LEGAL GUIDE
Please consider the following 3 main issues;
a) The validity of the Policy of Life Insurance dated 18 February 2015;
b) Whether the 2 individuals who purported to act on behalf of the Luka Insurance
company could bind the insurance company;
c) Whether the client would be entitled to a free policy beyond February 2021 or in the
alternative to be reimbursed the premiums paid.
1. The validity of the Policy of Life Insurance dated 18 February 2015
Look at the text, Commercial Law in Zambia by Mumba Mulila and quote it on the is issue. But
generally, every insurance police should have at least the following to be valid;
Offer and Acceptance
When a prospective insured goes to buy an insurance policy, they must fill out an application
provided by the insurance company. If they are working with an agent or broker, then he or
she may fill this out for the customer.
The application is legally known as an offer, where the insured offers to make
premium payments of a certain Kwacha amount in return for insurance coverage up to specific
limits. Acceptance occurs when the insurance company formally issues the policy, or when
the agent or broker issues a certificate of temporary coverage.
Legal Consideration
This represents the Kwacha value of the premiums that the insured agrees to pay and the
Kwacha limit of the coverage that the insurer will provide in return. If the insurance company
receives a claim that is covered in the policy, then the insurer will pay this claim.
Competent Parties
Insurance contracts are only valid if both parties are of sound mind and body, referred to
legally as “competent parties.” The insured must be at least the legal age of majority and the
insurance company must be licensed in Zambia to provide insurance services.
Free Consent
Both parties in any insurance contract must enter into the contract with free consent, which
means it is on their own volition. There cannot be any fraud, misrepresentation, intimidation
or coercion involved when the contract is signed. The contract also cannot be signed as a
result of an error.
Insurable Interest
The insured has an insurable interest when they benefit financially from the person or thing
being insured. The insured will then experience a financial loss if the item or person being
insured either dies or is damaged or lost. Prospective insureds cannot get coverage on
something in which they have no insurance interest.
CONCLUSION: you will qualify the contract as having been validly entered into as there is
nothing from the facts to suggest otherwise. Be sure to include case law.
2. Whether the 2 individuals who purported to act on behalf of the Luka Insurance
company could bind the insurance company
-
Look at the issue of authority of an agent. An agent can only bind a principal if he/she
was clothed with authority by the principle. In the absence of authority, no agent can
bind another. Look at both ACTUAL and OSTENSIBLE authority. There are several
cases on this.
3. Whether the client would be entitled to a free policy beyond February 2021 or in
the alternative to be reimbursed the premiums paid.
A Note on premium
It is not necessary for premium actually to be paid - the contract may provide that the
consideration is agreement to pay. Generally, requirements for payment of premium will be
governed by the terms of the contract of insurance.
Effect of payment of premium to broker - A broker who is engaged by the insured has no
authority from the insurer to collect premium, so payment to the broker will not constitute
payment to the insurer, as a matter of English agency law (MacGillivray on Insurance Law,
12th edition 7-007). However even where it is otherwise the agent of the insured, the broker
may be held out by the insurer as authorised to accept premiums.
Consequences of late payment of premium - An insurance contract may contain a premium
warranty under which the insured warrants that premiums will be paid at given times. Such a
provision will be given effect by the court as a warranty and default will bring the insurer's
liability under the policy to an end, although the insured remains liable for the premium (J A
Chapman & Co Limited v Kadirga Denizcilik Ve Ticaret [1998] Lloyd's rep IR 377). Even
without an express warranty an insurer may be able to repudiate a contract of insurance where
there has been a failure to pay premium on the due date. Figre Limited v Mander [1999] Lloyd's
Rep IR 193 is Commercial Court authority that an insurer could repudiate if: (a) time was
stipulated to be of the essence; (b) circumstances of the contract or the nature of the subject
matter showed that time was impliedly of the essence; or (c) where time was neither expressly
nor impliedly of the essence, but the insured had been guilty of unreasonable delay, and the
insurer had given notice requiring the premium to be paid within a reasonable time. Broker's
liability to insurer for premium - In the marine insurance market, the placing broker is directly
responsible as principal to the underwriter for payment of premium pursuant to Section 53 (1)
Marine Insurance Act 1906, which codified a long-standing market practice to this effect. The
rule is said to reflect a legal fiction whereby, when the contract is concluded, the broker is
deemed to have paid the premium and the insurer is deemed to have loaned the premium
money back to the broker. Where the practice codified in Section 53(1) applies, the insurer
will be unable to claim premium direct from the insured (Universo Insurance Co of Milan v
Merchants Marine Insurance Co Limited [1897] 2QB 93). Because the broker is directly liable
to the insurer for the premium as soon as it falls due, the broker has a corresponding right to
an indemnity from the insured. The broker can sue the policy holder to recover the premium
even if it has not made any payment to the insurer itself (J A Chapman & Co Limited v Kadirga
Denizcilik Ve Ticaret).
On fraudulent misrepresentations by broker, look at the attached article
Conclusions;
Client should be entitled to a free policy beyond Feb 2021. Tis is because she laced reliance
on the representations by the agents. In fact, Mr Coward, Luka Insurance Company district
superintendent had ostensible authority to bind the insurance Company ; or
In the alternative, should be entitled to a refund of the premiums in the event she wants to
terminate the policy. This would not be a good option or possible if she wants to continue with
the policy.