3 Contract and Agency Flashcards
How does the definition of a valid contract relate to insurance contracts?
An insurance contract is an agreement enforceable at law between an insurer and an insured; the insured agreeing to pay a premium and he insured agreeing to pay a sum of money, or something of monetary value, on the happening of a specified event to the insured.
What are the three essential elements of a valid contract?
Offer
Acceptance
Consideration
What is meant by consideration?
Genuine meeting of minds
When is acceptable deemed complete in relation to postal acceptances?
When the letter of acceptance is posted.
What are the usual elements of consideration in a insurance contract?
The insured’s consideration is a premium and the promise to comply with policy terms; the insurer’s is a promise to compensate the insured in defined circumstances.
What rights does an insurer usually have to cancel a policy mid-term?
Most policies contain a cancellation condition allowing the insurer to cancel the policy mid-term, provided that:
- A letter is sent by recorded or registered post to the insured’s last known address;
- this gives a period of notice after which the policy will be cancelled;
- this period varies between insurers and can be anything between 10 and 30 days;
- a pro rata premium is sent to the insured for the unexpired portion of the risk.
How may an agency be created?
By consent,
Necessity and
Ratification
What is ratification?
Ratification refers to a situation where an agent has acted outside the terms of the agency agreement but the principal subsequently accepts the act as having been done on their behalf.
What are two examples of situations in which an independent intermediary may be considered as acting for the insured?
When an agent advises on cover or where the insurance should be placed.
When an agent advises the insured on how to formulate a claim.
What is apparent authority?
Apparent authority is where the agent appears to a third to have the authority to commit their principal to a certain course of action. This creates a binding contract, even if the agent had not been given authority to act in such a way. This could happen where an agent had acted on several occasions beyond their authority without being challenged or questioned by the principal. If the third party was aware of the agent’s earlier actions then the principal would not be a position to refuse to be committed on this occasion.
How may an agent be terminated?
An agency may be terminated:
- by mutual agreement between agent and principal;
- by the principal withdrawing the agency or the agent giving it up; or
- through the death, bankruptcy or insanity of either party.
What are the four general requirements that should be met when an insurer create a Terms of Business Agreement (TOBA) that will apply to its dealings with a intermediary?
All TOBA’s should;
- be clear and succinct
- reflect the business relationship;
- define and allocate responsibilities and rights; and
- ensure compliance with regulatory or statutory rules.
