IF1 - Chapter 3

Question 1

Terms of Business Agreement (TOBA)

Answer 1

Set out by FSA dealing with contractual relationships between insurer and intermediary

Question 2

Contract (definition)

Answer 2

An agreement, enforceable by law, betewen two or more persons to do, or abstain from doing, some act or acts, their intention being to create legal relations and not merely to exchange mutual promises

Question 3

Essentials of a valid contract

Answer 3

Intention to create legal relations, capacity to contract, ceonsensus ad idem, legality of purpose, possiblity of performance, certainty of terms

Question 4

Offer and Acceptance

Answer 4

Happens when one party makes an offer and the other accepts unconditionally

Question 5

Unconditional and Conditional Acceptance

Answer 5

Contract formed on unconditional, contract not formed on conditional at least not until the other party accepts counter-offer

Question 6

Hyde V Wrench

Answer 6

Defendant, Wrench, offered to sell his farm to the claimant, Hyde for 1000 GBP. The claimant in turn offered 950 GBP which was refused. Claimant later increased his offer to 1000 GBP but this was also refused by the defendant. It was held that there was no contract because the counter-offer acted as a rejection of the original offer to sell for 1000 GBP.

Question 7

Postal Acceptance

Answer 7

General rule is that contract is made when the acceptance is received by the offerer. However, when using post as a method of communication, acceptance is complete when letter of acceptance is posted.

Question 8

Household Fire Insurance Co. V Grant

Answer 8

Grant applied for shares in the Household fire company. The insurance company properly posted the letter accepting his offer, but it never arrived. The court decided that the offer had been acepted when the acceptance was posted so the contract is valid.

Question 9

Consideration

Answer 9

Contracts must be supported by consideration to be valid - Defined as Some right, interest, profit, or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other - each person’s side of the bargain which supports the contract -payment or promise

Question 10

Cancellation of insurance contract

Answer 10

Usually not done until end of the expiry or renewal period

Question 11

Insurer’s rights

Answer 11

Most policies have a cancellation condition. Allows the insurer to cancel provided that a letter is sent to the insured’s last known address giving 14 days notice. - not done too often but can be if the insured has been guilty of fraud in connection with a claim

Question 12

Policyholder’s rights

Answer 12

less common for insured to have cancellation rates - but some insurers will allow this but with a penalty charge for cost of setting up policy, etc…

For motor insurnace, not cancelled until certificate is returned. Legal requirement.

Question 13

Fulfilment

Answer 13

Loss of subject-matter - for example, an insured car is burnt out so it ceases to exist - sometimes allow for substitute vehicle

Question 14

Voidable Contract

Answer 14

One party may set it aside - may arise where the insured is in breach of a policy condition that places a continuing requirement upon them - i.e. insured must keep equipment in efficient working order but does not

Different from where insured fails to fulfil a condition relating to a claim - insurer may avoid paying that claim but policy is still in force.

Question 15

Agency

Answer 15

An agent is one who is authorized by a princpal to bring that principal into a contractual relationship with another, a third party. In general contract law, the agent will often not have any continuing duty once the contract has been concluded

Question 16

Methods of creating agent/principal relationship

Answer 16

Consent, necessity, ratification

Question 17

Agent by consent/agreement

Answer 17

pretty self explanatory - can be written down or not

Question 18

Agent by Necessity

Answer 18

This arises where 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

Question 19

Agent by ratifications

Answer 19

Ratification refers to a situation where an agent acts without authority, but the principal accepts the act as having been done by the agent on their behalf. The principal’s agreement usually comes after. The principal must ratify the whole contract and not able to vary its terms and choose which elements to accept.

Question 20

Relationship of agent to principal

Answer 20

In most cases, agent represents only one of the contracting parties - but independent intermediaries can do both

Question 21

Duties of an agent

Answer 21

Obedience, personal performance (can’t outsource it), due care and skill, good faith (bribes/secret commissions), accountability

Question 22

Duties of a principal

Answer 22

remuneration - for insurance usually commission, indemnity(agent has right to claim any expenses or losses when acting on principal’s behalf)

Question 23

Undisclosed Principal

Answer 23

agents can act for an undisclosed principal whilst seeming to act on their own behalf

Question 24

Consequences of an agent’s actions

Answer 24

depend on circumstances, influential factors, actual authority, apparent authority, or no authority

Question 25

Actual Authority

Answer 25

May be expressed or implied - Express - terms of agreement oral or in writing - Implied authority - if agent has to undertake a certain action in order to carry out express instructions, they will have implied authority to do so (travel costs)

Question 26

Apparent Authority (ostensible)

Answer 26

If an agent has never been appointed, but claims to act on behalf of a principal, this will not create a binding contract with the principal - or it can be that the agent has been appointed but not permitted to carry out certain tasks - to determine whether a contract is valid in this case is to see whether the action carried out by the agent is of a kid that is usual in that trade or profession

Question 27

Gloystarne and Co Ltd vs Mr G S Martin

Answer 27

Apparent Authority issue

Question 28

Example of valid contract even with apparent authority because of what is usual for trade/profession

Answer 28

If an intermediary has provided a cover note for insurance and accepts the risk, but for some reason it is beyond the authority limits granted by the insurer, the contract is still valid because the client would assume the intermediary has the necessary authority to perform these functions as it is usual for the profession

Question 29

Termination of an agency

Answer 29

Mutual agreement, by the agency being withdrawn by the principal or given up by the agent, by death, bankrupty, or insanity of either party