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Gallant Ins. Co. v. Davis - 751 N.E.2d 672 (Ind. 2001)

Rule:

Apparent authority is the authority that a third person reasonably believes an agent to possess because of some manifestation from his principal. The necessary manifestation is one made by the principal to a third party, who in turn is instilled with a reasonable belief that another individual is an agent of the principal. It is essential that there be some form of communication, direct or indirect, by the principal, which instills a reasonable belief in the mind of the third party. Statements or manifestations made by the agent are not sufficient to create an apparent agency relationship.

Facts:

Christina Isaac filed an auto insurance claim with Gallant Insurance Company. She purchased a new car and asked her insurance agent, Thompson-Harris Company, to fully insure the new car. The insurance agent agreed to bind the insured immediately, and the insured was to pay the premium and sign the agreement the following week. In the meantime, the insured collided with another car. Gallant Insurance Company denied the claim, contending  that no coverage was in force on the date of the accident because the insurance agency where she purchased the policy, Thompson-Harris Company, did not have authority to bind it. The trial court found that the insurance agent had the inherent authority to bind Gallant. Gallant appealed.

Issue:

Did Thompson-Harris have authority to bind Gallant?

Answer:

Yes

Conclusion:

The Supreme Court of Indiana affirmed the judgment of the trial court on the basis that the agent had the apparent authority to bind the insurer. The court found that the doctrine of inherent authority did not apply to the case. The agency's power to bind the insurer did not arise from inherent authority because its authority did not emanate from the agency's particular status. It arose from the agency's apparent authority. The agent's dealings with the insurer contained the manifestations required for the insured to reasonably believe that the agency had authority to bind the insurer.

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