Roles, Responsibilities & Regulations of Insurance Intermediaries

Roles, Responsibilities & Regulations of Insurance Intermediaries Presented by: Julian Burling, Centre for Commercial Law Studies Date: 29 October 2020 Reading 1. Henley and Kemp, The Law of Insurance Broking 3rd ed (2016) 2. Bird's Modern Insurance Law 11th ed. Ch 12 (2019) 3. Clarke, The Law of Insurance Contracts CHS 7, 8, 9, 11-3A (LL) 4. Colin Vaux’s Law of Insurance 12th ed. Ch 16 (Nov. 2019) 5. Lowry, Rawlings and Merkin, Insurance Law: Doctrines and Principles 3rd ed. Ch 3 (2011) 6. MacGillivray on Insurance Law 14th ed. Ch 38 7. CMS Cameron McKenna, (2018) 8. Insurance Broking Practice & the Law (LL) "Distribution", But Distinguish Between Agent Of Insured And Agent Of Insurers - Insurance broker - Re Great Western [1999] 1 Lloyd's Rep IR 377 - Lloyd's broker - Roberts v Plaisted [1989] 2 Lloyd's Rep 341 - CF "servant of market" - The "Zephyr" [1984] 1 Lloyd's Rep 58 - Reinsurance brokers - "Placing chain" in commercial insurance: producing broker, placing broker - Price comparison websites see FCA TR 14/11 - Employee of insurer - Appointed representative - FSMA s.39 - Underwriting agents - cover holders/MGAs - Lloyd's underwriting agents - Third party claims administrators - Confusion caused by developing "integrated business models" in SME insurance market - see FCA TR14/9,TR 19/2. Sources Of Law - Common law duties in contract and/or tort, partly derived from market practice/expert evidence - Equity: fiduciary duties - FSMA 2000, COB, COBS: investment/life; ICOB, ICOBS non-investment ins WEF Jan 2008 - Insurance Mediation Directive 2002/92/EC WEF 15.1.05 - Insurance Distribution Directive (EU) 2016/97 - WEF 1.10.18 - After Brexit Regulated Activity - FSA 1986, FSMA 2000, COB, COBS: investment/life - Insurance Mediation Directive 2002/92/EC WEF 15.1.05 - Registration by home state competent authority, financial requirements (include claims money in transmission), compensation scheme, information to customers, EEA passport - Insurance Distribution Directive (IDD) WEF 1.10.18, - ICOBS, gold-plated IMD (see infra), excludes "large risks" (except where mediation is for consumer and risk is situate within EEA) - Jurisdiction of Financial Ombudsman Service (FOS) FSMA: RAO, ICOBS, CASS 5 - IMD extended regulation to "non-investment contracts" - "Rights under a contract of insurance" are a "relevant investment" (RAO art 75) - "Insurance mediation activities" (excl "large risks situated outside EEA" RAO art 24, 72D): re any contract of insurance or rights to or interests in a life policy • Buying or selling investments as agent (RAO art 21) • Arranging (bringing about deals) in investments (RAO art 25(1)) • Making arrangements for another person to buy relevant investments (RAO art 25(2)) • Assisting in administration and performance of insurance contracts (RAO art 39A) • - Advising on investments (RAO art 53) "Insurance intermediary" a firm carrying on insurance distribution activities other than an insurer (CF IDD - insurance distributor) - Insurance intermediaries regulated by FCA - not PRA-authorized persons. - CASS 5 rules Client money: insurance distribution activity IDD - Insurance Distribution Directive (EU) 2016/97 1.10.18 - Applies to "insurance distribution" and to "insurance distributors": intermediaries and insurers (inc. comparator websites) - Organization and professional requirements - Easier passporting - 3 general conduct principles – Art 17 - New information standards, inc. IPIDs - Limited req. for disclosure of nature and basis of remuneration - Information on bundling/cross-selling (add-ons) - More rigorous discipline and enforcement requirements Insurance Conduct of Business Rules (ICOBS) - Originally required in part by IMD, DMD, (ICOB WEF 14.1.05) (ICOBS 6.1.08) for non-investment business - Flesh out FSA (now FCA) Principles for Businesses - ICOB formerly followed COB (made for investment business) and was gold-plated - Reduction of former ICOB to minimum EU Directive Requirements with greater reliance on principles and outcomes (less scope for s.150 (now s.138D) proceedings for damages) - ICOBS (following IMD) does not apply to large risk cover for commercial customers, large risks outside EEA, or reinsurance - Amended for IDD WEF 1.10.18 - FCA now puts more emphasis on 6 TCF outcomes/customer value - Application and purpose - General rules (inc. unfair inducements; clear, fair and not misleading statements rule; new customer's best interests rule - Distance communications - Information about the firm, its services and remuneration - Identifying client needs and advising (demands and needs, suitability) - Product information. NB new EU IPID Regulation 2017/1469 - Product specific rules; optional additional products; cross-selling - Cancellation - Claims handling Whose Agent? Relevance? - Pre-contractual disclosure/misrepresentation (proposal form) - Imputed knowledge - Insolvency of agent/insurer - Remuneration - Confidential reports, adjusters' reports etc. - Conflict of interest - New ICOBS 4.1.2(2)(d) R: to state whether representing customer or acting for insurer Sub-Agents Of Broker - If placing chain, use of producing brokers and placing brokers - Placing sub-broker will not normally be in contractual relationship with proposer/insured and may not be entitled to remuneration from insured, but may owe duty of care in tort and fiduciary duties - Henderson v Merrett [1995] 2 AC145 (assumption of responsibility) - Prentis Donegan v Leeds & Leeds [1998] 2 Lloyd's Rep 326 - Pan good v Barclay Brown [1999] Lloyd's Rep IR 405 (CA) - CF. European International v Curzon [2003] EWCA Civ 1074, BP v Aon [2006] EWHC 424 (Comm), [2006] 1 Lloyd's Rep 549 - Intermediaries remain liable in contract for failure of sub-agent to perform the contractual duties of the mandate The Oceanic [1986] Lloyd's Rep 195, 201 Authority Of Agents - Express actual authority - Implied actual authority to do all subordinate acts necessarily or ordinarily incidental to the exercise of his express authority - Apparent (ostensible) authority - based on "holding out" and estoppel: the authority ordinarily attaching to the position in which the principal has placed the agent or to the credentials which he has permitted him to hold, regardless of any special limitations placed by principal as a term of agency relationship. Principal may hold out agent, or permit agent to hold himself out, as having authority agent did not in fact possess; or which has been terminated e.g. Willis, Faber v Joyce (1911) 27 TLR 388. Agent Of Insured – Authority - Express actual authority - typically in TOВА - Implied actual authority: • To agree precise form and content of policy e.g. Zurich v Rowberry [1954] 2 Lloyd's Rep 55 (CA) • To disclose or describe matters material to risk e.g. Bancroft v. Heath (1901) 6 Comm Cas 137 • To act in accordance with custom of particular market where the risk is to be placed e.g. Standard Steamship v. GIE Vision Bail [2006] EWHC 2919 (Comm) (direct liability for premiums, foreign jurisdiction clause); Goshawk v. Tyser [2006] EWCA (Civ) 54 (disclosure by broker of assured's placing and accounting records on presenting claim, where practice derived from business necessity) - Subsequent ratification • By principal where broker/agent has made contract without actual authority – but see The Moonacre [1992] 2 Lloyd's Rep 501, 515 • No ratification by undisclosed principal – Keighley Masted v Durant [1901] AC 240 • No ratification after loss, except in marine insurance Grover v Matthews [1910] 2 KB 401 CF dicta in National Oilwell v Davy [1993] 2 Lloyd's Rep 582, 608 Agent Of Insurer – Actual Authority - Express actual authority • Appointed representatives - FSMA s.39 • Managing agents at Lloyd's: standard agency agreement (Lloyd's requirement) • Cover holders: binding authority agreement (Lloyd's requirement; LMA models) • Authority conferred by limited binding authority is limited - Callaghan v Thompson [2000] Lloyd's Rep IR 125 - Local agents • To negotiate and obtain proposals for acceptance by insurance co Bawden v. London, Edinburgh & Glasgow Assurance [1892] 2QB 534, 539 • But not to conclude contract with insured - Levy v. Scottish Employers (1901) 17 TLR 229 • Unless for interim cover (also independent intermediaries) - Stockton v. Mason [1978] 2 Lloyd's Rep 430 • To waive breaches of duty by insured, but perhaps not to vary terms of contract Wing v. Harvey (1854) De GM & G 265; Ayrey v. British Legal [1918] 1KB 136 • - To receive premiums (see CASS 5 - "risk transfer) Head Office • Non-executive directors: none • Executive directors: authority usually associated with post • CEO or MD: any contract within powers of company Re County Life Assn (1870) 5 Ch App 288 - Apparent (ostensible) authority • To establish a representation of authority it must be held out as a fact that the agent has authority in the matter, i.e. by the insurer or the insurer's authorized representative or by a person who, even if he has not actual authority, has apparent authority to make representations as to the authority of other agents, provided that his own authority can finally be traced back to a representation by the principal or to a person with actual authority from the principal to make it. It cannot be done by the agent whose authority is in question. Bow stead on Agency para 8-021, adopted ING Re v. R & V [2006] EWHC 1544 (Comm) • e.g. P & B Run-off v Woolley [2002] Lloyd's Rep IR 344 (CA) Willis Faber v Joyce (1911) 27 TLR 388 • CF. CX Re v Sun Life [2004] Lloyd's Rep IR 58 (CA) Markel International v SGC [2008] EWHC 1135 (Comm), [2009] Lloyd's Rep IR 77 • Where there is no apparent authority there may be a claim against the agent for breach of warranty of authority