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08 September 2021

Insurance, Agents, and Agency

Library with a row of statue

For many people, when the words “insurance” and “agent” are put together they probably think of an “insurance agent;” that is to say, someone who sells insurance. However, the terms “agent” and “agency” have much wider definitions within the context of insurance, and Hong Kong law.

Agents, and agency, occurs often within daily and business life. Shipping Agents, Estate Agents, Sales Agents, Artists Agents, Licensing agents, are all types of agents that you will encounter and which are governed by agency law in Hong Kong.

When we think about insurance, the idea of an “agent” becomes slightly more complicated. This is because insurance intermediaries, which are de facto agents, can be described as either “insurance brokers” or “insurance agents.” Under Hong Kong Law, and within the law of agency, both insurance brokers and insurance agents are both agents.

Agency under Hong Kong Law

In very simple terms, an agent is someone representing a principal. While this seems fairly straight forward, the law of agency can in fact be very complicated. The governing idea for this theory of law is, essentially, he who acts through another is himself performing the act.

When a child goes to the grocery store at his mother’s direction and buys something on credit, the child is acting as an agent and the mother acting as the principal. While the child made the purchase, the contract of sale is between the mother and the store. It is not the child that carries the debt for the credit purchase, but the mother who now has an obligation to repay.

Continuing this analogy, the mother (as the principal) is bound by the acts of her child (agent). If the child purchases additional items that were not asked for, the mother is still responsible for carrying the debt. This is a critical area of Agency – the principal is bound (for good of for ill) by the acts of their agent, and is exposed to vicarious liability through the creation of the agency.

Vicarious Liability is liability which has occurred via an act or omission of another.

As such, with your liability for another entity’s actions on the line, it is extremely important that you enter into a relationship with any agent only after careful consideration.

Creating an Agency

As an agency is a relationship between an agent and a principal it may be created as a matter of fact, rather than by any formal or legal appointment. Under Hong Kong law, an agency is deemed to arise in certain given circumstances, despite the lack of any formal agreement.

Last week we took a close look at Insurance Contracts in Hong Kong. This is important for agents as, when creating a relationship with an agent, there are two contracts to consider:

  • The contract between the agent and the principal
  • The contract between the principal and the third party

At this point is it important to remember that an agency can exist without a contract of agency. As in the previously mentioned example of a child becoming an agent of their mother on the trip to the grocery store. As this is a domestic arrangement, no contract is created, but the agency existing between mother and child still exists.

The child has a duty to perform the task asked of him, and purchase the items request by his mother.

There is no contract involved, but the agency has been created by agreement – all parties are agreed on the course of action, and that the child should represent their mother at the store. The implied conduct of the agent and the principal have created the agency. A contract may form part of an agency by agreement, but is not necessary for an agent to be given authority by the principal.

Duties Contained in an Agency

When an agency is created, there are various duties that all parties are now legally obligated to undertake.

Duties of the Principal

  • The agent is entitled to remuneration as agreed with the principal. The principal is obligated to pay compensation within a reasonable or specified time frame.
  • The principal is obligated to reimburse agents for costs and expenses reasonably and properly incurred by the agent on behalf of the principal.
  • If the principal violates their duties to the agent, the agent may take action for breach of duty.

Duties of the Agent

  • The agent is obligated to be obedient to the principal. This includes following the principal’s lawful instructions to the best of the agent’s ability
  • The agent must not delegate any authority or responsibility unless directed to do so by the principal. Subagents should not be created unless the authority has been given by the principal.
  • While the law does not demand perfection, the agent does have an obligation for due care and skill. Although a principal is bound to an agent’s lack of care and mistakes though the agency, the principal is entitled to reclaim any losses caused by an agent’s lack or care, or errors.
  • An agent must fully account for all money and assets received from the principal. Adequate records in relation to the agent’s activities must also be maintained.

Terminating an Agency

In the event that either party (agent or principal) wishes to end the agency relationship, there are a number of mechanisms by which that can be achieved:

  • Mutual Agreement: an agency may be terminated by the agreement of all parties involved.
  • Revocation: Either the principal or agent may cancel an agreement during its currency, subject to any relevant contractual terms and conditions.
  • Breach: In the event that either party is found to be in breach of the contract or agency relationship then the party not in breach may treat the relationship as ended. If, for example, a policyholder contracts a second insurance intermediary before the expiration of the initial agency agreement, the “exclusive” agent initially appointed may terminate any agency.
  • Death: Should either the agent or principal die then the agreement of agency is deemed to be terminated. In the case of a body corporate, liquidate of the company is considered the same as death.
  • Insanity: Should either party become insane, then the agreement may be terminated.
  • Illegality: While a contract must be legal for it to be enforceable, we have determined that no contracts are needed for the creation of an agency. Illegality, for the purposes of an agency relationship, applies to activities that were legal, but which have now become illegal. Trading between two countries at peace, which are now at war, would be an example of this – trading is illegal after war commences, and any trade or shipping agencies between the two countries would dissolve.
  • Time: An agency can conclude after a length of time, if the agreement was for a determined time period.

Your Agency with CCW Global

CCW Global Ltd is an Insurance Broker, that means we represent our clients and not the insurance companies we choose to work with. Under Hong Kong Law, when you choose to purchase any insurance policy from CCW Global, we are obligated to represent your interests as your agent of insurance. You are the principal for all of our brokers, who would be your agents.

This is a fundamentally different relationship from an Insurance Agent, as this type of intermediary represents the insurance companies – they are the agents of the insurers, and you are the third party which the insurer is dealing with. While both brokers and agents have agency relationships, each one of these intermediaries does so from opposite ends of the insurance spectrum.

If you have any questions about Insurance, Agents, or Agency in Hong Kong, please Contact Us today to discuss your needs with one of our expert brokers. If you would like to receive a free quote for any of the Hong Kong Insurance products we offer, please complete the short form at the top of this page.

About Author

Michael Lamb is an insurance industry professional with many years of experience within the Hong Kong Insurance market. Focusing on APAC coverage issues, Michael is able to provide extensive analysis and insight to a range of pressing topics. Previously, Michael provided insurance broker Globalsurance.com with their most highly valued articles and was a key influence in the development of all the content on Pacificprime.com, Michael has a passion for insurance matched by few others in the region.

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