CH 3 CONTRACTS AND AGENTS Flashcards
What is Contract Law defined by Smith and Keenan’s English Law
This is an agreement, enforceable by law between two or more persons, to do or obstain from doing some act or acts, their intention being to create a legal relation and not merely to exchange mutual promises
What is an insurance contract
This is an agreement enforceable by law between insurer and insured.The insured will agree to pay a premium to the insurer and abide by the terms and condition. In return the insurer agrees to pay the insured a sum of money or something of monetary value, in the happening of a specified event
What elements are essential for a contract to be valid
The Main ones are Offer and Acceptance and Consideration Other important elements include 1.Intention to create legal relation 2.Capacity to Contract 3.Geniune meeting of minds 4.Legality of purpose 5.Possibility of Performance 5. Certainty of terms
How must all parties in an insurance contract act
They must act in Good Faith
When does a contract exist
When one party makes an offer the other party accepts unconditionally
What are the three types of acceptance of an insurance contract
- Unconditional Acceptance
- Conditional Acceptance
- Postal Acceptance
What does a counter offer act as
Counter Offer operates as a rejection of the original offer
How does Postal Acceptance Work
Contract is made when the acceptance is received by the offeror(the person making the offer), at the point when the letter of acceptance is posted.
The rule applies even when the letter is lost/destroyed/delayed
what is void ab initio, and when is a contract legally said to be void ab initio
void ab initio means void from the beginning, this happens when a contract is declared invalid or set aside if its missing any of the essential elements to a valid contract
According to Currie Vs Misa(1875) what is consideration
Some right, interest, profit or benefit accruing to one party or some forbearance, detriment loss or responsibility given, suffered or undertaken by the other
simple description of Consideration
Each person’s side of the bargain which supports the contract
What is the common but not the only form of consideration for one party
Payment of Money
What does the fair treatment of customers principle and ICOBS imply for the insurer to do
It implies the insurer to alert the customer to the fact that the cover will expire soon
New Regulatory rules introduced by the FCA in April 2017 requires insurers and intermediaries to
- disclose previous year’s premium on renewal notices
- include a text to encourage consumers to check their cover and shop around for good deals each renewal
- identify consumers who have renewed for four consecutive times, and give them additional prescribed notice encouraging them to shop around
Most General Insurance polices have a cancellation condition,if the insurer invokes this cancellation what is the insured entitled to
The Insured is entitled a pro rata return premium,representing the unexpired part of the risk
When an insurer cancels cover, what are they required to send to the insured
they are required to send a letter to the last known address of the insured, they could give 10/14/30 day’s notice of cancellatio
A consumer has the right to cancel their policy without penalty within and giving reasons for most insurances purchased at a distance, how many days
They must exercise their rights within 30 days for payment protection contract or 14 days for any other
which policy can the insurer not charge an amount for when cancelled
a payment protection contract
For face to face purchased insurance, policyholder can cancel cover but
The insurer is entitled to charge for cover already provided at their short period rates
As with any other contracts, termination can result from
- Fulfillment
- Voidable Contracts
- Breach of Warranty
- Fraudulent acts
Fulfillment
This means total loss of the subject matter
Voidable contracts
This may arise under insurance policies, where the insured is in breach of a policy condition that places a continuing requirement upon them.If insured fails to do so the insurer may treat the policy as void. If insured does no have insurable interest contract is voidable
An example of a voidable contract
Where the insured is required to maintain equipment in efficient working order and they fail to do so
When can the insurer have a right to avoid paying particular claim, but the policy will remain in force
When the insured fails to fulfill a condition relating to a claim
When can an insurer avoid contract entirety setting aside ab initio
This can arise as a consequence of non-disclosure or misrepresentation of information by the policyholder
Breach of Warranty
Leads to the automatic discharge of insurer’s liability without the need to terminate the contract
What is a warranty
According to the Marine Insurance Act `1906,is a term in insurance contract that must be exactly and literally complied with by insured whether material to the risk or not. Departure from the requirement is reason for breach
What change on breach of Warranty did the Insurance Act 2015 bring about
Breach of Warranty no longer automatically terminates the contract, Insurer will not be liable for losses occurring during the time of suspension but will be liable for losses occurring after breach has been remedied
Under the Insurance Act 2015,what rights can insurers exercise in case of fraudulent acts
Insurers can elect to terminate an insurance contract with effect from the time of fraudulent act without return of premium
When a fraudulent claim is made, insurer
- is not liable to pay claim
- can recover any amounts already paid for the claim
- can choose to terminate contract from the date of fraudulent act
If the insurer chooses to terminate the contract, they
- refuse liability for all matters occurring the date after the fraudulent act
- don’t have to return premium
In law,who is an agent
Is one who is authorized by a principal to bring the principal into a contractual relationship with a third party.(anyone who acts on behalf of another person is an agent)
What are the three ways of creating an Agent/Principal relationship
- Agent by Consent
- Agent by Necessity
- Agent by Ratification
Agent by Consent
This is the most usual way of creating relationship between principal and agent by consent/agency by agreement
What is in Terms of Agreement issued by insurer to their agent
- the terms and conditions of the appointment
- the extent of the agent’s authority
- how money is handled and accounted for
What is in Terms of Agreement issued by intermediaries to their clients
Setting out the services the offer and responsibilities for both parties
An agency may created by consent in either
An Express or Implied way
Creating an agency in an express way involves
This involves means of express appointment where the terms of the appointment are written down or orally even though its rare in insurance
Creating an agency in an implied way involves
This involves where work is undertaken and commission is paid to the agent but nothing is actually written down. specific agreement
Agent by necessity
This arises when a person is entrusted with someone else’s goods and becomes a necessity to act a certain way to preserve property in an emergency
Agency by ratification
When an agent acts without authority, but principal accepts the act as having been done by the agent on their behalf, the principal’s agreement after the event is the ratification
Why are Insurance Intermediaries exception to the general rule of representing only one of the contracting parties
This is because they may at different times, act for the insured and the insurer
When is an independent intermediary considered to be an agent of the insured
- When they give advice on cover of placing insurance
2. giving advice to insured on how to make claim or assisting them with it
When is an independent intermediary considered to be an agent of the insurer
- if authorized by an insurer to receive and handle proposal forms on their behalf and confirm cover
- If the intermediary surveys and describes property on the insurer’s behalf
- if they have authority to collect premium and does so
- if they are authorized to pay claim by the insurer
What are the duties of an agent
- Obedience
- Personal Performance
- Due Care and Skills
- Good Faith
- Accountability
What are the duties of a principal
- Remuneration- in insurance means commission
- Indemnity- agent has the right to claim indemnity for expenses or losses incurred when acting on the principal’s behalf
The Consequences of an agent’s actions on the principal will depend on which influential factor
It will depend on the extent of the agent’s authority
What type of authority can an agent have
- Actual Authority
- Apparent Authority
- No Authority
What is an example of an implied authority
Example agent having to travel to a particular place to carry out principle instruction, travel cost are met without any need of a specific agreement
How can an agency be terminated
- Mutual agreement between principal and agent
- The agency being withdrawn by the principal or by the agent
- The death,bankruptcy or insanity of either party
Apparent authority
An agent can work on the behalf of a principle but this will not create a binding contract with the principal,it requires the principal’s conduct to indicate that the agent is acting on their behalf
Who gives guidance on the Insurers TOBA
The Association Of British Insurers
what should TOBA allocate
They should allocate rights and responsibilities
What are the General Requirements for TOBA
- be clear and succinct
- reflect the business relationship
- define and allocate responsibilities and rights
- ensure compliance with regulatory or statutory rules
What is the status obligation on the TOBA
The broker is required to update insurer on their regulatory status and of any change to it
What is the Commission obligation on the TOBA
Commission should be clearly stated and updated from time to time,a minimum notice period for changes. And when commission is due and payable should be given
What is the Material Information obligation on the TOBA
ABI recommends that intermediary provides all material information to the insurer as an agent of the policyholder, unless they are granted delegated authority to act on the behalf of the insurer
What is the Premium and Credit obligation on the TOBA
deals with the responsibility for the credit risk in relation to premiums both paid and refunded while in the hands of the broker, it will specify the type of account permitted to hold premium
What is the Claim Money obligation in the TOBA
It will specify whether the insurer or broker bear credit risk in relation to claim money held by the broker
What should be included in the broker/client relationship obligation in the TOBA
ABI suggests the insurers should include non-solicitation clause, effectively barring insurers from acquiring the business placed through the broker, in a period of 5 years. This is just a suggestion
What is the
Direct administration arrangements obligation in the TOBA
This section clarifies that insurer’s role to the policyholder is limited to fulfilling statutory or contractual responsibilities. Any other communication shall be done through the intermediary
What is the
Termination obligation in the TOBA
This section specifies the arrangements for termination where there is fault or no fault
What are some of the facts that would lead to the Termination of TOBA between Insurer and an agent
- suspicion for dishonesty or fraud
- change of regulatory status
- administration arrangements causing prejudice to the policyholders
- failure to remedy the breach of TOBA within a timescale
- bankruptcy or receivership
- irredeemable breach of the TOBA
What is the
Authority obligation in the TOBA
If any delegated authority is granted it will be stated in the TOBA, including with their terms
