When an agent is appointed, he has certain rights against his principal and also has duties to perform. Where the agent is guilty of a breach of duty, certain consequences will follow.
A. THE RIGHTS OF THE AGENT
The rights of an agent against the principal are :
The right to claim commission.
The right to an indemnity.
The right to claim a lien.
The agent has the right to receive from the principal the agreed remuneration; in insurance business, agents, whether employed by the insurers or by the assured, are usually remunerated by commission.
Sometimes commission will be payable to the agent even though the agency has been terminated. Whether he is so entitled is, of course, a matter of the construction of the terms of the contract in each case.
The agent has a right to be reimbursed any sums expended on the principal’s behalf. Thus, if he has paid the premium out of his own pocket, he is entitled to be repaid the amount of the premium with interest.
Further, if the agent of the assured has, in ordinary course of business, rendered himself personally liable to the insurers for payment of the premium, he is entitled to be indemnified by the assured to the extent of his liability
The agent of the assured, who, on payment of the premium receives the policy from the insurers, may retain it and refuse to hand it over to the assured until the amount of the premium has been paid to him by the assured
Necessity for Proper performance of duties
These rights depend on the due performance by the agent of his duties on the principal’s behalf. They do not exist in the case of unauthorized transactions, as, for instance, an insurance differing materially from that which the agent was employed to effect, or insurance affected without any authority at all, unless it is ratified by the principal.
Nor do they exist where the transaction, though authorized, proves abortive to the principal by reason of the agent’s breach of duty6, e.g. where a policy is avoided by the agent’s fraud or concealment,or where the transaction is unlawful, e.g. in the case of an insurance prohibited by statute.
On the other hand, the agent, if wrongfully prevented by the principal form earning commission, may recover damages.
B. THE DUTIES OF THE AGENT
The chief duties which an agent owes to the principal are the following :
To carry out the transaction which he is employed to carry out.
To obey his instructions and to act strictly in accordance with the terms of his authority.
To act with reasonable and proper skill.
To account to the principal for money received.
To deal honestly with the principal.
1. Duty to carry out the transaction
It is the duty of the agent to carry out the transaction which he is employed to carry out, or, if it is impossible for him to do so, to inform the principal promptly in order to prevent him from suffering loss through relying on the successful completion of the transaction by the agent.
Thus, an agent employed to effect or renew an insurance must effect it or renew it effectively, or, if he is unable to do so, must notify his principal of his inability as soon as possible so as to enable the principal to take steps to insure elsewhere.
If, however, it is impossible to effect the insurance at all, on account of its illegality, or if it is impossible to give notice in time to enable the principal to insure elsewhere,
2. Duty to obey his instructions
It is the duty of the agent to obey his instructions and to act strictly in accordance with the terms of his authority or, as regards matters on which they are silent, the usual course of business.
If the instructions are clear and precise, the agent departs from them at his peril; he is not, as a general rule, at liberty to exercises his discretion, unless expressly authorized to do so. If he has a discretion, it is not to be inferred that he is guilty o f a breach of duty because it appears that, in the circumstances, he has exercised his discretion wrongly, and that, if he had exercised it differently, the transaction could or might have proved more advantageous to the principal.. Thus an agent employed to effect insurance, with discretion as to the choice of insurers, is not bound to go to the insurers offering to insure at the lowest premium.
The same rule applies where the agent’s instructions are ambiguously expressed and capable of different interpretations.
If the interpretation placed by the agent on the instructions is one which they may reasonably bear, there is no breach of duty in that the principal intended a different construction to be placed upon them, and if such construction had been adopted, the transaction would not have resulted in loss to the principal.
3. Duty to use proper skill
It is the duty of the agent, in the exercise of the authority entrusted to him, to with reasonable and proper care, skill and diligence.
If he is a professional agent, such as a broker, the standard by which the duty is to be measured is that of persons of experience and skill in his profession and in the place where he was employed to perform it;
if he is not a professional agent, he is to be judged by what an ordinary person might reasonably have been expected to do in the circumstances.
Whether he has actually acted with the required degree of skill depends in each case on the circumstances.
A broker will be held guilty of negligence if he expresses an unqualified opinion on a point of law, unless he has taken reasonable care to furnish himself with such information as would entitle him to give that opinion.
Thus, in Sarginson Bros. V Keith Moulton & Co. Ltd.
Insurance brokers informed their clients that their timber was uninsurable under the war Risks Insurance Act, 1939. The timber was destroyed by enemy action, but the information was incorrect and it was insurable.
Held, the brokers, although they were not lawyers, were liable as they had not taken sufficient care to see that their advice was correct.
Hallett J Observed:
‘In my view, if people occupying a professional position take it upon themselves to give advice upon a matter directly connected with their own profession, then they are responsible for seeing that they are equipped with a reasonable degree of sill and a reasonable stock of information so as to render it reasonably safe for them to give that particular piece of advice. On one is under obligation to give advice on [these] difficult matters. If they are going to give advice, they can always qualify their advice and make it plain that is a matter which is doubtful or upon which further investigation is desirable, but if they do take it upon themselves to express a definite and final opinion, knowing as they must have known in this case, that their clients would act upon that, then I do think they are responsible without having taken reasonable care to furnish themselves with such information, of whatever kind it be, as will render it reasonably safe, in the view of a reasonably prudent man to express that opinion.
But a broker is under no legal duty to inform the assured of the terms of a cover note as soon as it is ready.
Thus, in United Mills Agencies Ltd. v Harvey Bray & Co.
Insurance brokers were instructed to insure goods for export. There was a slight delay sending to the assured a cover note stating details of the insurance effected.
Held, there was no duty to forward a cover note to the assured as soon as it was completed.
Mc Nair J Observed:
‘Evidence was called…………. That it is the practice of ….. Insurance brokers…. That when cover has been placed, the clients are notified as soon as possible. That seems to me to be good business and prudent office management, but on the evidence, I am completely unable to hold that it is part of the duty owed by the broker to the client so to notify him, in the sense that failure so to notify him would involve him in legal liability. No case was spoken to in which any broker had ever been held liable or had ever paid any client money in respect of such failure. It seems to me to put quite an unreasonable burden on a broker to say that as a matter of law, apart from prudent practice, he is bound to forward the cover note as soon as possible. It is no doubt prudent to do so, both to allay the client’s anxiety and possibly to enable the client to check the terms of the insurance. That is a very different thing from saying it is part of his duty.’
Again, an agent employed to effect an insurance must procure a policy which the principal can enforce; he must, therefore, do no act in the course of the negotiations by which the policy may be rendered useless to the assured, hence, a failure to make full disclosure as a result of which the policyor its renewalis avoided by the insurer is a breach of duty towards the assured.
Similarly, an agent of the insurers employed to deal with the loss, must not, either by fraud or by negligence, induce the insurers to pay a loss for which to his knowledge they are not liable.
In accordance with the same principle, the agent must act personally and not delegate the performance of his duties to another,unless delegation is permissible by the terms of the employment or in the ordinary course of business.
4. Duty to account
It is the duty of the agent, when employed to receive payment on his principal’s behalf, act with the due diligence in collecting the amounts payable to his principal, and to pay over to the principal such sums as he may have received in the course of his employment.
Thus, if the assured employs an agent to collect the amount due on the policy, the agent must collect it promptly, and payment must be received in a form authorized by the principal;otherwise any loss occasioned by the breach of duty falls on the agent.
Moreover, the agent cannot after receiving the amount from the insurers, refuse to pay it over to the principal;and it is immaterial that the insurance by virtue of which it was received was illegal.
Where an agency agreement made between an insurance company and a broker states that any premiums held by him are the property of the company, he is not entitled to use those premiums to obtain alternative cover for an insured with other insurers, if the insurance company concerned goes into liquidation. All that he can do is to prove in the liquidation for a pro rata return of the insured’s premium.
5. Duty to act honestly
It is the duty of the agent to deal honestly with his principal, and not to act in any way detrimental to his interest in collusion with the third person.
Thus, the agent employed to effect an insurance on behalf of the assured must not take a secret commission from the insurers, and must account to the assured for nay secret commission received. the insurers to conduct the negotiations must not, in concert with the proposed assured, conceal from them or misrepresent to them any material facts within his knowledge.
C. THE CONSEQUENCES OF A BREACH OF DUTY
The consequences of a breach of duty by an agent towards the principal are :
He forfeits all his rights against the principal.
He is liable to the principal for all loss resulting from the breach of duty.
He can be dismissed instantly.
He can be punished criminally.
1. Forfeiture of all his rights
The agent forfeits all right against his principal under the transaction in respect of which the breach of duty is committed.
Thus, an agent, who takes a secret commission from the insurers, can claim no commission from the assured, and if he has already received it, must repay it. If the insurance which he is employed to effect proves abortive by reason of his breach of duty, he can claim neither his commission nor the reimbursement of money expended nor indemnification against liability incurred in connection with the abortive insurance.
2. Liability for all loss sustained
The agent is liable to the principal for all loss sustained by the principal in consequence of the agent’s breach of duty. Thus, the assured may, on the happening of a loss, find himself unable to recover its amount from the insurers because the agent willfully omitted to effect the insurance, or failed to effect it and neglected to notify the assured of his failure promptly, or, because the agent failed to effect the proper insurance or was guilty of conduct entitling the insurers to avoid the policy or to refuse payment.
In these cases the agent does not, by reason of his conduct, become an insurer so as to be liable in any event for the exact amount which was or which ought to have been insured; he is liable only in damages for his breach of duty.
Again, in Osman v Ralph J Moss Ltd.
An insurance broker negligently advised the insured to insure with a motor insurance company known to be in financial difficulties. Later a winding up order was made against the company and the policy was valueless. The broker failed to advise the insured that he was not effectively insured, but merely advised him to insure with another company. The insured was involved in an accident, and had to pay damages to a third party. He had also been fined for driving whilst uninsured, and had paid the premium to the insurance company.
Held, that the insured was entitled to recover the damages he had paid to the third part, the
The damagesmay, in a proper case, be measured by the amount which the assured would have received if the agent had duly performed his duty, and in, addition, if the agent had effected a policy which proved abortive, may include the costs of an action reasonably brought on the abortive policy. No action lies, however, where the breach of duty arises in connection with a policy which is illegal or void.
The same principles apply in the case of an agent of the insurers. Thus, where an agent, by a fraudulent transfer in his books after loss, induces the insurers to accept liability for the loss, although they were never at risk, he is liable to them for the amount paid by them in respect of the loss.
Where the agent is guilty of committing a breach of duty, e.g. by disclosing confidential information to a third party, the principal can dismiss him instantly
Even though the agent has been employed under contract for a period, the principal is entitled to dismiss him summarily where he is guilty of a breach of duty
4. Criminal Liability
The agent, if the breach of duty consists in taking a secret commission or in acting in concert with a third person to defraud his principal, may be punished under the Prevention of Corruption Act, 1906.