Chapter 8 Flashcards
why do people hire brokers?
the buyer of insurance may not be knowledgeable about the options available to them either in terms of product or market and so will seek help from an expert adviser.
This adviser is a broker, who is able to offer independent impartial advice concerning available
products and markets and can represent the insured in communications and negotiations
with any potential insurers
3 ways in which the relationship of principal and agent can arise.
consent
necessity
ratification
agency by consent
most usual
also known as an agency by agreement.
Both parties enter into a legally enforceable agreement.
This is usually by means of express appointment where the terms of the appointment are written down.
terms of business agreements
(TOBAs).
documents used in the London Market
These are put in place between any brokers and their clients
sometimes between brokers and the insurers
Agency by necessity
a person is entrusted with someone else’s goods and it becomes necessary to act in a certain way in order to preserve the property in an emergency.
Agency by ratification
Ratification is the act by which the principal agrees the actions of the agent after the event, basically making them acceptable retrospectively within the terms of the agency agreement,
although they were not when they were actually performed.
intermediary is considered to be the agent of the insured when the
intermediary gives advice…
- on cover or the placing of the insurance
- to the insured as to how to make the claim.
independent intermediary is considered to be the agent of the insurer when the
intermediary:
- can bind cover, i.e. has the authority of the insurer to accept risks as if they were the
insurer themselves - has authority to collect premiums and does so.
Duties of an agent
- obedience
- personal performance - cant delegate their duties to someone else
- due care and skill - provide a high standard of ability
- good faith
Duties of a principal
Remuneration. The agent has a right to the remuneration agreed by their principal. For insurance transactions the remuneration usually consists of commission, and to earn this the agent must prove that they were the effective cause of any transaction. an agent has not ‘earned’ their commission until a contract has been signed.
indemnity - an agent has a right
to claim from their principal an indemnity against all expenses or loss incurred when acting on the principal’s behalf.
Who are the two main parties in a simple insurance transaction?
Insured and insurer.
Undisclosed principal
English law permits an agent to act for an undisclosed principal, whilst seeming to act on their own behalf. The agent must have authority to act on behalf of the undisclosed principal at the time the contract is made for it to be effective.
the terms of the agency agreement must be clear between the principal and
agent.
actual authority
Express authority arises from the terms of an agency agreement, which may be oral or in
writing. As already indicated, it would be unusual for this to be oral in an insurance context;
all terms would be expressed in a TOBA.
Implied authority may be one of two kinds. If the agent has to undertake a certain action
in order to carry out express instructions, they will have implied authority to do so. So,
for example, if an agent needs to travel to a particular place to carry out the principal’s
instructions, the travel costs will be met without any need to have specific agreement on
this aspect. On occasions, there is an authority that is usual for the particular situation or
business arrangement. This situation may result in problems in an insurance context should
an agent act outside the express terms of appointment. We shall consider this next.
