What does the Law of Agency establish?

The Law of Agency establishes the relationship between the principal and the agent. In the context of insurance, this typically means that the insurer (the principal) authorizes the insurance agent to act on its behalf to sell policies, solicit applications, and manage other business dealings related to insurance services. This relationship is fundamental in understanding how agents operate, their authority to act for the insurer, and the obligations that arise from this relationship.

In insurance, the agent is empowered to represent the insurer and must act in the best interest of the principal, adhering to the terms of the agency agreement. The agent's actions within the scope of their authority bind the insurer, meaning that any commitments made by the agent that fall within this scope are enforceable against the insurance company. This principle underscores the importance of trust and comprehension in the client-agent-insurer dynamic, as the agent must act with good faith and loyalty towards the principal while managing client expectations and needs effectively.