scratch the surface in law school. As a wholesale broker you should keep to your principles and insist that the insured sign the application. Most insurers in the surplus lines market require it, regardless.

If a broker is signing the insured's name, the retail broker needs a signed power of attorney authorizing him to do so and you should have a copy of that power of attorney when you receive the application.

If an agency relationship exists between the retail broker and the insured, the broker can bind the insured. The problem for a surplus lines broker is that you have no way of knowing what the agency relationship is, how broad it is, and whether it is oral or in writing.

As Louis Mayer of MGM once said, "Your oral contract ain't worth the paper its printed on."

An application signed by ANYONE OTHER THAN THE INSURED can cook your goose. Or perhaps the goose of the person who signed it. If your agency knows the application was signed by the retail agent instead of the insured, it can create real problems for your wholesale agency. 

Disputes involving surplus lines business often involve very, very large sums of money. Your firm needs to stick to your procedures. You can do without business from rogue retail brokers.

I'm not an attorney, but it doesn't take a Harvard law professor to figure out that only the insured should be signing contracts to which he or she is a party. While perhaps it's possible, in over 30 years in the business, I've never heard of an insurance agent having power of attorney with regard to an insured's insurance programs. Have the agent take a look at the exclusions in the E&O policy and there could be one for this situation.

Law of Agency is a legal principle that, as far as I know, has nothing to do with someone's legal ability to sign contracts on behalf of others. In many states, statutes establish that the producer is an agent of the insurer, not the insured...that's the case in my state. So, while there may be situations where the Law of Agency is invoked, it would only be with respect to representation of the insurer, not insured, in some states.

I was just reading a court case yesterday (see below) where a UM declination was held to be void because the agent filled out everything except the signature. In other words, the insured signed it, but since he didn't fill the rest of the form out and check the boxes himself, the court required the agent/carrier to provide the coverage.

An agent should NEVER, EVER sign ANYTHING for an insured. EVER.

SC Supreme Court Rules on Meaningful Offer of Uninsured Motorist Coverage

On December 18, 2005, the Supreme Court handed down a ruling in the Floyd v. Nationwide Mutual Insurance Co., case No. 26088. The issue addressed and the question asked was, “Is an offer form in which the blanks were filled in by an insurance agent or his employee in the presence of the named insured, and the form was then signed by the named insured, properly completed and executed pursuant to S.C.Code Ann. § 38-77-350(B) (2002), such that the form may be conclusively presumed to constitute a meaningful offer of UIM coverage?”

The court decision was, “We conclude an offer form in which the blanks were filled in by an insurance agent or his employee in the presence of the named insured, and the form was then signed by the named insured, was not properly completed and executed pursuant to Section 38-77-350(B), such that the form may be conclusively presumed to constitute a meaningful offer of UIM coverage to the named insured.”

Detail of the case can be found at http://www.judicial.state.sc.us/opinions/displayOpinion.cfm?caseNo=26088.

If an agent's E&O carrier was aware that he was signing insurance contracts for insureds, I suspect his E&O policy would be nonrenewed, if not cancelled if the law permits. Agents and brokers are not parties to insurance contracts and have no authority to sign on their behalf.

If the broker is correct, then you have some strange laws in your state. I'd ask for a legal opinion on this, as I've never heard of an agent or broker being able to sign on behalf of an insured.

I recall a claim from a number of years ago where a remote insured authorized a CSR to sign a UM declination on his behalf. Needless to say, shortly thereafter, the insured's wife and son were killed by an uninsured motorist. He then claimed that he was never offered the coverage and that someone signed the declination to cover their fault. A $2 million verdict was rendered against the agency which had a $1 million E&O policy. The agency effectively went belly up and a number of people lost their jobs. Moral: NEVER sign ANYTHING for ANYONE for ANY reason. Period.