Insurance Broker Certification Practice Exam

What is an implied authority in the context of agency?

1. Authority written in the contract

2. Authority that is understood but not explicitly stated

3. Authority that is the same as express authority

4. Authority granted by law

The correct answer is: Authority that is understood but not explicitly stated

Implied authority refers to the authority that is not specifically articulated in a contract but is understood to be granted based on the nature of the agency relationship. This type of authority allows agents to perform acts that are necessary to fulfill their responsibilities even if those acts are not explicitly outlined in a written agreement. For example, if a principal hires an agent to sell a property, the agent has the implied authority to perform actions that are customary and necessary in the real estate transaction, such as conducting open houses or negotiating with potential buyers. These actions are not explicitly detailed in the contract but are inherent to the role of selling property. In contrast, express authority is clearly defined within the contractual agreement, while authority granted by law involves powers conferred by legislation rather than through agency relationships. Recognizing the nuances between these types of authority is crucial in understanding the dynamics of agency relationships and the extent of an agent's powers.