CHAPTER 6 - A Flashcards
What is the law of agency in the context of insurance?
Brokers operate under the law of agency, where the broker acts as an agent for the insured, the principal.
In reinsurance, the re(insured) is an insurer buying reinsurance, and a broker may act on its behalf.
Can a broker have multiple principals for one risk?
Yes, a broker can have two different principals relating to one risk, which may lead to a conflict of interest.
This occurs if a broker has authority from the insurer to settle claims or underwrite business.
What is meant by ‘Chinese Walls’ or ‘Ethical Walls’?
This process involves having separate individuals perform roles relevant to each relationship to prevent conflicts of interest.
It ensures that neither principal is disadvantaged by the broker’s actions.
How can an agency agreement be created?
An agency agreement can be created by agreement, ratification, or necessity.
- By agreement: Explicitly stated.
- By ratification: Accepting behavior after the fact.
- By necessity: In emergencies.
What are the duties of an agent towards their principal?
Agents must follow instructions, act in good faith, not sub-delegate without permission, account for funds, and act with due care and skill.
What options does a principal have if an agent acts outside their authority?
The principal can ratify the actions, ratify and claim damages against the agent, or refuse to ratify and expose the agent to claims from third parties.
What is the broker’s duty of care?
The broker owes a duty of care to their client to behave according to the standard of a reasonably competent broker in the market.
What breaches of duty of care could harm a client?
Breaches include failing to place insurance with suitable insurers, on suitable terms, understanding client instructions, and explaining terms like warranties.
