Insurance agents act on behalf of one or more insurance companies. That relationship between the insurance agent and the insurance company provides authority for the agent to act for and bind the insurance company. Insurance brokers, on the other hand, represent insurance purchasers rather than insurance companies even though insurance brokers may receive their commissions from insurance companies. Insurance brokers do not have authority under principal-agent or employer-employee theories to bind the insurance companies that provide the policies insuring companies or individuals.
Insurance agencies may differ according to the amount of authority granted by insurance companies to the agency. A general agency may have authority to issue its own contracts of insurance under which an insurance company will be bound to provide coverage. Soliciting agencies may have authority only to receive and forward insurance applications but not have authority to bind the insurance company. However, such soliciting agencies still may be found to have apparent authority to bind an insurance company depending upon the factual situation presented to the court.
Generally, insurance brokers represent only the insurance purchaser. However, because the income of the broker normally comes from the insurance companies providing the insurance, questions may arise as to the degree to which an agency relationship between a broker and an insurance company should be inferred.
An insurance broker will have a duty to the purchaser to carry out its obligation to obtain correct types and amounts of insurance for the purchaser to the extent possible. Normally, a broker would not be responsible to meet obligations to the insurer or to meet obligations of the insurer to the purchaser. However, depending upon the factual situation, there may be sufficient reasons for a court to decide that obligations of an agent have arisen for an insurance broker.