Georgia Property & Casualty Practice Exam

If an insurance agent mistakenly informs a policyholder his boat is covered, will the insurer pay for damages if the boat is not covered?

1. No, it was a mistake on the part of the agent.

2. No, but the agent should pay to repair the boat.

3. Yes, because the agent legally represents the insurer.

4. Maybe, the insurer will determine whether it pays the claim.

The correct answer is: Yes, because the agent legally represents the insurer.

The correct answer arises from the principle of agency in insurance law, which dictates that an insurance agent acts as a representative of the insurer when providing information and selling policies. If an agent mistakenly informs a policyholder that their boat is covered under a policy and that coverage proves to be inaccurate, it can lead to a situation where the insurer may still be held accountable to the policyholder for the agent's representation. In this circumstance, since the agent was acting within the scope of their authority and on behalf of the insurance company, the policyholder has the right to rely on the information provided by the agent. The insurer could be obligated to cover the damages, as the misrepresentation by the agent creates an expectation on the part of the policyholder that their boat is insured. This reliance on the agent's statements is a key element in determining the responsibility of the insurer in situations of miscommunication. This principle also emphasizes the importance of clarity and accuracy in the communications made by agents to their clients. If an agent communicates coverage incorrectly, it reinforces the notion that the insurer must uphold the commitments made through its representatives, thereby ensuring the policyholder's trust in the insurer's offerings and protection.