Agency By Ratification
What Does Agency By Ratification Mean?
Agency by ratification refers to the process of granting authority to someone retroactively when they have previously acted without authorization. This authority can be granted formally through written documentation or another means of ratification.
Ratification is defined as “approving something.” There are two types of ratification: expressed and implied. Expressed ratification occurs when the terms of authority are clearly defined, either verbally or in writing, such as through a receipt. Implied ratification happens when authority is assumed but not explicitly stated. For example, it is implied that when someone sits down at a restaurant and orders food, they will pay for the meal at the end.
An insurance agent acts on behalf of an insurance company and is only authorized to perform actions within their scope of authority, typically involving the sale and administration of insurance policies. When the insurance agent completes a sale, the insurance company that accepts the agent’s actions becomes responsible for any resulting consequences, including liability for contracts made by the agent.
Insuranceopedia Explains Agency By Ratification
Because insurance operates under contract law, a contract signed without authorization by one of the parties is typically considered null and void. In most cases, an insurance company will not accept an agent’s actions, even retroactively, if those actions are unauthorized. Insurance companies generally aim to ensure they are not held liable unless they can assume the risk themselves.
That said, here is an example of how agency by ratification could occur during an insurance sale:
An insurance broker is working on a Saturday and receives a phone call from a client seeking auto insurance for a truck with engine modifications. The broker finds a good deal for the client and completes the paperwork. The broker knows that engine modifications require approval from the insurance company’s underwriting team but is confident it will be approved, given her past experience. The client signs the application form and pays the premium. The broker sends the payment to the insurance company’s accounting department and forwards the application to the underwriter for approval. She provides the client with a proof of insurance card, stamped with Saturday’s date, and the client is on their way.
Technically, the insurance broker is not authorized to provide insurance until the application is approved by underwriting, especially if there are nonstandard aspects to the risk (such as engine modifications). However, by Monday, the insurance company accepts the premium payment in its accounting department, and by Tuesday, underwriting approves the application, even with the engine modifications. With the acceptance of the payment, the agreement is retroactively ratified by the insurance company, which also assumes the risks associated with the insurance contract. As the insurance company accepted the relationship between the broker and the company, this is an example of agency by ratification.
