Agency By Estoppel
What Does Agency By Estoppel Mean?
In legal terms, an “agent” is someone authorized to act on behalf of another. An agency relationship can exist between individuals, individuals, and corporations, or between corporations. The agent has the authority to make decisions on behalf of another entity, and those decisions are binding as if the entity were making them directly.
When an agency relationship is established, the agent has a legal duty to act in the best interest of the person they represent. In the case of insurance, for example, your insurance agent has the legal duty to act in your best interest and assist with any questions or concerns you may have.
Agency by estoppel is a legal concept where someone creates the impression to a third party that they are an agent of another individual or company. Although this agency is not officially appointed, the agent by estoppel is not authorized to represent the person or company they claim to be working for.
Insuranceopedia Explains Agency By Estoppel
Agency by estoppel occurs when, despite the absence of a formal agency agreement, the Principal (the party who appointed the agent to represent them) is complicit in creating the appearance of an agency relationship. Although agency by estoppel is not an officially authorized agreement for representation, it still establishes a legally binding agency relationship.
This means that an individual or company cannot give the impression that someone is acting on their behalf and then distance themselves from the consequences of that individual’s actions. For example, if a company provides office stationery, branded business cards, and office space to someone, thereby creating the appearance that the person is an official representative, the company is liable for that person’s actions on its behalf, including any loans or insurance policies they have issued.
In simpler terms, the principal is legally prevented (estopped) from denying that the third party was their agent if they were complicit in creating the impression that the third party was an authorized representative. This applies even if the principal was negligent and gave that impression unintentionally.
In the insurance industry, where everyone must be licensed and affiliated with an insurance brokerage, agency by estoppel issues are relatively common. This often happens when the insurer or their agent (your insurance advisor) leads the insured to believe that coverage exists when it actually does not.
In such cases, the insurer remains liable for covering those technically uninsured losses. Since the agent implied that coverage was available at the time of sale, the insurer is estopped from denying the claim on that basis.
