Chapter 4 - Contract & Agency Law (6 Qs) Flashcards
What are the 4 key legal duties on brokers imposed by the Law of Agency when acting as agents for their principal (client) - important ones to learn
- Duty of obedience - perform all principles instructions lawfully and timely
- Duty of due skill and care - exercise reasonable skill and care in performance of instructions
- Duty of good faith - always acts in best interest of principle, avoid conflicts on interest and disclose any circumstances which may give rise to conflict to the principle
- Duty of Accountability - account to their principle for all monies they may received on their principles behalf and keep record
Are agents allowed to delegate tasks?
Yes - if has the principles permission. Can outsource tasks with no question of judgement e.g. accounts, IT (outsourcing)
Does broker commission need to be disclosed?
Yes - if requested by the principle. As most are paid through commission by the Insurer, many disclose in effort to be more transparent.
What is a fiduciary relationship?
Relates to holding something in trust for another.
What are the two duties of a principle to their agent?
- Remuneration - if not agreed before, agent has a right is to what is considered ‘reasonable’
To earn the fee, broker must prove they are the effective cause of the transaction. - Indemnity - right to claim from their principle an indemnity against all expenses or losses incurred when acting on their behalf. Also, principle cannot conceal or misrepresent any information
An insurance broker is considered to be the agent of the insured when?
- Giving advice on types of cover or placing the insurance
- Giving advice to the insured on how to make a claim
Who is a wholesale broker usually acting on behalf of?
The retail, producing or sub-broker, so the brokers client, not the insured
Who is a reinsurance broker usually acting on behalf of?
The ceding insurer
What do the following three points reference?
-an insurer authorises an insurance broker to receive and handle proposal forms on its
behalf and confirm cover;
- an insurance broker surveys and describes a property on an insurers’ behalf; and/or
- an insurance broker has authority to collect premiums and does so.
When a broker is the agent of an insurer under DA
Briefly explain the principle of tort:
The obligations we have to one another e.g. to not hurt by our own negligence
How does the principle of tort relate to insurance brokers?
Under principle of tort, brokers are legally responsible to their principle in the event they fail to use reasonable care. So must honour any undertaking
What are the two statue laws which affect insurance brokers?
- Marine Insurance Act (1906)
- Data Protection Act 2018 (DPA 2018)
Describe & explain the situations where a conflict of interest between agent and principle can arise
- DA - Conflict between meeting needs of clients & the insurer
- Close links with insurer - where a broker is owned by insurer
- Insurance & Reinsurance - If broker is reinsurance broker and placing broker
- Lloyd’s brokers - where brokers perform duties for UW’s e.g. claims settlement
- Contingent commission/overriders - where broker receives payment from an insurer dependent on the actions of the broker
- Other inducements - e.g. fees paid by premium financing companies
- Acting for two or more clients with similar interests e.g. involved in a claim, competing for limited market capacity, involved in some market transaction (M&A)
How are conflicts on interest identified, managed and resolved?
FCA States:
“All staff in an intermediary should be aware of conflicts and should be responsible
for ownership of conflicts arising out of their own conduct”
- manage conflict through clear disclosure and carry out file reviews and internal audits & TOBAs
What is a TOBA and what is its purpose?
To manage conflicts of interest, meet client needs and satisfy regulatory requirement to disclose certain information to clients
