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The individual appointed by an insurance company to solicit , negotiate, effect, or countersign insurance contracts om its behalf.
- Is not like an agent, a direct representative of any particular companynor under exclusive contract to one company.
- A Broker , is an independent salesperson who selects a clients insurance coverage from the company that best fits the clients needs.
What does a Broker do?
One who represents an insured in the solicitation, negotiation, or procurement of contracts of insurance, and who may render services incidental to those functions. This person is also called an independent agent. By law, the broker may also be an agent of the insurer for certain purposes such as delivery of the policy or collection of premium.
The Law of Agency.
An understanding of the law of agency is important, as an insurance company (like other companies) must act through its agents.
- Is defined as a relationship in which one person is authorized to represent and act for another person or corporation.
- A corporation or partnership is a legal "person", it cannot act for itself, so it must act through agents.
- The person or entity for which the agent acts is called the principal.
- One is empowered to act as an agent for a principal, one is legally assumed to be the principal in matters covered by the grant of agency.
Contracts made by agent:
Contracts made by the agent are the contracts of the principal.Payment to the agent, within the scope of the agent's authority, is payment to the principal.
Name 3 types of authority agents have:
- 1. Expressed authority
- 2. Implied authority
- 3. Apparent or perceived authority
- Is an explicit , definite agreement.
- It is the authority the principal gives the agent as set forth in agency contract.
What are Errors and Omissions(E & O) in an agency's contract?
- An agent must know the limitations of the contract and to operate within those limits .
- The agents actions and knowledge are binding on the insurance company, so the agent must be alert to the consequences of his actions and words.
Law of Agency, is an area of commercial law dealing with contracts.
It is as if there is an equal relationship between a principal and agent, whereby the principal authorizes the agent to work under their control and on behalf.
Commercial Law is also known as business law is the body of law that applies the rights, relations, and conduct of persons and businesses engaged in commerce.
- an agent has to transact the principal's business in accordance with general business practices.
- e.g. , an agents contract does not give them express authority of collecting and submitting the premium, but agent does so on a regular basis, the company accepts the premium, the agent is said to have implied authority.
Apparent Authority (based on Principal of Estoppel).
An agent seems to have authority because of certain actions, which misleads insureds. For example, an agent's contract does not grant authority to reinstate a lapsed policy by accepting past due premiums. If, in the past the company has allowed an agent to accept past due premiums for that purpose, a court probably would probably hold that the policyowner had the rights to assume that the agent's ;s acceptance of premiums was within the scope of their authority.
Principal of Estoppel.
In English Law is defined as : a principal of justice and of equity. It comes to this: when a man, by his words or conduct, has led another to believe in a particular state of affairs, he will not be allowed to go back on it when it would be unjust or inequitable for him to do so.
Principal of Estoppel.
In American Law: "Speaking generally, estoppel is a bar which precludes a person from denying or asserting anything to the contrary of that which has , in contemplation of law, been established as the truth, either by the acts of judicial or legislative officers, or by his own deed, acts, or representations, either express or implied.
Equitable Estoppel prevents one party from taking a different position at trial than he/she did at an earlier time if the other party would be harmed by the change.
Black's Law Dictionary defines "promissory estoppel" as: The principal that a promise made without consideration may nonetheless be enforced to prevent injustice if the promisor should have reasonably expected the promsiee to rely on the promise and if the promisee did actually rely on the promise to his or her detriment.
Application of Promissory Estoppel (is without an actual contract).
- One practical application of promissory estoppel applies to the reasonable expectation that a promise will be fulfilled without a contract.
- In every contract there is give and take.
- One party provides a good or service (performance) in order to get something in return (consideration).
- Promissory Estoppel can only apply in a situation where an actual contract does not exist.
Explain Promissory Estoppel without a contract.
- When a family member makes a verbal promise of goodwill and fails to follow with said promise but states "the promise could not be legally enforced because you didn't offer or promise any consideration for services rendered; therefore, there was no contract.
- Under the doctrine of promissory estoppel, you could prevail in a small claims court in this case because:
- 1. Your family member made you a promise.
- 2. Your family member should have resonably expected you to reply on that promise
- 3. You actually DID reasonably rely on that promise, and
- 4. You suffered a personal detriment-financial damages-as a result of relying on that promise that your family member did not fulfill.
What is Fiduciary Duty that an agent has to the insured and applicant?
A fiduciary relationship is developed when a person relies on or places confidence , faith , or trust in another person's action or advice.
In regards to insurance intermediaries, what are the fundamental differences between an "insurance broker" and " insurance agent".
The fiduciary duty of a broker is that the broker represents the policyholder's interests whereas the agent customarily represents the interest of the carrier pursuant to a written contract.
What is the name of a legal duty to act solely in another party's interest?
Who are the fiduciaries owe a duty to?
What are ways an agent , as a fiduciary, has accepted the obligation of acting in the insured's best interest?
- The agent must not only:
- 1.become familiar with the various features of the various policies sold to the public,but also
- 2. the many uses for these policies.
- 3. Agent must explain each feature of each policy, including provisions, riders, exclusions, and all possible options to the client.
What is a Rider in Insurance?
Rider is a provision of an insurance policy that is purchased separately from the basic policy and that provides additional benefits at additional cost.
What are examples of Riders in a Life Insurance Policy?
- 1. Accidental Death Rider
- 2. The Waiver of Premium Rider
- 3. Family Income Benefit Rider
- 4. Spouse and Children's Rider
- 5. Renewal Provision / Guaranteed Insurability Rider
Define Accidental Death or Double Indemnity Rider.
The addition doubles your death benefit if you die from an accident. It stipulates an age when coverage will expire.
Define The Waiver of Premium Rider.
This extra protects your insurance policy from being cancelled in certain situations, even if you are unable to pay the premium. Most policies have an age limit to use this rider at 65.
Define Family Income Benefit Rider.
- This rider guarantees your family will continue receiving your monthly income if you die. A length of time to provide security is chosen.
- An invaluable Life Insurance Rider for one-income source.
Define Spouse and Children's Rider.
An extra policy option that, for a higher premium, offers coverage for your spouse and/or your children.
Define Renewal Provision/ Guaranteed Insurability Rider.
When included in Life Insurance policy, this provision guarantees the policy's renewability at the end of its term.When you renew, it is unnecessary to provide additional proof of your insurability, but must renewed in set number of days.
List agents certain responsibilities to the company (Principal).
- All premiums received are funds held in trust.duty of loyalty
- duty to obey company or may become liable
- duty to act with that degree of care a reasonable person would exercise under comparable circumstances
- agent accounts for all property or money belonging to company
- agent required to inform the company of all facts pertinent to agency relationship so company is protected
- Since the agent acts in place of the company, the act of the agent is, in the eyes of the law, considered to be the act of the company.
What are the four essential elements for an insurance policy contract contain to be enforceable in court:
Define Consideration as an essential element for insurance contract
- In Life and Health Insurance, Consideration is an exchange of something of value between the parties.
- It does not necessarily have to be equal.
- Refers to honest answers on application and
- Initial Premium.
Define Offer as an essential element for Insurance contracts.
Offer is always made by the client when he signs the application and writes a check.
Define Acceptance of the Offer as an essential element for Insurance contracts.
Acceptance of the Offer is usually done when the underwriter approves the application and issues policy for delivery.
Define Legal Purpose and Legal Capacity as an essential element for Insurance contracts.
Contracts for illegal purposes are unenforceable in court. All parties must be competent, meaning they must be of age, of sound mind, and not under the influence of drugs or alcohol.
There are distinct characteristics of Insurance Contracts. List 5
- Doctrine of Adhesion
Define Doctrine of Adhesion as a characteristic of insurance contracts .
Doctrine of Adhesion states that any ambiguity in contract language will be construed in favor of the insured, since they had no chance to change it when purchased.
Why are Insurance contracts considered "boilerplate language" and unique?
- "Boilerplate language" is a contractual law term describing the parts of a contract that are considered standard.
- Insurance contracts are unique in that the client must buy them as written, without any chance to modify or clarify the contract language.
- Insurance contracts are standard forms.
Can an insured individual transfer ownership of Life Insurance policy?
Life Insurance contracts are considered a personal contract and cannot be transferred without the consent of the insurance company.
What is the term Representations mean in regards to legal interpretations affecting Insurance company contracts?
Policies are based upon answers on application which are considered to be representations, or the truth to the best of the client's knowledge.
How is the legal interpretation of truth in a clients answers on application as Representations differ from a Warranty statement?
- Unlike a representation (truth to best of client's knowledge), a Warranty is a statement made on an application for insurance that is warranted to be true in all aspects.If untrue in any aspect, the contract may be voided without regard to importance of statement.
Yes or No, All statements on an application are always representations?
Yes, because of the Doctrine of Good Faith applies to All parties involved.
Define Concealment in regards to affecting contracts.
- Some clients do make misrepresentations (i.e. lie) on application to conceal material facts.
- Concealment is defined as deliberate omission of a material fact. Such as, applicant lying about a heart attack or leaving out doctors recommendation for aggressive high cholesterol treatment.
Define Fraud as legal interpretaion affecting contracts.
- Fraud is a deliberate attempt to deceive agent or insurance company. It is hard to prove.
- Insurance companies reluctant to prove fraud, because if they fail to prove, the other party may sue insurance company for libel or slander.
Stock companies issue non-participating policies, which means the policy owner does not participate in company dividends. Are the dividends sent from a stock insurance company to stockholders taxable?
Yes, those dividends are taxed similar to long-term capital gains income to the stockholder.
How are mutual and Fraternal companies issuing dividends to policy owners differ from the non-participating policies of Stock companies?
- Mutual and Fraternal dividends are a return of the policy owners own money, therefore not taxable.
- Those policy dividends are thus "participating" policies.