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3/12 W01/March 2017 Award in General Insurance

Key points

The main ideas covered by this chapter can be summarised as follows:
Contract law
• A contract is an agreement, enforceable by law, between 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.
• Important criteria for a valid and enforceable contract include:
– intention to create legal relations;
3 – capacity to contract;
Chapter • To be effective, acceptance must be the final and unqualified agreement to the offer.
– offer and acceptance; and
– consideration.

• Consideration is some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or
responsibility given, suffered or undertaken by the other.
Termination of contracts of insurance
• Most general insurance policies have a cancellation condition allowing the insurer to cancel the contract, after due
notice, with a pro rata return of premium.
• Some insurers permit the policyholder to cancel while retaining the right to charge for the cover already given at
their short period rates.
• A contract of insurance can be terminated by fulfilment or made voidable.
• Minors, persons with mental health conditions and bankrupts have limited capacity to contract.

Agency
• In law an agent is authorised by a principal to bring that principal into a contractual relationship with a third party.
• An agent/principal relationship can arise by consent, necessity or ratification. Authority can be express or implied.
• In insurance an independent intermediary may, at different times, act for each party to the contract.
• An agent must perform its duties with obedience, personally, with skill and reasonable care, showing good faith, Reference copy for CII Face to Face Training
and with accountability.
• An agency may be terminated by mutual consent, by either party or by the death, bankruptcy or loss of mental
capacity of either party.
Best practice between an insurer and intermediary
• All agency/business agreement between an insurer and intermediary should be clear, succinct, reflect the business
relationship, define and allocate responsibilities and rights and ensure compliance with regulatory and statutory
rules.