IF1.3 - Contract and Agency Flashcards
Define Contract
A contract is an agreement, enforceable by law between two or more people to do something where there is intent to create a legal relationship.
To ensure a contract is valid and enforceable it must satisfy:
offer, acceptance & consideration
void ab initio
a contract is void (as if it never existed, and premiums are returned) if it is declared invalid i.e. it is missing one of the essentials e.g. someone was tricked into signing
Good faith
neither party must mislead one another
criteria for a valid contract (not void ab initio)
- both parties have to want it
- mental capacity
- can’t mislead someone
- can’t be against public policy
- has to do what it says
- has to be clear
Unconditional acceptance
accept without altering
Conditional acceptance
make a counter offer
a counter offer…
is rejecting the original offer and return a new offer
What is consideration
Each side of the bargain which supports the contract, aka a promise to do or not to do something.
Something that has value in the eyes of the law (normally payment)
Normally a contract is made when it is received by the offeror. If posted acceptance is complete at which point.
when the letter is posted
Is there obligation for insurers to offer renewal terms?
no
In a renewal offer insurers must
clearly display the difference in premiums & encourage consumers to check their cover & shop around for the best deal at renewal.
Insurers cancellation rights
- insurers can cancel
- they must give at least 14 days notice of cancellation by a letter
- pro rata premium is returned
Policyholders cancellation rights
- if within 14 days they can cancel without penalty or reason (just have to pay the amount used of the policy) (30days for payment protection)
- Otherwise insurers can charge a flat fee for cancellation of the cover.
Policy fulfilment
if the insured object is a total loss and the insurer has paid a settlement e.g. if a car is written off.
Voidable contracts
if the policyholder breaches a policy condition the insurer may treat the policy as void.
or if the insurable interest never existed.
Ab initio contract
non-disclosure or misrepresentation of information by the policyholder.
if a claim is made the insurer doesn’t have to pay and can recover any amounts paid.
Breach of warranty contracts
A warranty must be exactly complied with and if it is not then cover will be suspended until the warranty is fixed.
define agent
someone who is authorised by a principal to bring that principal into a contractual relationship with another (third party)
what are the 3 methods of creating an agent/principal relationship
- Consent
- necessity
- ratification
What is agency by consent?
Both the agent and principal consent to enter into a legally enforceable agreement.
What is a Terms of Business agreement (toba)
a document that states the terms and conditions of the appointment [of becoming an agent], the extent of the agents authority & how money will be handled and accounted for.
where dies implied consent occur consent when creating an agent/principal relationship.
where work is undertaken and a commission is paid but nothing is written down.
Agency by necessity
when 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
When an agent has no authority to act or acts outside the terms of their agreement. But the principal accepts the action as being done on their behalf.
What is an agent of the insured?
An independent intermediary is thought to be an agent of the insured when:
- they give advice on cover
- they give advice on how to make a claim
what is an agent of the insurer?
An independent intermediary is thought to be an agent of the insurer when:
- they handle proposal forms and confirm cover
- surveys and describes clients property.
- collects premiums
- pays claims
Duties of an agent
- Obedience
- personal performance
- due care and skill
- good faith
- accountability
Duties of a principal
- Remuneration
- Indemnity
Remuneration (Duties of a principal)
Commission paid to the agent from the insurer
Indemnity (Duties of a principal)
Agents can claim against all expenses or loss incurred when acting on the principals behalf.
Express Authority
from the terms of an agency agreement (TOBA)
Implied authority
if the agent has to undertake a certain action in order to carry out express instructions, they will have implied authority to do it
TOBAs should be…
- Clear & succinct
- reflect the business relationship
- define and allocate responsibilities and rights
- ensure compliance with regulatory or statutory rules
How can an agency be terminated?
- principal and agent mutually agree
- principal may withdraw the agency
- agent may give it up (provided that the terms of appointment allow for this)
- death, bankruptcy or insanity of either party.
Apparent Authority
When an agent incorrectly tells a customer about a service. The insurer must indemnify the client where applicable and can pursue the agent for recovery of payments.
Status (in a TOBA)
brokers must advise the insurer on their regulatory status.
Commission (in the TOBA)
any scales of rate should be clearly stated
Material information in the TOBA
All material information on policyholders must be promptly passes between the agent and insurer.
Premiums and credit in the TOBA
outlines the responsibility of credit risk in relation to paid and refunded premiums.
Claims money in the TOBA
specifies whether the insurer or the broker is to bear the credit risk from a claim.
Broker/client relationship in the TOBA
non-solicitation cause barring the insurer from acquiring business currently placed through the broker for 5 years (not necessary)
Direct administration arrangements in the TOBA
clarifies that the insurers role in dealing directly with the policyholder is limited to fulfilment of regulatory or contractual responsibilities.
Claims in the TOBA
specifies is claims should be notified via the broker or directly.
Termination in the TOBA
specifies the arrangements for termination (where there is fault and where there is no fault).
Regulatory requirements in the TOBA
include terms requiring compliance for all applicable regulatory and legal requirements.
Third Party
One who is not the agency or insurer e.g. customer
Contract Certainty
A complete and final agreement of all terms which is clear. Completed before a contract is made.
Where an agent collections premiums on behalf of a principal, the agent is obliged to…
keep the principals money separate from the agents money.
Agency Created by ____
A principal agrees to honour the obligations of an unauthorised act conducted by an agent
ratification
If a principal agrees to be bound by the actions of an agent who has acted outside the terms of agreement, what type of agency has been created?
Agency by ratification
When is a contract terminated in the case of fraud?
From the fraudulent act
Undisclosed Principal
When an agent acts seemingly on their behalf but is actually acting on behalf of another.
Situations where and agent principal relationship may be terminated
- fraud or dishonesty
- change in regulatory status
- impact on policyholders
- breach to TOBA (and no remedy)
- bankruptcy
