Chapter 4 - Law of agency Flashcards
What is the law of agency?
The law of agency deals with relationships where one person (the agent) is authorised to act on behalf of another person (the principal) to create legal agreements with a third party.
What is the role of an agent?
Agents act as intermediaries or “middlemen” between the principal and third parties. Their main job is often to help the principal enter into contracts with third parties, but they can also handle tasks related to fulfilling those contracts.
How does the concept of agency apply in insurance?
In insurance, the buyer (principal) may not know all the options available to them, so they seek help from an expert advisor, known as an insurance intermediary, to navigate the complexities of insurance products and the market, especially for more complex types of insurance.
Can a person or firm called an agent or agency always be considered an agent legally?
No, sometimes the term “agent” or “agency” is used informally and may not hold legal significance.
Why do questions about agency law often come up in insurance?
Agency law issues often arise when insurance intermediaries make mistakes or are negligent in their duties. For example, if an intermediary fails to pass on important risk information to insurers, it could lead to problems with the insurance policy.
Can you give an example of a mistake made by an insurance intermediary?
An insurance broker might arrange an insurance contract for a shorter period than instructed by the insured or with a lower deductible than requested.
How can the relationship of principal and agent be established?
There are three main ways:
By agreement (or consent)
By ratification
By necessity
What does it mean to establish the relationship “by agreement”?
It means that the principal and agent agree to enter into the relationship. This agreement can be either express (clearly stated) or implied (understood without being directly stated).
What is “ratification” in the context of agency relationships?
Ratification occurs when a principal approves or accepts an action that was done on their behalf by someone who wasn’t originally their agent.
How is the agency relationship usually created?
In most cases, the agency relationship is established through an agreement between the principal and the agent. This agreement is often referred to as a contract of agency.
How does the relationship of principal and agent come about “by necessity”?
It happens when circumstances force someone to act as an agent for another person, even if there was no prior agreement or authorization.
Is a formal contract always necessary for the creation of an agency relationship?
No, a formal contract is not always necessary, especially if the agent is not being paid for their work. For example, if you ask a friend or family member to do some shopping for you, it doesn’t typically involve a formal contract.
If you buy insurance through an agent like a broker, are they part of the insurance contract between you and the insurer?
No, generally, the agent is not a party to the contract between you and the insurer. Their role is to facilitate the contract between you and the insurer, but once the contract is made, the agent is no longer directly involved.
Can someone with limited contractual capacity, like a minor, act as an agent?
Yes, as long as the principal and third party have full contractual capacity, a person with limited capacity, such as a minor, can act as an agent. However, the contract may not be fully binding on the minor if it’s made for themselves.
How can an agent be appointed?
An agent can be appointed through either an express agreement (clearly stated) or an implied agreement (understood without being directly stated).
How are most agencies, including insurance agencies, usually created?
Most agencies are created through express agreement, which can be either a formal written contract or an informal oral agreement.
What are the typical terms included in a formal agreement for agency appointment?
In a formal agreement, the terms of the agency are usually detailed and include:
The authority and powers of the agent
The duties to be performed
The commission or other remuneration
The period of the agreement
What is a power of attorney in the context of agency appointment?
If an agent is appointed through a formal deed, it is known as a power of attorney. This document grants the agent the authority to act on behalf of the principal, including the power to sign deeds on their behalf.
Can you appoint an agent through an informal oral agreement?
Yes, an agent can be appointed through an informal oral agreement, but it’s common for formal agreements to be preferred, especially for clarity and legal protection.
How can an agency agreement be created by implied agreement?
An agency agreement can be implied by the conduct of the parties and the relationship between them. This often happens when one person acts on behalf of and at the request of another, especially if they receive payment for their work.
What is likely to lead to the implication of an agency relationship?
An agency relationship is likely to be implied when one person acts on behalf of another, particularly if they receive payment for their work.
How does the authority of an agent differ between implied and express agreements?
In cases of implied agreement, all of the agent’s authority is implied from the circumstances. In contrast, in cases of express agreement, at least some of the agent’s authority is clearly stated in the agreement
What is agency by ratification?
Agency by ratification occurs when the relationship between principal and agent is established after the agent has already carried out a task on behalf of the principal.
What conditions must be met for agency by ratification to occur?
The agent must act on behalf of the principal and not for themselves.
The principal must be the person the agent had in mind when they acted.
The principal must have full knowledge of the circumstances or waive further inquiry at the time of ratification.
The principal must have existed and had contractual capacity at the time of the act.
Ratification must occur within a reasonable time.
Void or illegal acts cannot be ratified.
The entire contract must be ratified.
Does ratification validate future acts of an agent, or does it only apply to past actions?
Ratification validates past acts of the agent but does not give the agent authority for future acts.
Can insurance contracts be ratified?
Yes, under the doctrine of ratification, a person can ratify an insurance contract arranged on their behalf, even if they were unaware of the arrangement. In marine insurance, ratification can occur even after a loss has occurred.
What are the duties of an agent to the principal?
The duties of an agent to the principal include obedience to instructions, exercising proper care and skill, performing duties personally, acting in good faith, and accounting for monies received on behalf of the principal.
How does an insurance intermediary typically act in most business transactions?
In most business transactions, an intermediary acts on behalf of either the buyer or the seller but not both.
When does agency by necessity typically occur?
It arises when it’s impossible to obtain the owner’s instructions in time to address the emergency situation.
What is agency by necessity?
Agency by necessity occurs when a person is entrusted with someone else’s goods and an emergency arises, requiring immediate action to preserve them.
Can you give an example of agency by necessity?
How common is agency by necessity nowadays?
Agency by necessity occurs rarely nowadays, especially with the widespread availability of modern communication technology, which allows for quicker and easier communication in emergencies.
Can an agent delegate their duties to another person?
Generally, an agent may not delegate their duties to a sub-agent unless expressly authorized by the principal, implied from circumstances, in accordance with trade custom, or in cases of necessity. However, when delegation occurs, the agent remains liable to the principal for any faults of the sub-agent.
How does the role of an intermediary differ in the insurance industry?
In insurance, intermediaries may act on behalf of both the proposer/insured and the insurer in various ways, including giving general advice, granting cover, collecting premiums, and completing proposal forms.
In what situations does an intermediary act on behalf of the insurer?
An intermediary acts on behalf of the insurer when they have express authority from the insurer to handle proposal forms, grant cover, collect premiums, or when the intermediary has a history of acting in these capacities.
