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3/8 W01/March 2017 Award in General Insurance

Question 3.4
An agent gave a customer temporary cover for insurance, as they had done in the past.
Unfortunately, this cover was given despite a previous warning from the insurer that cover was no longer available
for risks of this type. A loss occurred before the insurers realised that cover had been given by the agent on their
behalf.
Do you think that the insurer had to indemnify the customer? Give reasons.

3 G3 Agent–principal relationship
Chapter In most cases, an agent represents only one of the contracting parties. Independent insurance

intermediaries are an exception to this general rule, because they may, at different times, act for each
party. For those who have been granted appointed representative status by an insurer, their actions are,
broadly speaking, the responsibility of the insurer; this is because they operate on the insurer’s behalf.

G3A Agent of the insured
An independent intermediary is considered to be the agent of the insured when:
• giving a client advice on cover or the placing of insurance; or
• giving a policyholder advice on how to make a claim.

G3B Agent of the insurer

An independent intermediary is considered to be the agent of the insurer when:
• an insurer authorises an intermediary to receive and handle proposal forms on its behalf and confirms
cover;
• the intermediary surveys and describes the property on the insurer’s behalf; and
• the intermediary has authority to collect premiums and does so. Reference copy for CII Face to Face Training

Sample examination question 2
An insurance broker recommends and arranges an insurance policy for a client and collects the premium for the
insurer. The broker subsequently advises the client on how to make a claim. At what point in this scenario is the
insurer the broker’s principal?
a. Recommendation of the policy. F
b. Arrangement of the policy. F
c. Collection of the premium. F
d. Advising of the claim. F

G4 Duties of an agent

An agent has the following duties to its principal:
• Obedience: a duty to obey the principal’s instructions.
• Personal performance (as a general rule, an agent must perform the duties imposed on it by the
agency and cannot delegate those duties – although purely mechanical tasks may be delegated).
• Skill and reasonable care.
• Good faith: a duty of good faith when dealing with the principal or a third party (an agent’s
relationship with its principal is one of trust).
• Accountability: a duty to account for any money spent or received while acting for the principal.

G5 Duties of a principal

A principal has the following duties to their agent:
• Remuneration: usually agreed in the terms of the agency agreement.
• Indemnity: subject to any terms in the agency agreement, an agent has a right to claim from its
principal an indemnity against all expenses or loss incurred when acting on the principal’s behalf.