The agency relationship, which is based on the mutual trust and confidence, empowers the agent to act on behalf of the principal and imposes significant responsibilities on both the parties.
Responsibilities of the Agent to the Principal
In an agency relationship, the agent’s fundamental responsibility is to act on benefit of the principal. The laws of agency impose five specific duties on all agents: -
· Loyalty
· Obedience
· Reasonable Care
· Accounting
· Relaying Information
Responsibilities of the Principal to the Agent
The Principal’s primary duty is to pay the agent for the services performed. The principal also has a duty to indemnify the agents for any losses or damages suffered without the agent’s fault but arising out of agent’s acts on behalf of the principal. An important factor involved in this duty is exposure of insurance agents to errors and omissions claims, which might arise from agent’s negligent action.
Errors and Omissions are negligent acts committed by a person in the conduct of insurance business that give rise to legal liability for damages. E & O Claims can also arise from the failure to act that creates a legal liability.
Responsibilities of an Agent and the Principal to Third Parties
Thus from insured point of view, little distinction exists between insurance agent and insurance company. The Law presumes that knowledge acquired by the agent is the knowledge acquired by the insurance company. According to the agency law, the fact that the agent knew about the exposure means that the insurer is presumed to know about it.
CHAPTER 4 - MARKETING
