Chapter 3: Contract and Agency Flashcards
What is the purpose of a TOBA?
Between an insurer and broker - TOBAs are also used in other contexts
To govern the relationship between an insurer and a broker
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)
Offer & Acceptance
Consideration
What are the two types of acceptance?
Unconditional and conditional
Does an offer and conditional acceptance form a contract?
Bonus points for naming the precedent case
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)
What are the rules about postal acceptance?
Bonus points for naming the precedent case
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)
What is the legal definition of consideration?
Bonus points for naming the precedent case
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)
What are the insurer’s rights of cancellation?
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
What are the policyholder’s rights of cancellation for policies purchased at a distance?
(Some exclusions including short term policies)
Right to cancel without penalty or reason within 14 days (30 for payment protection). Only required to pay for services actually provided
What are the policyholder’s rights of cancellation for policies purchased face to face?
Depends on the insurer’s wording, provided they are not unfair terms
What is fulfilment?
Contract is terminated due to total loss of the subject matter
What does “ab initio” refer to?
Avoiding the contract entirely and setting it aside “from the beginning” usually due to mis-representation or non-disclosure
What is a warranty?
A term in an insurance contract which must be complied with by the insured
What happens in a breach of warranty?
The insurer is discharged from liability from the date of the breach until it is remedied
What can an insurer do in the event of a fraudulent claim?
Bonus points for the statute governing this
- Not liable for the claim
- Recover any amounts already paid for the claim
- Can choose to cancel the contract from the date of the fraudulent act with no return of premium
Insurance Act 2015
What is agency?
An agent is one authorised by a principal to bring that principal into a legal relationship with a third party
List the 3 types of agency
Consent, necessity, ratification
What is agency by consent?
Created by agreement of both parties. Usually governed by a Terms of Business Agreement (TOBA)
What is agency by necessity?
When it becomes necessary to take action to preserve the property of a third party
What is agency by ratification?
Where an agent acts without consent but the principal accepts the act after the event
What are the duties of an agent?
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
What are the duties of a principal?
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
What is express authority?
Arises from the terms of a TOBA
What is implied authority?
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
How can agency be terminated?
Mutual agreement
Withdrawn by principal
Given up by agent
Death, bankruptcy, or insanity of either party
In insurance terms, what is the consideration in an insurance contract?
The premium
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?
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)
What common type of insurance does not have a right of cancellation?
Travel insurance (short term eg less than 30 days)
What changes were brought in by the Deregulation Act 2015?
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
