All the following statements concerning renewal premium payments made to agents are correct EXCEPT

• A. An insurance company is required to treat payments to agents of the policyowner as payments directly to the insurer.
• B. An insurance company is required to treat payments to its authorized agents as payments directly to the insurer.
• C. The apparent authority of an agent to receive payments can exist without a grant of actual authority.
• D. The collection of payments retained by the authorized agent of an insurance company is strictly a matter between the insurer and its agent.

Answer: (A)

The concept here is how premium collections by agents relate to the insurer’s liability and authority. When an agent is authorized to collect renewal premiums, those payments are treated as payments to the insurer if the agent has actual authority or if the insurer has created apparent authority through its representations. Apparent authority can arise even without a written grant of authority if the insurer’s conduct leads the policyowner to believe the agent can collect premiums. The relationship between the insurer and the agent governs how payments are handled and who bears responsibility for funds collected.

Why the exception statement is the best choice: claiming that the insurer is required to treat payments to agents of the policyowner as payments directly to the insurer is too absolute. Whether a payment is treated as having been made to the insurer depends on the agent’s authority. If the agent is not authorized, or if there’s no basis for apparent authority, the payment may not be credited as a direct payment to the insurer. The other statements reflect the typical and correct principles: payments to authorized agents are treated as payments to the insurer; apparent authority can exist without actual authority; and the collection and handling of payments by an authorized agent is a matter between the insurer and the agent.