Chapter 3: Contract and Agency

Question 1

What is the purpose of a TOBA?

Between an insurer and broker - TOBAs are also used in other contexts

Answer 1

To govern the relationship between an insurer and a broker

Question 2

An agreement must satisfy what 2 criteria to be considered a valid and enforceable contract?

(There are others but they are not included in the syllabus)

Answer 2

Offer & Acceptance

Consideration

Question 3

What are the two types of acceptance?

Answer 3

Unconditional and conditional

Question 4

Does an offer and conditional acceptance form a contract?

Bonus points for naming the precedent case

Answer 4

Not unless accepted by the initial proposer - the conditional acceptance becomes a new offer (a counter offer) and rejects the original offer

Hyde v Wrench (1840)

Question 5

What are the rules about postal acceptance?

Bonus points for naming the precedent case

Answer 5

If the parties have agreed to communicate by post the acceptance is complete at the point when the letter is posted, even if it is delayed, lost, and never received by the other party

Household Fire Insurance Co v Grant (1879)

Question 6

What is the legal definition of consideration?

Bonus points for naming the precedent case

Answer 6

Some right, interest, profit or benefit accruing to one party, or some forebearance, detriment, loss or responsibility given, suffered, or undertaken by the other

Currie v Misa (1875)

Question 7

What are the insurer’s rights of cancellation?

Answer 7

Depends on the policy. Most have a cancellation condition allowing the insurer to cancel providing they send a letter to the insured’s last known address providing 14 days of notice of cancellation. The period of notice is set by the insurer. They then owe a pro rata return premium representing the risk not covered

Question 8

What are the policyholder’s rights of cancellation for policies purchased at a distance?

(Some exclusions including short term policies)

Answer 8

Right to cancel without penalty or reason within 14 days (30 for payment protection). Only required to pay for services actually provided

Question 9

What are the policyholder’s rights of cancellation for policies purchased face to face?

Answer 9

Depends on the insurer’s wording, provided they are not unfair terms

Question 10

What is fulfilment?

Answer 10

Contract is terminated due to total loss of the subject matter

Question 11

What does “ab initio” refer to?

Answer 11

Avoiding the contract entirely and setting it aside “from the beginning” usually due to mis-representation or non-disclosure

Question 12

What is a warranty?

Answer 12

A term in an insurance contract which must be complied with by the insured

Question 13

What happens in a breach of warranty?

Answer 13

The insurer is discharged from liability from the date of the breach until it is remedied

Question 14

What can an insurer do in the event of a fraudulent claim?

Bonus points for the statute governing this

Answer 14

1. Not liable for the claim
2. Recover any amounts already paid for the claim
3. Can choose to cancel the contract from the date of the fraudulent act with no return of premium

Insurance Act 2015

Question 15

What is agency?

Answer 15

An agent is one authorised by a principal to bring that principal into a legal relationship with a third party

Question 16

List the 3 types of agency

Answer 16

Consent, necessity, ratification

Question 17

What is agency by consent?

Answer 17

Created by agreement of both parties. Usually governed by a Terms of Business Agreement (TOBA)

Question 18

What is agency by necessity?

Answer 18

When it becomes necessary to take action to preserve the property of a third party

Question 19

What is agency by ratification?

Answer 19

Where an agent acts without consent but the principal accepts the act after the event

Question 20

What are the duties of an agent?

Answer 20

Obedience - must comply with the principals instructions
Personal performance - Cannot delegate duties
Due care and skill
Good faith - Act in principals interests
Accountability - keep record of all transactions

Question 21

What are the duties of a principal?

Answer 21

Remuneration - Owed to the agent. In insurance this would be commission/brokerage
Indemnity - Subject to terms in TOBA, agent can claim for expenses or losses incurred when acting on the principals behalf

Question 22

What is express authority?

Answer 22

Arises from the terms of a TOBA

Question 23

What is implied authority?

Answer 23

If an agent must do certain things in order to carry out express instructions, they have implied authority to do so. For example if an instruction must be carried out in a certain place the agent could claim travel expenses for going there

Question 24

How can agency be terminated?

Answer 24

Mutual agreement
Withdrawn by principal
Given up by agent
Death, bankruptcy, or insanity of either party

Question 25

In insurance terms, what is the consideration in an insurance contract?

Answer 25

The premium

Question 26

If I offer to sell you something for £1000 and you offer me £800 and I decline, has a contract been formed? Why/Why not?

Bonus: What about if you then agree to pay £1000?

Answer 26

No - the counter offer of £800 acts as a rejection of the original offer

Bonus - Only if I accept. Since the counter offer of £800 rejected the initial sale offer of £1000 I must then agree to your offer to buy for £1000. If I decline then there is no contract (See Hyde v Wrench 1840)

Question 27

What common type of insurance does not have a right of cancellation?

Answer 27

Travel insurance (short term eg less than 30 days)

Question 28

What changes were brought in by the Deregulation Act 2015?

Answer 28

When motor policyholders cancel their policy mid-term they are no longer required to return the certificate of insurance or make a declaration that the policy is no longer in effect