Which entities can legally bind coverage?

The answer which suggests that only insurers can legally bind coverage is clear because, in the context of insurance, binding of coverage refers to the authority to create a legal obligation that the insurer must fulfill. Insurers are the companies that underwrite policies, determine risk, and ultimately provide financial protection. They possess the binding authority because they have the risk transfer mechanism in place and the financial resources to back it, which is essential for fulfilling claims.

Agents act as representatives of the insurer and facilitate the sale of policies and communication between policyholders and insurers. However, agents generally do not have the authority to bind coverage unless expressly given that power by the insurer through a binding authority agreement. Policyholders, on the other hand, can purchase coverage but do not have the capacity to bind coverage to enforce a contract until the insurer has formally accepted the application and issued a policy.

This dynamic highlights the distinct roles each entity plays in the insurance process, with the insurer holding the ultimate authority to bind coverage.