South Dakota Crop Insurance Practice Exam

What type of authority is granted by the principal to the agent through a contract?

1. Implied authority

2. Express authority

3. General authority

4. Limited authority

The correct answer is: Express authority

The correct choice is express authority, as it specifically refers to the power granted by the principal to the agent through a clear, verbal, or written agreement. This type of authority is straightforward and explicitly defines what actions the agent is authorized to take on behalf of the principal. For example, if a farmer enters into a contract outlining specific tasks for an insurance agent, those tasks form the express authority of that agent, permitting them to act within the limits established by the principal in the contract. Implied authority, on the other hand, arises from the situation and the actions of the principal, which may not be explicitly stated in a contract but are necessary for the agent to fulfill their duties effectively. General authority typically allows an agent to perform a range of actions or make decisions in a broad sense, while limited authority restricts the agent’s power to specific areas or tasks. Express authority is distinct because it is directly outlined and agreed upon, making it the most appropriate choice for this question.