chapter 4

Question 1

What is the basic definition of agency?

Answer 1

A legal relationship where the agent acts on behalf of the principal to create legal relations with third parties.

Question 2

Name the three ways an agency relationship can be created.

Answer 2

By agreement, by ratification, by necessity.

Question 3

What is agency by ratification?

Answer 3

When a principal approves an agent’s unauthorised act after it has happened, making it binding.

Question 4

What is agency by necessity?

Answer 4

An agency created when an emergency makes it necessary to act to protect the principal’s property without prior authority.

Question 5

When does an insurance intermediary act for the insurer?

Answer 5

When authorised to collect premiums, accept proposal forms, or grant cover, or when acting under insurer’s authority.

Question 6

Under CIDRA 2012, when is an agent automatically considered the insurer’s agent?

Answer 6

When collecting information with authority, entering contracts with authority, or acting as appointed representative.

Question 7

Give one example of when an agent acts for the consumer.

Answer 7

When the agent provides impartial advice or is paid a fee directly by the consumer.

Question 8

What is a conflict of interest in agency?

Answer 8

When an agent’s duty to one party conflicts with their duty to another party in the same transaction.

Question 9

What is the duty of obedience?

Answer 9

The agent must follow lawful and reasonable instructions given by the principal.

Question 10

When is delegation by an agent allowed?

Answer 10

If authorised, implied by the situation, customary, or necessary.

Question 11

What is the standard of care expected from insurance brokers?

Answer 11

The reasonable care and skill expected of a competent broker in their profession or specialty.

Question 12

What happens if an agent accepts a secret profit or bribe?

Answer 12

The principal can dismiss the agent, recover the bribe, refuse commission, and rescind contracts; criminal charges may also apply.

Question 13

What is imputed knowledge in agency law?

Answer 13

Information known by the agent is treated as known by the principal.

Question 14

What rights does an agent have regarding payment?

Answer 14

Right to remuneration (commission) and indemnity for expenses properly incurred.

Question 15

When is an agent’s commission earned?

Answer 15

When the transaction is successfully completed as agreed.

Question 16

What is indemnity in agency law?

Answer 16

The principal reimburses the agent for expenses incurred while properly carrying out their duties.

Question 17

When does an agent lose their right to indemnity?

Answer 17

If they act without authority, breach duties, or act illegally.

Question 18

What is a lien?

Answer 18

The agent’s right to keep the principal’s property as security for unpaid debts.

Question 19

What is express actual authority?

Answer 19

Authority explicitly given to the agent, either in writing or orally.

Question 20

What is implied actual authority?

Answer 20

Authority to do anything necessary or customary to carry out express authority.

Question 21

What is apparent authority?

Answer 21

Authority that appears to exist due to the principal’s conduct, even if not actually given.

Question 22

Can a third party sue an undisclosed principal?

Answer 22

Yes, but only if certain conditions are met and not after choosing to sue the agent.

Question 23

What happens if an agent breaches their warranty of authority?

Answer 23

The agent may be personally liable to the third party for acting without proper authority.

Question 24

What is agency by estoppel?

Answer 24

When a principal is bound because they allowed a third party to believe someone was their agent.

Question 25

The concept of agency is tripartite. What are the three relationships?

Answer 25

Principal and Agent – The agent agrees to act on behalf of the principal. Agent and Third Party – The agent deals with the third party on behalf of the principal. Principal and Third Party – The legal contract is ultimately between the principal and the third party.

Question 26

What types of authority might an agent have?

Answer 26

Actual Authority: Express actual authority (clearly stated in words or writing). Implied actual authority (implied by the nature of the agent’s role). Apparent (or Ostensible) Authority: The agent appears to have authority due to the principal’s conduct, even if not actually given.

Question 27

State three ways in which an agency may be created.

Answer 27

By agreement (consent) – Express or implied agreement between principal and agent. By ratification – Principal approves an act done on their behalf after it has happened. By necessity – In emergencies where it is impossible to obtain the principal’s instructions.

Question 28

What conditions need to be fulfilled to achieve a valid ratification?

Answer 28

Agent acted on behalf of principal (not themselves). Principal existed and had capacity at the time. Principal has full knowledge (or waives the need for it). Ratification must occur within a reasonable time. The act must be lawful and not void. Entire contract must be ratified, not just part of it.

Question 29

What is meant by an agent by necessity?

Answer 29

An agent by necessity arises when: The agent is entrusted with the principal’s goods. An emergency occurs. It’s impossible to get instructions from the principal. The agent acts to protect the principal’s interests.

Question 30

What is meant by 'imputed knowledge' in the context of the law of agency?

Answer 30

Any knowledge the agent has (while acting within their authority) is treated as if the principal knows it too. This is especially important in insurance for disclosure duties.

Question 31

When may the agent delegate their duties?

Answer 31

When the principal allows delegation. When delegation is implied by trade custom or circumstances. For routine, clerical or administrative tasks. In cases of necessity.