CHAPTER 3 CONTRACT AND AGENCY 9% OF THE EXAM

!LAW OF BARGAINS! CONTRACT LAW “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.” !LAW OF BARGAINS!

ESSENTIALS OF A VALID CONTRACT Three essentials of a valid contract: Offer Acceptance Consideration If any elements are missing the contract is deemed ‘Void ab initio’.

OFFER AND ACCEPTANCE Unconditional Acceptance: Insurer: “I can offer you cover for £850” Insured: “I accept”

OFFER AND ACCEPTANCE Conditional Acceptance: Insurer: “I can offer you cover for £850” Insured: “I accept, so long as I can have ‘any driver’ cover”

Hyde v Wrench 1840 £1000 I’ll give you £950

OFFER AND ACCEPTANCE Household Fire Insurance Co v Grant (1879) Grant applied for shares in the Household Fire Insurance Company. The insurance company properly posted the letter accepting his offer, but it never arrived. The court decided that the offer had been accepted when the acceptance was posted, so there was a valid contract. Postal Acceptance: The acceptance is complete from the moment the letter is posted, NOT from when it is received. The postal rule only applies to acceptances – not offers

CONSIDERATION Consideration = Payment OR Promise of payment Consideration may be described, as each person’s side of the bargain which supports the contract.

CANCELLATION OF INSURANCE CONTRACTS Rights of the Insurer: Send a letter to the last known address Return premium on a ‘Pro rata’ basis Rights of the Insured: Right to cancel without penalty or reason Short term rates Deregulation Act 2015 – Came into effect 30 June 2015 and abolishes the need to return Motor Insurance Certificates

FULFILMENT

VOIDABLE CONTRACTS

BREACH OF WARRANTY Old law: New law: Contract void from the date of the breach New law: Insurance Act 2015

AGENCY A Agent is one who is authorised by a Principal to bring that principal into a contractual relationship with another, a Third Party

METHODS OF CREATING AN AGENCY AGENCY BY CONSENT AGENCY BY NECESSITY AGENCY BY RATIFICATION

Agency by Agreement (or consent) If it is a formal agreement the agency terms will be set out in detail The authority and powers of the agent The duties to be performed Commission or other remuneration to be paid The period of the agreement This is the most common way by which an agency relationship is created. In fact – nearly always. The agreement will often be in the form of a contract in itself. Known as a contract of agency. In a insurer/Intermediary relationship this is in the form of a Terms of Business Agreement (TOBA). Reveal – go through slide Explain – Implied Agreement –The parties actions may imply an agreement that is not set out in a contract. (e.g. you a some some work and I pay you commission and always do it.

Agency by Ratification The person doing the act must purport to do it as an agent The principal must be the person the agent had in mind At the time of ratification the principal must have full knowledge of the circumstances Ratification must be within a reasonable time The whole contract must be ratified (Parsons. C, 2016, p.5/4)

Agency by necessity Great Northern Railway Co v Swaffield (1874) What has changed since 1874 making agency by necessity less frequent now. (Parsons. C, 2016, p.5/5)

RELATIONSHIP OF AGENT TO PRINCIPAL PRINCIPAL (INSURED) Giving advice on placing insurance Giving advice on how to make a claim AGENT PRINCIPAL (INSURER) When handling proposal forms Collecting premiums on behalf of the insurer

DUTIES OF AN AGENT OBEDIENCE PERSONAL PERFORMANCE DUE CARE AND SKILL GOOD FAITH ACCOUNTABILITY

DUTIES OF A PRINCIPAL Remuneration: Payment Commission Indemnity: Putting someone back in the same financial position

UNDISCLOSED PRINCIPAL

FORCE MAJUERE If an agent is unable to meet their obligations due to Force Majeure they will not be in breach of their contract. An event that is impossible to control or anticipate.

ACTUAL AUTHORITY EXPRESSED IMPLIED Written or Verbal confirmation Arising out of terms of an agency agreement Direct authority to do something Something that doesn’t need to be said Its just a given!

APPARENT (OSTENSIBLE) AUTHORITY It Is unlikely that a third party will be aware of the extent of an agents authority.

TERMINATION OF AN AGENCY An agency may be terminated in a number of ways: By mutual agreement By the agency being withdrawn or given up on By death, bankruptcy or insanity

TERMS OF BUSINESS AGREEMENT (TOBA) All TOBA’s should: Be clear and concise Reflect the business relationship Define the allocated responsibilities and rights Ensure compliance with regulatory or statutory rules