5. Contract and Agency

Question 1

What is a contract?

Answer 1

Law of bargains, one person agrees to perform a certain act, if and when the other party performs a certain act

Question 2

What does a contract need to be valid and enforceable?

Answer 2

1. Offer
2. Acceptance
3. Consideration

Question 3

What are the other important elements of a valid contract?

Answer 3

Intention, capacity, consensus ad idem (meeting of minds), legality

Question 4

What does void ab initio mean?

Answer 4

Void from the beginning

Question 5

What is acceptance?

Answer 5

Contract comes into existence when one party makes an offer which the other accepts unconditionally

Question 6

What is unconditional acceptance?

Answer 6

Acceptance that doesn’t alter any terms, final and unqualified agreement

Question 7

What is conditional acceptance?

Answer 7

New terms are introduced and the acceptance becomes a counter offer
Counter offer operates as rejection of original offer

Question 8

What is postal acceptance?

Answer 8

General rule is contract is made when acceptance is received by offeror
Where post is method of communication - acceptance completed when letter is posted

Question 9

What did Household Fire Insurance Co v Grant 1879 establish?

Answer 9

Acceptance is still completed when letter is posted even of delayed, lost or destroyed and never reaches offeror

Question 10

What is consideration?

Answer 10

Must be supported by this to be valid - Currie v Misanthropist 1875
Most common form is money but can exchange promises to perform act

Question 11

How can you cancel insurance contract?

Answer 11

Contract expected to continue to renewal, no obligation to offer renewal terms but have to alert customer under fair treatment principle in ICOBs

Question 12

What new regulatory rules were introduced by FCA April 2017 regarding cancellation at renewal

Answer 12

Renewal should be offered in good time
- disclose last years premium
- include text to shop around
- extra text for customers who have renewed 4 consecutive times

Question 13

How can you cancel a policy mid term?

Answer 13

Governed by the terms and conditions

Question 14

What are insurer’s rights to cancel

Answer 14

Most policies have cancellation condition
Letter sent to insureds last know address giving 10, 14, 30 etc days of notice
Pro rata premium sent back but can charge cancellation fee

Question 15

What are the insured’s rights to cancel?

Answer 15

Right to cancel without penalty and giving reason - main exceptions are travel, bagged and policies for less than one month
Must exercise right 30 days PPI and 14 days other insurances

Question 16

What did the Deregulation Act 2015 do?

Answer 16

Policy cancelled mid term then don’t have to return motor certificate

Question 17

What are the other ways to terminate an insurance contract?

Answer 17

• Fulfilment eg total loss
• Voidable contracts (put contract aside if breach policy condition)
• Breach of warranty but IA 2015 no longer automatically terminated instead no liability for losses
• Fraud IA 2015. terminate from time of fraudulent act without RP

Question 18

What is an agent?

Answer 18

Agent is authorised by a principal to bring them into a contract with a third party
Created 3 ways: consent, necessity and ratification

Question 19

What is agency by consent?

Answer 19

Both parties enter legally enforceable agreement and TOBA issued (express)
Implied where work undertaken and commission paid without writing it down

Question 20

What is agency by necessity?

Answer 20

Person entrusted with someone’s goods and necessary to act certain way to preserve in an emergency

Question 21

What is agency by ratification?

Answer 21

Agent acts without authority but principal accepts the act

Question 22

What are the duties of an agent?

Answer 22

• Obedience
• Personal performance (not delegate)
• Due care and skill
• Good faith (no conflict of interest, bribes or secret commission)
• Accountability (all money received and proper records)

Question 23

What are the duties of a principal?

Answer 23

• Renumeration
• Indemnity - expenses or loss occurred while acting on behalf of principal

Question 24

What do independent insurance intermediaries act for?

Answer 24

Exception as at different times act for insured and insurer

Question 25

What is an undisclosed principal?

Answer 25

Permitted to act for undisclosed principal while seeming to act on own behalf

Question 26

What is actual authority?

Answer 26

1. Express - arises from terms of agency agreement in writing or oral
2. Implied - has to undertake certain action to carry out express instructions

Question 27

What is apparent authority?

Answer 27

• Agent never appointed but claims to act on behalf of principal (not binding contract with principal). Require principal’s conduct to indicate acting on their behalf
• Agent validly appointment but not permitted to carry out certain tasks. Determine if contract valid and action usual in that trade or profession

Question 28

How can agency be terminated?

Answer 28

• Mutual agreement
• Withdrawn
• Death, bankruptcy or insanity

Question 29

What are the general requirements of a TOBA?

Answer 29

• Clear and succinct
• Reflect business relationship
• Define / allocate responsibilities
• Ensure regulatory and statutory compliance

Question 30

What are other features of a TOBA?

Answer 30

• Status: obligation on broker to advise their regulatory status
• Commission
• Material information
• Premiums and credit
• Claim money
• Broker / client relationship: non-solicitation clause
• Direct administration arrangements
• Claims
• Termination