Insurance Law-Intermediaries

6. Intermediaries What is an intermediary? There are different types of intermediaries including insurance agents, brokers, consultants, employees, part-time agents and now representatives under the Financial Advisors Act (FAA). Role -

Canvassing for business Imputation of knowledge to principal/receipt of information assistance rendered - filling in PF with (basis clause)

S 1 A Insurance Act: Definition of insurance agent and insurance broker -

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“insurance intermediary” means a person who, as an agent for one or more insurers or as an agent for insureds or intending insureds, arranges contracts of insurance in Singapore… “insurance agent" means a person who is or has been carrying on insurance business in Singapore as an agent for one or more insurers and includes an agent of a foreign insurer carrying on insurance business in Singapore under a foreign insurer scheme under Part IIA. “insurance broker" means a person who is or has been carrying on insurance business in Singapore as an agent for insureds or intending insureds in respect of − insurance policies relating to general business and long-term accident and health policies, other than insurance policies relating to reinsurance business

Regulation of intermediaries See syllabus

Agency principles Whose agent when performing that act? -

General position adopted - idea of transferred agency Agency principles applicable  Actual authority  Apparent authority  Ratification

Freeman & Lockyer v Buckhurst Park Properties Ltd [1964] 1 All ER 630. -

Mr Freeman and Mr Lockyer sued Buckhurst Park Ltd and its director, Shiv Kumar Kapoor, for unpaid fees for their architecture work The company’s articles said that all four directors of the company (another Mr Hoon, who was never there, and two nominees) were needed

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to constitute a quorum. Originally the company planned to simply buy and resell the land, but that fell through. Kapoor had acted alone (as if he were a managing director) in engaging the architects, without proper authority. The company argued it was not bound by the agreement. Held: Must pay If a person has no actual authority to act on a company's behalf, then a contract can still be enforced if  an agent had authority to enter contracts of a different but similar kind,  the person granting that authority itself had authority,  the contracting party was induced by these representations to enter the agreement  Sand the company had the capacity to act An "actual" authority is a legal relationship between principal and agent created by a consensual agreement to which they alone are parties.  Its scope is to be ascertained by applying ordinary principles of construction of contracts, including any proper implications from the express words used, the usages of the trade, or the course of business between the parties.  To this agreement the contractor is a stranger; he may be totally ignorant of the existence of any authority on the part of the agent. Nevertheless, if the agent does enter into a contract pursuant to the "actual" authority, it does create contractual rights and liabilities between the principal and the contractor.  It may be that this rule relating to "undisclosed principals," which is peculiar to English law, can be rationalized as avoiding circuity of action, for the principal could in equity compel the agent to lend his name in an action to enforce the contract against the contractor, and would at common law be liable to indemnify the agent in respect of the performance of the obligations assumed by the agent under the contract. An "apparent" or "ostensible" authority, on the other hand, is a legal relationship between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the "apparent" authority, so as to render the principal liable to perform any obligations imposed upon him by such contract.  To the relationship so created the agent is a stranger. He need not be (although he generally is) aware of the existence of the representation but he must not purport to make the agreement as principal himself.  The representation, when acted upon by the contractor by entering into a contract with the agent, operates as an estoppel, preventing the principal from asserting that he is not bound by the contract. It is irrelevant whether the agent had actual authority to enter into the contract

Tasks performed by agents Receipt of the proposal form Has agent or broker, as case may be, authority to receive information so that knowledge is imputed to principal (Insurer?)

Woolcott v Excess Insurance Co Ltd [1979] 1 Lloyds Rep 231 -

Broker’s knowledge of material facts imputed to insurers because there was close relationship between two, depends on facts. Here broker auth to issue cover. He knew of insured’s criminal record A question of fact as to whether the agent knew about the previous criminal record of the insured Looks like some allowances made for cover note situation : recall Stockton v Mason . But generally, broker is insured’s agent, see Winter v Irish: Where broker’s knowledge of insureds cystic fibrosis not revealed

Winter v Irish Life Assurance PLC [1995] 2 Lloyds Rep 274 -

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The policyholders bought life insurance through a large firm of independent insurance brokers. The brokers knew that both policyholders suffered from cystic fibrosis, but this information was not disclosed to the insurer. The case was heard in the High Court before Sir Peter Webster, who held that the brokers acted for the policyholders, not the insurers. The relationship between the brokers and the insurers was insufficient to establish an agency.  It was not sufficient that the insurers paid the brokers commission, or gave them publicity material over-printed with the brokers’ name, or provided guidance and training about how the forms should be filled in.  The judge laid particular stress on the fact that the policyholders approached the brokers to find them insurance. He said that the position might have been different if the insurer had provided the broker with the names of various leads and asked them to approach clients to sell the insurer’s products. The kind of case where the broker is found to be the insurers’ agent is where he is employed by them or is tied to them and in that capacity, initiates the relationship between the insurers and the assured.  It was suggested that an independent agent who analysed the market “was seen as primarily the agent of the insured (or person seeking insurance) while a tied agent was essentially the agent of the insurer

Ayrey v British Legal and United Providence Assurance co Ltd [1918]1 KB 136 -

It is settled law that where an agent is authorized to negotiate and settle terms of a proposal or delegated with a duty to investigate certain matters, the agent’s knowledge is also the knowledge of the insurance company

Yong Sheng Goldsmith Pte Ltd v Liberty Insurance Pte Ltd [2011] SGHC 156 (Applied Ayrey) -

The claimant was insured by Liberty under a jeweller's block policy in respect of various risks, including armed robbery, to a policy limit of S$3 million. There was an armed robbery, but Liberty sought to avoid the policy on the ground that the claimant had failed to disclose that the premises had been the subject of loan shark harassment on a number of occasions prior to the inception of the policy.

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The claimant asserted that the information had been disclosed to Liberty's agent, J, who had negotiated the policy and handled renewals. The court found that J was indeed the agent of Liberty, even though he had acted for other insurers and was not identified in the policy as the broker.  J was a registered Liberty agent and had been issued with a name card by Liberty.  Given that finding, J's knowledge was to be imputed to Liberty, following Ayrey v British Legal and United Provident Assurance Co Ltd [1918] 1 KB 137. However, the court refused summary judgment to the claimant given that there were issues to be tried on discrepancies in the various proposal forms.

Filling in the proposal form Dual agency / transferred agency problem -

General position: Biggar v Rock Life

Biggar v Rock Life Assurance Co [1902] 1 KB 516 -

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The proposal form was filled by the agent, many of the answers filled in by him being false in material aspects, but the false answers were inserted without the knowledge or authority of the applicant, who signed the proposal form without reading it. The proposal contained a declaration that the applicant agreed that the statements in the proposal should form the basis of the truthfulness of the statements in the proposal. Accident: eye injured by glass from exploding aerated bottle It was held that in filling up the answers in the proposal form the agent was acting as the agent of the applicant. applicant signed without reading and checking Note: Previously illiteracy was a misfortune not a privilege

Newsholme Brothers v Road Transport and General Insurance [1929] 2 KB 356 -

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The plaintiffs had insured a motor-bus through a man named Willey, who was said to be appointed by the Road Transport and General Insurance Co Ltd to canvass and procure proposals for them.  The exact terms of his appointment were not available to the court, but in the usual course of events, he would have been considered the insurer’s agent.  He completed a proposal form, which was later approved for cover by the When a claim occurred it was found that Willey had entered inaccurate answers to three of the questions on the proposal form, even though he had been given the correct information by Newsholme Brothers. The insurer repudiated liability for breach of warranty and rejected the claim. The Court of Appeal held that the insurer was entitled to repudiate liability since in completing the proposal form Willey had been acting as the agent of Newsholme Brothers In my view, the important question for the decision of this case is whether the knowledge of the agent, acquired in filling up the proposal for the assured, is to be taken as the knowledge of the company. If the answers are untrue, and [the agent] knows it, he is committing a fraud which prevents his knowledge being the knowledge of the insurance company. If the answers are untrue,

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but he does not know it, I do not understand how he has any knowledge which can be imputed to the insurance company.  In any case, I find great difficulty in understanding how a man who has signed, without reading it, a document which he knows to be a proposal for insurance, and which contains statements in fact untrue, and a promise that they are true, and the basis of the contract, can escape from the consequences of his negligence by saying that the person he asked to fill it up for him is the agent of the person to whom the proposal is addressed If the person having authority to bind the company by making a contract in fact knows of the untruth of the statements and yet takes the premium, the question may be different.  Even then I see great difficulty in avoiding the effect of the writing signed by the proposer that the truth of the statements is the basis of the contract.  But where the person contracting for the company has no knowledge but only constructive notice, the difficulties of the proposer are greater. In commercial matters, the doctrine of constructive notice is not favoured LJ Greer: parol evidence rule Criticisms:  Court very concerned with lack of actual authority  Query: Is that first reason determinative? Is there a second basis?: signature and negligence  Much criticized case: variance with commercial reality ?  One more point to note – fact that you have agency attribution is inconclusive  Newsholme folld by CA in Globe trawlers ; “intermediary was insured’s agent”: knowledge not automatically imputed

National Employers' Mutual General Insurance Association Ltd v Globe Trawlers [1991] 2 MLJ 92 -

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The plaintiffs were engaged in building coastal fishing trawlers and were constructing the ‘Coastal Monitor II’ and the ‘Super Trawl’. In the policy, the Super Trawl was described as ‘one complete unit of wooden fishing trawler with engine, motor and accessories and equipment’. A fire broke out destroying the bow, the forward deck and the cabin of the Super Trawl. At the time of the fire, the Super Trawl was substantially built but not fully completed. The plaintiffs brought an action against the insurer as first defendants and the agents as the second defendants, pleading that the agents were liable in negligence as they had failed to advise the plaintiffs properly in effecting cover. At first instance, LP Thean J (as he then was) held that there was no material description of the Super Trawl as it had been substantially built. It was held to be a complete unit.  LP Thean J further held that as the second defendants, namely the agents, knew that the vessels were under construction and being the agent of the first defendants, the said agent’s knowledge was imputed to the first defendants. CA: No - Newsholme applied. The brokers had no authority to bind the insurers. They had to refer back to them to ascertain whether the insurer would accept the risk

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The Super Trawl was an incomplete trawler as the main engine and propeller had yet to be installed; Although the brokers filled in the proposal form, rated the risk and calculated the premium due, these acts in themselves were in keeping with market practice whereby the material used for risk classification and for calculating the premium due in respect of each classification was furnished before hand by insurers to the brokers.  It did not mean that the brokers had the authority to bind the insurer.  Thus, the broker was held to be the insured’s agent for the purpose of obtaining cover and this was further reinforced by the fact that the agent had requested the insured’s representative to read through the filled in proposal form and sign the same. This had been done by the insured’s representative.  By these acts, the brokers were relieved of liability as the insured knew the precise description of the Super Trawl as set out in the proposal form. Q: could the agent not have wider authority to receive and transmit information to insurer?  True reason – importance of signature?  Principles at play here?  Exception to rule? Vulnerable proposer?

China Insurance v Ngau Ah Kau [1972] 1 MLJ 52 -

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The respondent who was the insured was unsuccessful in seeking to be indemnified for the theft of his car which he had insured for RM12,000. The grounds for refusing the claim were that he had not disclosed claims made some years ago in his proposal form. The insured had informed the agent who helped him to fill up the proposal form.  The agent had told him that it was not required of him to disclose the claims as they were made more than three years earlier.  The insurers contended that the non-disclosure of this information entitled them to repudiate the policy. Relying on an insurance agent to fill up a form can turn out to be a big mistake if the information stated in the proposal is incorrect. It followed that any untruth in the proposal bound the proposer even if it was the agent and not he who was its author.

Goshawk Dedicated Ltd v Tyser & Co Ltd [2006] EWCA Civ 379. -

Underwriters and brokers must now share information. There is no conflict between the duty of brokers to provide disclosure to underwriters (clause 8.1) and brokers’ duty to the insureds (clause 2.2), since under the insurance contracts with underwriters, the insureds had agreed to the disclosure.

Yong Sheng Goldsmith Pte Ltd v Liberty Insurance Pte Ltd [2011] SGHC 156 Possible exceptions? Agent with authority to conclude contracts: if he can settle and negotiate terms and induce customers to conclude contract

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Then, Knowledge may be imputed back to insurer; hence, insurer with full knowledge of mistake, issues policy – estoppel or waiver can be raised.

Bawden v London, Edinburgh and Glasgow Society Ltd [1972] 1 Lloyd's Rep 469 -

One-eyed applicant staring at agent Agent to induce persons to conclude contract and authority to ensure forms properly filled up. Agent completed form “ I have no physical infirmity” H: Vested with authority to negotiate terms and conclude contract, information to be imputed. Agent expected to record infirmities on back of proposal form. Read into it that contract made between insurer and one-eyed man In Newsholme, this was doubted as a general rule though.

Stone v Reliance Mutual Insurance Society Ltd [1972] 1 Lloyd's Rep 469 -

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Inspector came to Mrs Stone to revive lapsed policy PF asked whether policy had lapsed, whether any previous claim made? Inspector asked no question , just made her sign Wrong answer on previous claim (made with same insurer) “housewife insured of little education” (although at fault) H: Majority: Agent had authority to ask questions and fill in answers Lord Denning –  a) agent had represented by his conduct that he could fill in;  b) had authority Note, however, that the agent was authorised by the insurer to collect the information and complete the form, and for this reason remained the agent of the insurer when doing so  Arguably cannot say that he had represented by his conduct that he could and so hence is liable. Or so law Commission report says The society seek to repudiate liability by reason of the untruth of two answers in the proposal form. They seek to fasten those untruths onto the insured. They do so by virtue of a printed clause in the proposal form. They make out that it was the insured who misled them.  Whereas the boot is on the other leg. The untrue answers were written down by their own agent. It was their own agent who made the mistake. It was he who ought to have known better. It was he who put the printed form before the wife for signature. It was he who thereby represented to her that the form was correctly filled in and that she could safely sign it.  She signed it trusting to him. This means that she, too, was under a mistake, because she thought it was correctly filled in. But it was a mistake induced by the misrepresentation of the agent, and not by any fault of hers. Neither she nor her husband should suffer for it Cf malaysian case United Malayan Insurance v Lee Yoon Heng

United Malayan Insurance Co v Lee Yoon Heng [1964] MLJ 453

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Finance co’s employee filled in English for Chinese guy who could not understand English Gill J – did not alter legal position

Local position Note the applicability of the parole evidence rule Pacific & Orient Underwriters v Choo Lye Hock [1977] 1 MLJ 131 -

answer to q form part of basis of contract Filled in boxes on address and occupation statements regarding addresses and occupation just pure statements, not answers in response to questions - so not part of basis clause The declaration at the bottom of the proposal form before the signature of the proposer (there exists a similar declaration in the present case) only raises a rebuttable presumption — rebuttable by any extraneous evidence. In that case the agent who filled the form was not the agent of the respondent but that of the Insurance Underwriters — the applicants.

Malaysian position (to compare) -

44A to the Insurance Act 1963 was enacted. That section reads as follows now s151 Insurance Act 1966 : 44A  (1) A person who has at any time been authorised as its agent by an insurer and who solicits or negotiates a contract of insurance in such capacity shall in every such instance be deemed for the purpose of the formation of the contract to be the agent of the insurer and the knowledge of such person relating to any matter relevant to the acceptance of the risk by the insurer shall be deemed to be the knowledge of the insurer.  (2) Any statement made or any act done by any such person in his representative capacity shall be deemed, for the purpose of the formation of the contract, to be a statement made or act done by the insurer notwithstanding any contravention of section 16A or any other provision of this Act by such person.

Poh Siew Cheng v AIA [2006] 6 MLJ 57 -

In JB, insured told pestering agent the fact that he was suffering from diabetes and that he had life and personal accident policies in Singapore. told by agent that the diabetic condition of her father need not be written in the proposal form as it was a personal accident policy and not a life policy. H: by virtue of s44a, knowledge imputed to insurer

See Law reforms in comparative jurisdictions, above

Broker’s duties: Care and skill Osman v J Ralph Moss Ltd [1970] 1 Lloyd's Rep 313

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Insurance brokers placed a contract of motor insurance with an insurer whose ‘shaky financial foundation… was well known in insurance circles at that time’. The Court of Appeal held that the brokers were guilty of negligence in recommending that Mr Osman purchase insurance from a company known to be in financial difficulties and in failing to advise him in clear terms as to its position.  When he was fined £25 for driving without an insurance policy, the Court of Appeal held that Osman was entitled to recover the premium he had paid, the £25 fine that had been imposed and various other costs, on the basis that these were reasonably foreseeable consequences of the broker’s breach of duty to inform Osman that he was uninsured. This obligation can be qualified by the fact that the brokers in Osman were aware that the insurer was financially unsound when the insurance was placed

McNealy v The Pennine Insurance Co Ltd [1978] 2 Lloyd's Rep 18; contra Gunns v Par Ins Brokers *1997+ 1 Lloyd’s Rep 173. -

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The plaintiff was a property repairer and a part-time musician and through an insurance broker effected a comprehensive insurance policy with the insurance company. The insurance company’s underwriting instructions, which were known to the broker, set out a list of risks not acceptable for insurance, including a full or part-time musician.  Notwithstanding this, the broker placed the insurance with the insurance company and in the proposal form filled in by the broker the occupation of the plaintiff was described only as property repairer. Subsequently, the plaintiff had an accident and his car was damaged and a passenger was injured. He therefore claimed against the insurance company who repudiated liability, and he joined the broker as one of the defendants. The Court of Appeal held that it was the duty of the broker to use all reasonable care to see that the plaintiff was properly covered and that there was a breach of duty on the part of the broker. The broker was accordingly liable to the plaintiff.  An obvious step in the course of doing this duty would have been to say to Mr. McNealy: The Pennine will not cover you if you are a full or part-time musician, a bookmaker, a jockey, or anything to do with racing.  He ought to have gone through the whole list with Mr. McNealy and said: You are not going to be accepted if you are one of these categories because, if you are, the insurance company can get out of it. Contra the Gunns case  Says brokers might possibly be held to a higher duty if the person is senile/illiterate etc

Bollom v Byas [1999] Lloyds Rep PN 598. -

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It involved the duties of a broker at the time of the renewal of insurance policies on behalf of the client and the extent of the broker's duty to advise his clients on possible extensions of cover which might be available to them Bollom had a fire alarm, which they switched off after false alarms. It led to the repudiation of the polict when they were burgled. They sued their brokers for having failed to advise them of the clause

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Held: Liable They had a duty to take reasonable steps to draw Bollom’s attention to the clause  Bollom had not received the standard form policy. If so, might analysis be different in terms of causation? Held they should have known of the clause, and should reasonably have informed P

Tay Eng Chuanv Ace Insurance Ltd [2008] 4 SLR95. Harvest Trucking v Davis Insurance Services [1991] 2 Lloyds Rep 638 -

The Court held that it was a broker's duty to warn his client if the policy contains any "unusual, limiting or exempting provisions"

O'Connor v Kirby & Co [1972] 1 QB 90 HIH Caualty and Gen Insurance v JLT Risk Solutions [2007] Lloyds Rep IR 742 -

The decision in HIH v JLT [2006] arose out of a long line of film finance insurance disputes. In giving his decision, Langley J confirmed that it is a broker's duty to alert its reinsured client to "any matters of at least potential concern on coverage issues" and, by extension, to any possible defences under the direct policy and under the reinsurance

Dunbar (Alfred James) v A&B Painters and Economic Insurance Co *1986+ 2 Lloyd’s Rep 38 -

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The plaintiff wished to take out insurance on his car and consulted an insurance broker. The latter filled in the proposal form for the plaintiff and in answer to a question as to where the car was normally kept at night inadvertently stated that it was in ‘a private garage’.  That was not correct. The proposal form was approved by the plaintiff who failed to notice this incorrect information.  After the policy had been issued and while it was in force, the car which was parked outside the plaintiff’s house was damaged. On a claim against the insurance company liability was repudiated on the ground that the proposal contained an inaccurate answer as to where the car was garaged at night. The plaintiff therefore claimed against the insurance broker for breach of contract and negligence. It was held by the Court of Appeal that it was the duty of the plaintiff to ensure that the information given to the insurance company was correct and since the plaintiff had failed to rectify the incorrect information given he was solely to blame. It was emphasized that it is the duty of the proposer for insurance to see and make sure that the information contained in the proposal form is accurate and not to sign it if it is inaccurate, and that he cannot be heard to say that he did not read it properly or was not fully appraised of its contents  It would be different if the assured was unable to read or was in some degree illiterate When the broker took it on himself to fill in the proposal form, the duty upon him was to use such care as was reasonable in all the circumstances towards ensuring that the answers recorded to the questions in the proposal form accurately represented the answers given to

the broker by the assured. But the duty was not a duty to ensure that every answer was correct. Kapur v JW Francis *2000+ Lloyd’s Rep IR 361 -

The broker is required to inform the assured of the duty to disclose material facts in respect of which there are no express questions, and the broker is also under a duty to ensure that any information given to him by the assured is communicated to the insurers.

Alexander Forbes Europe Ltd v SBJ *2003+ Lloyd’s Rep IR 432 -

SBJ accepted that they owed duties in both tort and contract to the insured. It fell to the court to consider how wide these duties were and whether or not they had been broken. Brokers have a duty "going beyond being a post box merely looking at a heading and passing material on". It was for SBJ to "get a grip on the proposed notification, to appraise it and to ensure that the information was relayed to the right place and in the correct form".

Jones v Environcom Ltd (No 2) [2010] EWHC 759 (Comm) -

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There was no dispute as to the broker’s duty, namely has a duty to:  advise clients of their duty to disclose all material circumstances  explain the consequences for failing to disclose  give an indication of what matters ought to be disclosed;  take reasonable care to elicit matters which the clients might not think are necessary to mention;  ensure that the policy is suitable for the clients' needs. On the facts MS had breached its duty as it had failed ensure that Mr H understood the disclosure obligation and had provided no explanation of what might be material or the consequences of any failure to disclose. Where an incomplete explanation is given by a broker to its client in relation to their obligations there is a higher standard of care on the broker when eliciting material information for disclosure.

Gratuitous agents Zurich Insurance v B-Gold Interior Design and Construction [2008] 3 SLR 1029 -

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The principle that a person who had agreed to procure insurance for another became the latter's agent for the purpose of obtaining insurance and thus owed him a duty of care was eminently justified by both commercial reality and existing principles of tort law.  Lee had assumed responsibility for procuring the insurance coverage required by the Contract for B-Gold. It did not matter that he was acting gratuitously: so long as he failed to fulfil the standard of care expected of a gratuitous agent - viz, what was reasonably expected of the agent in all the circumstances, having regard to factors such as the skill and experience which he had or represented himself as having - he would be potentially liable for breaching his duty of care to B-Gold as its (gratuitous) insurance agent

Limitation of Actions: Limitation Act cap 163, ss6 and 24A. For the applicability of The Contributory Negligence and Personal Injuries Act cap 54, see Forksikring Vesta v Butcher *1989+ 1 Lloyd’s Rep 331.; *1986+ 2 Lloyd’s Rep 179; Youell vBland Welch [1990] 2 Lloyd’s Rep 431, affd *1992+ 2 Lloyd’s Rep 127.

Conflict of interest/Dual Agency Anglo-African Merchants Ltd v Bayley [1970] 1 QB 311 -

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In some circumstances, a broker may act in a dual capacity as agent for both the insurer and the insured, eg where the policy provides for notice of the claim to be given to the broker, who would owe a duty of care to the insurer to inform them of the claim, or where the broker is entitled to issue cover notes for temporary insurance on the insurer’s behalf. If a conflict is perceived to exist, the broker must obtain the principal’s fully informed consent to the broker acting in a dual capacity. Such a relationship with the insurer, inevitably, even if wrongly, invites the suspicion that the broker is hunting with the hounds whilst running with the hare… a custom will not be upheld… if it contradicts the vital principle that an agent may not at the same time serve two masters two principals in actual or potential opposition to one another: unless, indeed, he has the explicit, informed consent of both principals.’

North & South Trust Co v Berkeley [1971] 1 WLR 470 -

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if and so long as the agent is the agent of one party, he cannot engage to become the agent of another principal without the leave of the first principal with whom he has originally established his agency. No agent who has accepted an employment from one principal can in law accept an engagement inconsistent with his duty to the first principal from a second principal, unless he makes the fullest disclosure to each principal of his interest, and obtains the consent of each principal to the double employment.

Callaghan v Thompson [2000] Lloyds Rep IR 125 -