Relationship between agent and insurance company

The law of agency, a separate and distinct area of the law, applies to the relationship between the insurance agent and the insurance company. A basic rule of agency law is that the principal is liable for the acts of its agents done within the scope of their agency authority. It is not to the life, health or disability income insurance company’s benefit to have agents who are acting inappropriately or illegally while they are representing the insurance company. Lawsuits against the agent invariably include the insurance company as a co-defendant for two reasons--because of the principal/agent relationship and also because the insurance company usually has deeper pockets than the agent.

Why is agency law important to policyholders? Because, unlike property and casualty insurance (homeowners and auto), the agent who sells life, health and disability income insurance is almost always regarded as the legal agent of the insurance company. Therefore, as a general rule, any wrongdoing by the agent, such as incorrectly completing your application for life, health or disability insurance, will legally be regarded as wrongdoing by the insurance company. In laymen’s terms, the insurance company of a life, health or disability income insurance agent is responsible for the acts of its agents while they are selling insurance to you. (Of course, if you are conspiring with the agent to cheat the company, that’s a different story.)