AD Banker Comprehensive Practice Exam

Which of the following is NOT true about the law of agency?

1. The agent can act on behalf of the company

2. The agent can bind the company to contracts

3. The agent must always protect the interest of the client

4. The agent represents the insurer and not the insured

The correct answer is: The agent must always protect the interest of the client

The law of agency outlines the relationship between the principal (the entity the agent represents) and the agent (the individual acting on behalf of the principal). In this context, while agents are indeed obligated to act in the best interests of their clients, it is essential to clarify the nature of their fiduciary duty. The statement regarding the agent’s need to always protect the interests of the client specifically implies that the agent’s primary duty is to the client rather than to the principal. However, the agent is typically bound to represent the interests of the insurer (the principal) instead of the insured (the client). Therefore, the agent must balance interests, but their primary responsibility aligns with the principal—this often means that there are situations where the agent’s actions prioritize the insurer’s interests over the client's. The other statements correctly reflect fundamental aspects of the agency relationship. Agents do indeed have the authority to act on behalf of the company and can bind the company to contracts within the scope of their authority. Furthermore, agents represent the insurer's interests, which reinforces the idea that the loyalty and responsibilities in the agency relationship primarily rest with the principal rather than the client.