Terms of Business Agreement (TOBA)
Set out by FSA dealing with contractual relationships between insurer and intermediary
Contract (definition)
An agreement, enforceable by law, betewen 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
Essentials of a valid contract
Intention to create legal relations, capacity to contract, ceonsensus ad idem, legality of purpose, possiblity of performance, certainty of terms
Offer and Acceptance
Happens when one party makes an offer and the other accepts unconditionally
Unconditional and Conditional Acceptance
Contract formed on unconditional, contract not formed on conditional at least not until the other party accepts counter-offer
Hyde V Wrench
Defendant, Wrench, offered to sell his farm to the claimant, Hyde for 1000 GBP. The claimant in turn offered 950 GBP which was refused. Claimant later increased his offer to 1000 GBP but this was also refused by the defendant. It was held that there was no contract because the counter-offer acted as a rejection of the original offer to sell for 1000 GBP.
Postal Acceptance
General rule is that contract is made when the acceptance is received by the offerer. However, when using post as a method of communication, acceptance is complete when letter of acceptance is posted.
Household Fire Insurance Co. V Grant
Grant applied for shares in the Household fire company. The insurance company properly posted the letter accepting his offer, but it never arrived. The court decided that the offer had been acepted when the acceptance was posted so the contract is valid.
Consideration
Contracts must be supported by consideration to be valid - Defined as Some right, interest, profit, or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other - each person’s side of the bargain which supports the contract -payment or promise
Cancellation of insurance contract
Usually not done until end of the expiry or renewal period
Insurer’s rights
Most policies have a cancellation condition. Allows the insurer to cancel provided that a letter is sent to the insured’s last known address giving 14 days notice. - not done too often but can be if the insured has been guilty of fraud in connection with a claim
Policyholder’s rights
less common for insured to have cancellation rates - but some insurers will allow this but with a penalty charge for cost of setting up policy, etc…
For motor insurnace, not cancelled until certificate is returned. Legal requirement.
Fulfilment
Loss of subject-matter - for example, an insured car is burnt out so it ceases to exist - sometimes allow for substitute vehicle
Voidable Contract
One party may set it aside - may arise where the insured is in breach of a policy condition that places a continuing requirement upon them - i.e. insured must keep equipment in efficient working order but does not
Different from where insured fails to fulfil a condition relating to a claim - insurer may avoid paying that claim but policy is still in force.
Agency
An agent is one who is authorized by a princpal to bring that principal into a contractual relationship with another, a third party. In general contract law, the agent will often not have any continuing duty once the contract has been concluded
Methods of creating agent/principal relationship
Consent, necessity, ratification
Agent by consent/agreement
pretty self explanatory - can be written down or not
Agent by Necessity
This arises where a person is entrusted with someone else’s goods and it becomes necessary to act in a certain way in order to preserve the property in an emergency
Agent by ratifications
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. The principal’s agreement usually comes after. The principal must ratify the whole contract and not able to vary its terms and choose which elements to accept.
Relationship of agent to principal
In most cases, agent represents only one of the contracting parties - but independent intermediaries can do both
Duties of an agent
Obedience, personal performance (can’t outsource it), due care and skill, good faith (bribes/secret commissions), accountability
Duties of a principal
remuneration - for insurance usually commission, indemnity(agent has right to claim any expenses or losses when acting on principal’s behalf)
Undisclosed Principal
agents can act for an undisclosed principal whilst seeming to act on their own behalf
Consequences of an agent’s actions
depend on circumstances, influential factors, actual authority, apparent authority, or no authority
Actual Authority
May be expressed or implied - Express - terms of agreement oral or in writing - Implied authority - if agent has to undertake a certain action in order to carry out express instructions, they will have implied authority to do so (travel costs)
Apparent Authority (ostensible)
If an agent has never been appointed, but claims to act on behalf of a principal, this will not create a binding contract with the principal - or it can be that the agent has been appointed but not permitted to carry out certain tasks - to determine whether a contract is valid in this case is to see whether the action carried out by the agent is of a kid that is usual in that trade or profession
Gloystarne and Co Ltd vs Mr G S Martin
Apparent Authority issue
Example of valid contract even with apparent authority because of what is usual for trade/profession
If an intermediary has provided a cover note for insurance and accepts the risk, but for some reason it is beyond the authority limits granted by the insurer, the contract is still valid because the client would assume the intermediary has the necessary authority to perform these functions as it is usual for the profession
Termination of an agency
Mutual agreement, by the agency being withdrawn by the principal or given up by the agent, by death, bankrupty, or insanity of either party