Where an agent contracts for a principal he has certain rights and liabilities under the contract which he has made. If he had no authority to enter into the contract, he may be sued by the third party for breach of warranty of authority. In some cases he may be liable in tort to the third party.
A. RIGHTS AND LIABILITIES UNDER THE CONTRACT
1. Where he acts for a named or unnamed principal
An agent cannot, as a general rule, enforce a contract which he has effected on behalf of a named principal or of a principal whose existence he has disclosed to the third party but whose name he has not given. Nor can be made liable on the contract. Thus, the agent of the insurers, through whom the policy is effected, cannot, therefore, as such , sue the assured for the payment of the premium. Further, an agent who effects or issues a policy on behalf of a principal is not, as a general rule, personally liable for the premium or for the amount of the loss, as the case may be.
Some times, however, the contract may be so worded that, even though the principal is disclosed, the agent may incur personal liability.
So also may the agent be personally liable by usage. Thus, by the usage of Lloyd’s the broker is personally liable to the underwriter for the premium. Similarly the Country broker and not his principle is liable to the Lloyd’s broker.
As far as marine insurance is concerned, the Marine Insurance Act 1906, s 53(1) provides:
Unless otherwise agreed, where a marine policy is effected on behalf of the assured by a broker, the broker is directly responsible to the insurer for the premium….’
2 Where he acts for an undisclosed principal.
Where he contracts on behalf of an undisclosed principal, the position is different. Thus the agent of the assured may sue upon a policy which he has affected in his own name. Again the agent of the insurers may sue as holder of a negotiable instrument given in payment of the premium.Further an agent signing a policy in his own name without qualification or indication that it is signed by him as agent only on behalf of a principal, is personally liable on the policy.
B. LIABILITY FOR BREACH OF WARRANTY OF AUTHORITY
An agent effecting an unauthorized insurance, which the principal refuses or fails to ratify, is not liable to the insurers for the premium.But, if he has already paid it, he cannot recover it back, since the insurers have run the risk of the principal ratifying the insurance.
It is, however, the duty of an agent to know his authority, and if the insurers sustain any loss by reason of the unauthorized insurance they will be entitled to sue the agent for breach of warranty of authority.
The same principle applies where the agent of the insurers issues a policy without authority. In this case, the assured will be entitled in the event of a loss to recover from the agent the amount which have been payable by the insurers if the policy had been valid.
C. LIABILITY IN TORT
A broker employed by the assured owes no duty of care or skill to the insurers to whom he offers an insurance; for these duties arise out ot contract and are owed only to the principal by whom he is employed.
Hence, no action lies against him at the suit of the insurers for failing to disclose a material fact or for making an erroneous statement, if it is clear that he honestly believed that the fact was not material or that it was true, as the case may be.
Where, on the other hand, he willfully misrepresemnts a material fact, he is guilty of fraud and, therefore, liable to the insurers for the consequences. Similarly, an agent of the insurance company who willfully misrepresents the position of the company whereby the proposed assured is induced to effect an insurance with the company is guilty of fraud and liable accordingly.
Where the purchaser of a car asked the insurance brokers acting for the insurance company to arrange for the policy in respect of it to be transferred to him, and they forwarded the proposal form to the company, which refused to accept it, and cancelled the policy, the brokers were liable to him for damages for negligence because thay had failed to inform him that he was not insured.