The Assured’s Agent : Rights, Duites and Liabilities

The Assured’s Agent : Rights, Duites And Liabilities

1. Authority Of Insurance Agents

Insurance agents are usually employed to effect an insurance and also to take an administrative role in the coverage of the policy taken to insure against perils of the sea.

An agent may be granted actual authority which arises in consequence of orders expressly given to the agent by the assured.

2. Express Authority To Insure

An express request or direction by the insured to an agent to procure marine insurance is sufficient authority on the part of the agent to effect the marine insurance.

3. Implied Authority To Insure

There are two scenarios under implied authority. (1) The agent is under an implied duty to insure on behalf of the assured so that the agent potentially faces liability to the assured if he fails to do so i.e. failure to take out insurance on behalf of the principal.

(2) In the absence of an implied duty to insure whether the agent is impliedly authorized to insure so that the principal is bound by the policy i.e. a partner who has effected insurance binds the other partners. A part owner cannot bind another part owner (Bell v Humphries).

4. Duty Of Vendor To Give Notice Of Shipment : F.O.B And C.I.F Contracts

The vendor / seller is under an obligation to effect insurance on the goods in the case of a C.I.F contract but the same is not the case in a F.O.B contract.

5. Implied Authority To Insure Arising Out From The Peculiar Situation Of The Property

The master can act as the agent of the ship owner and cargo owners and effect insurance to protect the ship, freight and cargo (Craufurd v Hunter).

6. Duties Of Brokers

A professional broker is required to exercise reasonable care and skill in fulfilling his duties especially obeying instructions. The broker is only expected to act in reasonable and ordinary degree of skill instead of an extreme degree (Saif Ali v Sydney Mitchell & Co and Bate v Barrows).

7. Duties Of Agents Other Than Brokers

A lesser degree of skill is expected from an agent other than a broker as they may not have the same knowledge as the broker. 

8. Negotiating Cover

In Dunlop Haywards (DHL) Ltd v Barbon Insurance Group Ltd, the role of a broker was summarized to include:- 

  1. to exercise reasonable care and skill in the fulfillment of its instructions and the performance of its professional obligations;
  2. carefully to ascertain the client’s insurance needs and to use reasonable skill and care to obtain insurance that met those needs;
  3. carefully review the terms of any quotations or indications received;
  4. to explain to the client the terms of the proposed insurance; and
  5. to use reasonable skill and care to draw up a policy, or to ensure that a policy was drawn up, that accurately reflected the terms of the agreement with the underwriters and which was clear and unambiguous so that the client’s rights under the policy were not open to doubt.

Every insurance broker is expected to include all the usual terms and conditions into the policy in contemplation of the voyage. 

9. Disclosure Of Information

An insurance broker owes a duty to the underwriters to ensure all material information in his possession is not misrepresented and is disclosed.

A broker is expected to know what information is material and what information is not (Mayhew v Forrester). 

He is also expected to advise the assured as to the duty to disclose facts or at the very least he is expected to explain to the assured the meaning of  express questions by the underwriter (O & R Jewellers Ltd v Terry and Gunns and Gunns v Par Insurance Brokers). He also has a duty to explain the operation of the policy to the assured.

Section 4 of the Insurance Act 2015 provides as follows:-

(1)This section provides for what an insured knows or ought to know for the purposes of section 3(4)(a).

(2)An insured who is an individual knows only—

(a)what is known to the individual, and

(b)what is known to one or more of the individuals who are responsible for the insured’s insurance.

(3) An insured who is not an individual knows only what is known to one or more of the individuals who are—

(a)part of the insured’s senior management, or

(b)responsible for the insured’s insurance.

(4)An insured is not by virtue of subsection (2)(b) or (3)(b) taken to know confidential information known to an individual if—

(a)the individual is, or is an employee of, the insured’s agent; and 

(b)the information was acquired by the insured’s agent (or by an employee of that agent) through a business relationship with a person who is not connected with the contract of insurance.

(5)For the purposes of subsection (4) the persons connected with a contract of insurance are—

(a)the insured and any other persons for whom cover is provided by the contract, and

(b)if the contract re-insures risks covered by another contract, the persons who are (by virtue of this subsection) connected with that other contract.

(6) Whether an individual or not, an insured ought to know what should reasonably have been revealed by a reasonable search of information available to the insured (whether the search is conducted by making enquiries or by any other means).

(7) In subsection (6) “information” includes information held within the insured’s organisation or by any other person (such as the insured’s agent or a person for whom cover is provided by the contract of insurance).

(8)For the purposes of this section—

(a)“employee”, in relation to the insured’s agent, includes any individual working for the agent, whatever the capacity in which the individual acts,

(b)an individual is responsible for the insured’s insurance if the individual participates on behalf of the insured in the process of procuring the insured’s insurance (whether the individual does so as the insured’s employee or agent, as an employee of the insured’s agent or in any other capacity), and

(c)“senior management” means those individuals who play significant roles in the making of decisions about how the insured’s activities are to be managed or organised.

Section 4 Insurance Act 2015 was preceded by section 19 MIA which has since been repealed. 

10. Content Of Policy

The broker is the person who prepares the policy of marine insurance and is deemed to know every detail about the insurance contract. He is also expected to provide intelligible wording which minimizes the chance of litigation.

11. Change And Renewal Of Cover

During the pendency of the cover, the circumstances change and there is a need for the broker to effect those changes by endorsing the cover or to seek some concession from the underwriter. 

12. Declaration Policy

A broker who needs to obtain a declaration policy has a duty to make the declarations in the proper manner. 

13. Claims Procedure

Usually the claim is made by the broker on behalf of the assured. He will also prepare and submit the proof the loss using the retained documents upon being scratched by the underwriter (Johnstone v Leslie & Godwin Financial Services Ltd).

14. Notice Of Abandonment

When the underwriters have appointed the broker as their agents to received the notice of abandonment or notice of loss, communication by the assured to the broker is treated as having been received by the underwriter (Roche v Roberts and Comber v Anderson).

15. Payment Of Claims

Broker has a duty to make the claim, collect the claim and proceed to hand over the claim to the assured. This is due to the broker acting as the assured’s agent in all matter arising out of or in connection to the policy in return of payment of the premium (Bousfield v Creswell, Ovington v Bell and Roberts v Ogilby).

16. Producing And Placing Brokers

Producing brokers are usually the brokers appointed by the assured to effect and insurance from overseas at, for example, the London market. In return the placing brokers are usually appointed by the producing brokers to place the coverage in the London market. The legal relationship which will arise are as between the assured and the producing broker, the assured and the placing broker and the producing broker and the placing broker (Dunlop Hayward (DHL) Ltd v Barbon Insurance Group Ltd).

There will be a contractual relationship between the assured and the producing broker and the producing broker and the placing broker.

Apart from this, the producing broker can be sued as being vicariously liable for the negligence of the placing broker pertaining to the marine cover placed. 

The assured can bring an action under Contracts (Rights of Third Parties) Act 1999 if the sub agency agreement between the producing broker and the placing broker makes mention of such right to the assured.

17. Right Of Broker To Commission And Indemnity

Usually brokers are paid a brokerage fees when they get paid by the underwriter from the premium paid by the assured. This is true even when the placement for cover is eventually cancelled. This brings about the issue on the broker’s post placement duties to the assured (Grace v Leslie & Godwin Financial Services Ltd). 

A broker is to be indemnified for all necessary expenses in placing the insurance on behalf of the assured. 

18. The Extent Of The Broker’s Liability

The basic measure of damages awarded against a broker will be the sum payable under the policy but for the default of the broker (Charles v Altin).

19. Wasted Costs

The assured is entitled to recover by way of damages the costs incurred by him in an unsuccessful action on the policy i.e. where action was brought with the broker’s concurrence or where it was brought without the concurrence of the broker but was defeated by some misconduct of the broker not known to the assured until the action was brought. Assured may be given damages in any action against the underwriters should there be a reasonable opportunity of success (Maydew v Forrester).

20. Consequential Loss

This loss may be brought by the assured as a direct result of the absence of insurance even though that loss would not have been covered by the policy itself (South Australia Asset Management Corporation Respondent v York Montague Ltd).

21. Assured’s Duty To Mitigate Loss

The assured owes a duty to mitigate his losses as a result of the refusal of the underwriters to pay. If the assured has a good case against the underwriters, a failure to bring it in advance of the proceedings against the brokers may amount to a failure to mitigate unless the assured can show as a matter of law that the underwriters faced no liability to the assured (Alexander Forbes (Europe) Ltd v SBJ Ltd).

22. Causation

A proof of causation of loss on the part of the assured is needed to be proven against the broker. This includes showing that broker needs to show that the policy of insurance was neither enforceable nor obtainable due to the act of the assured (Bhopal v Sphere Drake Insurance Plc and Gunns and Gunns v Par Insurance Brokers).

23. Contributory Negligence

The Defendant remains liable despite contributory negligence but that the liability is to be reduced to such extent as the court thinks just and equitable having regard to the claimant’s share in the responsibility for the damage. It has no application in a purely contractual obligation towards the Plaintiff (Youell v Bland Welch & Co).

24. Waiver Of Breach of Duty

One way to get a waiver of the breach of duty is as discussed above pertaining to mitigation of loss. Apart from this waiver is also possible when the assured prior to the breach becoming apparent expressed his satisfaction with the wording produced by the broker or on becoming aware of the broker having acted in excess of his authority by producing inadequate wording the assured had chosen to ratify the policy (National Insurance and Guarantee Corp Plc v Imperio Reinsurance Co Ltd). 

25. Limitations Of Actions

An action against a broker must be brought within 6 years from the date of accrual of action (Section 6 Limitation Act 1953). This applies to both contractual breaches and tortious liabilities i.e. marine insurance contracts and tortious acts of the brokers in administering such contracts.

26. Duties Owed By Brokers To Third Parties

The most common third parties that the brokers owe a tortious duty to are the assignees of a marine insurance contract who have been identified (Bromley LBC v Ellis and Punjab National Bank v De Boinville).

27. Duties Owed By Brokers To Underwriters

As a general rule, the broker does not owe a duty of care towards the underwriters due to him acting for the assured except in some exceptional situation, inter alia, such as a duty to disclose as seen in section19 MIA which has been repealed and replaced by Section 4 of the Insurance Act 2015 as seen above. 

28. Role Of Broker As Cover Holder

In this scenario the broker acts under a binding authority to the assured and does not owe any duty to the underwriter in his operation as a binder where this would give rise to a conflict (Sphere Drake v European International Underwriting). 

29. Duties Owed By The Brokers In Placing Reinsurance 

In the case of placing retrocessions the broker if he induces the underwriters to subscribe to a reinsurance which they would otherwise not subscribe to, will assume a special responsibility toward the reinsurer (Aneco Reinsurance Underwriting Ltd v Johnson & Higgins Ltd).

In the case of a reinsurance, where the broker seeks to place reinsurance in advance of arranging the underlying direct insurance, the broker is to be treated as acting on behalf of the insurers even though they have not been so identified at that stage, so that any offer or reinsurance is a standing offer by the reinsurers which is deemed to be accepted by the broker on behalf of the insurers when they subscribe to the direct risk (The Zephyr).

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