Georgia Adjuster Practice Test

What principle defines the authority an agent believes they have to perform their job?

1. Express authority

2. Implied authority

3. Apparent authority

4. Inherent authority

The correct answer is: Implied authority

The principle that defines the authority an agent believes they have to perform their job is known as apparent authority. This concept arises when a third party perceives that an agent has the authority to act on behalf of another person (the principal), even if that authority has not been explicitly granted. Apparent authority is based on the representations made by the principal to the third party, leading the third party to reasonably believe in the agent's authority. For example, if a principal has allowed an agent to engage in certain transactions multiple times and conveys this through their actions or communications, a third party may believe that the agent has broader authority than what is formally documented. This belief can bind the principal to contracts or agreements made by the agent, even if the principal intended to limit the agent's authority. Understanding apparent authority is critical for both agents and principals, as it influences the dynamics of agency relationships and the potential legal implications of actions taken by agents in their roles.