A court determining the presence or absence of inherent authority looks to the agent's direct and indirect manifestations and determines whether the third party could have reasonably believed that the agent had authority to conduct the act in question. This inquiry into the third-party's reasonable belief is a broad-based inquiry into the scope of the agent's inherent authority in light of his or her agency relation with the principal.
Defendant insured bought a car on Friday, the day before her insurance renewal date. She arranged coverage with her customary agent, who faxed the information to plaintiff insurer and requested an estimate. The agent's employee told defendant insured she was covered for the week-end and could pay on Monday. On Sunday she was involved in an accident in which defendant other insured was injured. Plaintiff denied coverage on grounds that a policy was not in force until a premium was paid. Plaintiff automobile insurer appealed a summary declaratory judgment of Marion Superior Court, Civil Division (Indiana), in favor of defendant insured. Plaintiff argued that it was not liable for losses in insureds' accident because insurance agent had no authority to bind coverage without taking premium payment.
Was plaintiff automobile insurer liable for losses in insureds' accident?
The court affirmed the declaratory judgment, because the agent acted within the scope of its inherent authority in orally renewing the policy in question. The court considered three elements to determine whether plaintiff's agent had inherent authority to orally bind plaintiff without payment: whether its acts were those usually incidental to transactions the agent was authorized to conduct; whether the customer believed the agent was authorized to perform those acts; and whether the customer had no notice that the agent was not authorized. Because defendant insureds satisfied all these requirements, there was coverage.