The Agent's Ultra Vires Endorsement
A general insurance agent, appointed as an intermediary for a household insurer, has authority to bind household risks up to £500,000 sum insured and to issue standard endorsements. A long-standing client asks the agent to add cover for a home-based business making and selling candles, which involves hot wax and open flame. The agency agreement expressly excludes 'trade or manufacturing risks' and requires referral to the insurer. The agent, wanting to keep the client, issues a written endorsement adding 'business contents and public liability up to £250,000' and tells the client 'you're covered'. Three months later a candle-making fire destroys the client's garage and damages a neighbour's fence. The insurer, on receiving the claim, says the agent had no authority to issue the endorsement and declines. The client says she relied on the agent's assurance.
1. Analyse the authority position: actual, apparent, and the insurer's liability for the agent's act.
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Actual authority. The agency agreement limits the agent to household risks up to £500,000 and standard endorsements, and expressly excludes trade or manufacturing risks. The candle business is a manufacturing risk. The agent therefore had no actual authority to issue this endorsement. Actual authority is the starting point and it is absent.
Apparent (ostensible) authority. Apparent authority arises where the principal's conduct represents that the agent has authority, and a third party reasonably relies on that representation. Here the insurer appointed the agent as its intermediary and allowed it to issue endorsements. A client dealing with an appointed agent could reasonably believe the agent could add business cover. The insurer's own appointment created the appearance of authority. The exclusion in the agency agreement is an internal document the client never saw; it does not by itself defeat apparent authority.
The insurer's position. Where an agent acts within apparent authority, the principal is bound, and the insurer must honour the endorsement and then pursue the agent for breach of mandate. The insurer cannot rely on an internal restriction to defeat a client who reasonably relied on the agent's apparent authority.
The client's position. She has a strong reliance argument: she received a written endorsement and an express assurance of cover. Even if apparent authority were contested, the insurer's own conduct in appointing and holding out the agent supports her.
Conclusion. The insurer is likely bound to the £250,000 limit, subject to policy terms, and should look to the agent for indemnity and to its own agency-supervision failures.
2. What should the insurer do about the agent, and what conduct issues arise?
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Against the agent. The agent breached the agency agreement by issuing an endorsement outside its authority and by failing to refer a manufacturing risk. The insurer should issue a formal breach notice, seek indemnity for the loss it must pay, review the agent's other endorsements for similar ultra vires acts, and consider suspension or termination. The insurer should also check whether the agent's professional indemnity cover responds.
Conduct issues. Several arise:
- Misrepresentation. The agent told the client 'you're covered' when it had no authority to give that assurance. That is a misrepresentation of the scope of cover, and it exposes the agent to a professional-negligence claim and potentially to regulatory action.
- Conflict of interest. The agent put its desire to retain the client above its duty to the insurer and above accurate advice to the client. That is a conflict the agent should have disclosed and managed.
- Record-keeping. The agent should have documented the referral it was required to make. Its failure to do so undermines any argument that it acted reasonably.
- Fair treatment of the client. The client was left believing she had cover that the insurer may dispute. The insurer and agent should resolve the position promptly and transparently, and the client should be told clearly what is and is not covered going forward.
Systemic fix. The insurer should audit endorsements issued by appointed agents, tighten the referral process, and require written confirmation of authority limits at each renewal. The agent should be required to complete training on authority and on manufacturing-risk referrals.