Page 63 - W01TB8_2017-18_[low-res]_F2F_Neat

Chapter 3 Contract and agency 3/7

F3C Breach of warranty

A warranty is a term in an insurance contract which, prior to IA 2015, had to be exactly and literally
A warranty is a term
complied with by the policyholder whether material to the risk or not. Departure from the exact in an insurance
contract which must
requirements even for reasons of necessity constituted a breach of warranty which discharged the
be exactly and
insurer from liability automatically. literally complied with
by the policyholder
Changes introduced by IA 2015 mean that since August 2016 a breach of warranty no longer whether material to
theriskornot
automatically terminates the contract. The insurer will have no liability for losses occurring or
attributable to something occurring during the period of suspensions, but will be liable for losses
occurring after a breach has been remedied.
This is a complete change from the harsh situation of automatic discharge if there was a breach even if Chapter
not material to the risk. 3

GAgency

In law, agency is the relationship that exists between one party (the principal) who engages another (the
agent) to act for them. The law of agency governs that relationship where the agent deals with a third
party on behalf of the principal.

G1 Contracts and the agent

Many commercial insurance contracts and some personal insurance contracts result from the activity of
an intermediary who negotiates on behalf of the parties involved. In law, however, everyone who acts on
behalf of another person is an agent. If we allow someone to act for us, or even if we allow them to say
that they are acting for us without denying the fact, we will probably have to accept responsibility for
whatever is done on our behalf.
Question 3.3

What is the legal definition of an agent? Reference copy for CII Face to Face Training

G2 Methods of creating an agent–principal relationship

There are three ways in which the relationship of principal and agent can arise; by:
• consent;
• necessity; or
• ratification.
G2A Agency by consent

The most usual way of creating a relationship between a principal and agent is by consent, where both
parties enter into a legally enforceable agreement. The agreement expressly sets out the terms, such as
the duties, authority and power of the agent, the duration of the agency and the remuneration.
It is also possible for an agency to be created by consent in an implied way (rather than expressly). This
could be the case where work is undertaken and a commission paid but nothing is actually written
down.

G2B Agency by necessity
This is where the agent and principal have no agreement but the agent has to act in a certain way to
prevent an injury to property or people.
G2C Agency by ratification

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.