Agency Law and the Role of Intermediaries
This domain tests how an intermediary binds a principal and when a principal is fixed with the agent's acts or knowledge. In insurance the analysis is decisive: the broker is usually the insured's agent, while a coverholder, MGA or tied agent acts for the insurer, and that distinction determines whose knowledge counts and whose negligence matters.
Creation of agency
- Express appointment, or implied from conduct or the office held.
- Ratification: retrospective adoption of an unauthorised act. The principal must have existed and had capacity when the act was done, must know all material facts, and must ratify the whole transaction. Ratification cannot validate a contract void from the outset.
- Estoppel (apparent or ostensible authority): a representation by the principal that the agent is authorised, reliance by the third party, and altered position.
- Necessity: genuine emergency, no practical means of obtaining instructions, and action taken in the principal's interests.
Authority
Actual authority may be express or implied from the role; usual authority covers what someone in that position normally does. Apparent authority flows from the principal's representation, not from the agent's own claim to be authorised.
Duties and rights
Agents must obey instructions, act personally, exercise reasonable care and skill, avoid conflicts of interest, take no secret profit, account for money and preserve confidentiality. They are entitled to remuneration, indemnity for authorised acts and a lien over the principal's property.
Insurance specifics
- A broker usually acts for the insured; MGAs and coverholders act under delegated authority for the insurer.
- ICOBS requires disclosure of the basis of remuneration before the contract is concluded and of the amount on request.
- The Commercial Agents Regulations 1993 imply duties and, on termination, an indemnity or compensation for a commercial agent.
Termination
Termination may occur by act of the parties, expiry, death, insanity, insolvency or notice. Agency coupled with an interest is irrevocable.
Worked example
A coverholder holds a binding authority for risks up to £250,000 but writes a £400,000 risk without referral. There is no actual authority. The insurer is bound only if the insured can show apparent authority: for instance, a letter from the insurer stating the coverholder could bind risks up to £500,000, on which the insured relied. The coverholder's own assurance that it was authorised is not enough, because the representation must come from the principal. If apparent authority is established, the insurer is bound and its remedy is against the coverholder.
Traps that cost marks
- Confusing apparent authority with the agent's own assertions.
- Believing ratification can cure a contract that was void when made.
- Missing that an agent cannot normally delegate.
- Overlooking secret profits and the duty to account.
- Assuming the broker always acts for the insurer.