Understanding Power of Attorney: A Guide for Insurance Agents

December 16, 2021

Two of the most common questions that insurance agents ask us are “what is power of attorney” and “does my customer need to submit the power of attorney form with their bond?” While granting power of attorney is not a practice unique to surety bonds, every bond issued through a broker requires the surety company to do so. Before we get into the specifics of what power of attorney is and why most surety bonds require it, it’s important to note that, when it comes to surety bonds, power of attorney is not granted to or by your customer, but rather from the surety company to the broker or agent who signs the bond on behalf of the surety company. To help insurance agents better explain power of attorney to their customers, we’ve put together this comprehensive guide explaining what power of attorney is, why it is an integral aspect of surety bonds, and why your customers need to submit a power of attorney form with their bond.

What is Power of Attorney?

Power of attorney is a legal document that states an individual or entity has the right to act on the behalf of another person in legal or financial matters. The principal (person granting power of attorney) signs the document, and explicitly grants the agent (individual/entity being granted the power of attorney) the right to act on their behalf. Power of attorney is most often used in the following situations:

• Managing the health, child care, and financial decisions of an individual who is incapacitated
• Overseeing the domestic affairs of an individual working overseas or extensively traveling
• One-time financial transactions. For example, granting a car dealer the authority to apply for a vehicle title in your name
• Granting a surety bond broker the right to issue a bond on behalf of the carrier

As referenced in the examples above, the situations requiring a power of attorney differ significantly. However, not all power of attorney documents are the same, and depending on the situation, can grant the agent varying levels of authority. Below are the different power of attorney types:

General

Begins from the moment it is signed and lasts up until the principal becomes incapable of making their own decisions. This type of power of attorney does not grant the agent the authority to make decisions for an incapacitated individual and is typically used for financial matters.

Limited

The most commonly used power of attorney, and only grants the agent power of attorney in one specific area. For example, you may grant your financial advisor general power of attorney to buy and sell stocks on your behalf. Like general, a limited power of attorney expires if an individual becomes incapacitated.

Durable

Permits an agent to act on the principal’s behalf, and includes a “durable clause” that continues the power of attorney even after the principal becomes incapacitated. A durable power of attorney starts from the moment it is signed and will remain in effect until it is explicitly canceled or the principal passes away.

Springing

Is a type of durable power of attorney, and only becomes active when a specific event occurs, such as the individual becoming incapacitated. For example, an aging man may sign a springing power of attorney granting his daughter the authority to make health care decisions on his behalf in the event he is no longer able to make decisions himself.

Why do Surety Bonds Require Power of Attorney?

The power of attorney verifies the individual signing the bond is an appointed representative of the surety company and provides the obligee with confirmation that the surety company will assume full liability for all valid bond claims. Unless the individual signing the surety bond is a corporate officer of the surety company the bond should include a power of attorney appointing an attorney-in-fact to sign the bond on behalf of the surety company. Surety bonds are legal contracts that hold the surety company liable to pay out claims made against a principal’s bond. Like all other contracts, both the principal and the surety company must sign the bond form for the terms of the bond to take effect.

Why Do Your Customers Need to Submit Power of Attorney Forms?

Your customers must submit a power of attorney form with their bond to confirm with the obligee that the bond is valid. Obligees typically understand how surety bonds work, after all, they’re the ones requiring them in the first place. Therefore most obligees are privy to the fact that surety bonds are oftentimes underwritten and issued through a third party. If your customer does not submit the relevant power of attorney documents with their bond, the obligee will most likely not accept it, as there is no way to verify the individual who signed the bond has been appointed by the surety company. BondExchange will provide your customers with the relevant power of attorney documents, and your customers simply need to attach them to their bond form prior to submission.

Do Your Customers Have any Additional Responsibilities Regarding Power of Attorney?

No, your customers’ only responsibility is ensuring that they submit the power of attorney form to the obligee along with their bond. As we mentioned above, the power of attorney required for surety bonds has nothing to do with your customers but instead represents the relationship between the agency issuing the bond and the carrier who assumes its liability.

Surety bonds are, by their very nature, confusing. It’s easy to get caught up in all of the legalese surrounding these bonds, and first-time surety buyers are often left scratching their heads when it comes to the power of attorney requirements. When explaining the power of attorney requirements to your customers, simply inform them that it signifies the relationship between the surety carrier and broker, it does not grant anyone the authority to act on their behalf, and all they need to do is attach the power of attorney document to their bond form when they submit it.

How Can an Insurance Agent Obtain a Surety Bond?

BondExchange makes obtaining surety bonds easy. Simply log in to your account and use our keyword search to find your bond in our database. Don’t have a login? Enroll now and let us help you satisfy your customers’ needs. Our friendly underwriting staff is available by phone at (800) 438-1162, email, or chat from 7:30 AM to 7:00 PM EST to assist you.

At BondExchange, our 40 years of experience, leading technology, and access to markets ensures that we have the knowledge and resources to provide your clients with fast and friendly service whether obtaining quotes or issuing bonds.