NAME NOR ASYIKIN BINTI RAMLEE NUR AZIELA BINTI JAMION

MATRIC NO. 10DPM08F1058 10DPM08F1055

NORLIYANA BINTI MOHAMAD SOLIHIM REVATHY A/P MARATHAMUTTU

GUNAVATHI A/P GUNASEGARAN

10DPM08F1084
10DPM08F1069 10DPM08F1077

The Insurance Act, 1996 is the principal piece of legislation which the insurance companies have to abide by.

Besides the Insurance Act, one other piece of legislative control on insurance companies is the Companies Act, 1965.
The principal requirements of the Companies Act affecting insurance companies can be summarized under the following headings : preparation

and submission of annual accounts and accompanying statements. the method of valuing assets and the provision for depreciation the method of valuing liabilities

the

LAW OF CONTRACT
A contract is said to be entered into

every time an insurance policy is sold. All contracts are governed from by the principle of the law of contract as specified in the Contracts Act, 1950.

CONTRACT
A contract is defined as a legally

binding agreement made between two or more parties, that is one which the law will enforce and recognize in some way. Agreements which are not legally binding are therefore not contracts.

ESSENTIALS OF CONTRACT
Intention to create legal relationship
Offer and acceptance Consent- consensus ad idem Consideration Legal capacity to contract Legality of the contract

INTENTION TO CREATE A LEGAL RELATIONSHIP

It is essential that parties to an agreement intend to be legally bound; otherwise there would not be a contract between them. This intention may be inferred from the terms of their agreement, their conduct and surrounding circumstances. The law presumes that agreement entered into a business environment are intended to be legally binding.

OFFER & ACCEPTANCE

An offer must be made by one party to

another. The other party may accept or reject the offer. The offer and acceptance must be voluntary. It may be expressed in writing or orally and implied from conduct.
Completed and Proposer Signed proposer form Insurer/agent

CONSENT
An acceptance will be of no effect in law

unless parties are in total agreement. In other words, parties to the agreement must agree upon every material term of the agreement. When this happens, the parties to the agreement are said to be consensus ad idem, that is one mind

CONSIDERATION
The insured pays premium
Parties must give consideration before agreement can be legally binding. A consideration is a benefit which one party gives another or a burden which undertakes for the other.

 The insurer indemnifies or pays the

agreement sum insured

In general and life insurance contracts , the insureds consideration is to pay or promise to pay premium. The consideration by the insurer, in the case of General insurance policy is to promise indemnify the insured when an insured occurs Life insurance policy is to promise to pay the insured the sum assured and addition benefits, if any, when an insured event occurs.

Policies may be in force before premium paid in general insurance business

When the consideration of an insured is to be pay or promise to pay, policies may be in force before premium is paid. However , in cash-before-cover policies, for example motor policies, the insureds consideration is to pay premium in accordance with the laws of Msia which is to pay premium on the he is given insurance cover.

Legal capacity to Contract

The general rule is everyone , except minors and people of unsound mind, has legal capacity to enter into contracts.
Part XII Section 153 of the Insurance Act 1996 provides that minor who has attained the age 16 may affect a life policy on his own life or on the life of others in which he has an insurable

interest.

Legality Of A contract
Illegal Contracts
An agreements should be created

should be created for legal purpose. It should not promote things that are either illegal or against public policy. An agreement which is illegal or against public policy would not be legally binding.

Defective Contracts
When contracts are tainted by defects at

the time when they are being made, their validity may be questioned. A contract tainted by defects may be void, voidable or unenforceable depending on the nature of the defects.

Void Contracts
Void contracts are simply one

which the law held to be no contract at all, a nullity from the beginning. They are totally invalid and are nothing more than agreements.

Voidable Contracts
A voidable contract will remain valid

until the aggrieved party exercises the option to treat it void. An insurance contract is voidable if the insured fails to observe the duty of disclosure during negotiation or breach a warranty.

Unenforceable Contracts
Unenforceable contracts usually

arise out of failure to comply with legal formalities, for example the need for certain contracts to be in writing.

LEGAL PROVISION GOVERNING THE LAW OF AGENCY

The agents most important function is the making of

contracts on behalf of his principal. After having given the agent such authority, the principal is responsible for all contracts entered into by his agent as if he had himself entered into the contract.
The act of the agent affects the principals rights and duties

in relation to third parties, the principal is brought into a legal relationship with the third parties.

AUTHORITY OF AN AGENT
An agent can act only within the authority granted to him by the

principal. The authority given to an agent maybe expressed, implied or apparent. i. EXPRESSED AUTHORITY
May be given to an agent orally or in writing. The most important factor is that the authority given has to be

expressly stated in writing. If the writing is ambiguous, i.e open to misinterpretation, no liability can fall on the agent provided that he interprets the ambiguity in a way in which it can reasonable be construed, even though it was not the way the principal intended.

ii.

IMPLIED AUTHORITY
Not expressed to the agent either orally or in writing. However, such authority can be implied from the circumstance concerning the relationship between the principal and the agent, and it is implied that the agent : - can carry out acts which are within the terms of his expressed authority. - has authority to do anything which is necessary for, or incidental to the carrying out of his expressed authority.

iii. USUAL AUTHORITY

When an agent carries on a particular trade or profession, his expressed and implied authority carry with them a usual authority. Such as authority enables him to perform acts which are usual in the particular trade or profession. In the other hand, if there are certain customs of a trade, he has a usual authority to comply with such custom.

iv.

APPARENT OR OSTENSIBLE AUTHORITY

Any representation made by principal which induces a third party reasonably to believe that a particular person is an agent of the principal makes the principal liable for the agents action. This is known as apparent authority. Apparent authority is also known as authority by estoppel. Where one has so acted that from his conduct he leads another to believe that he has appointed someone to act as his agent and knows that the other person is about to act on that belief, he is estopped from denying the existence of the agency. An apparent authority is based on belief that the agent had the authority. RATIFICATION A principal may ratify an act which was done by a person who was in fact his agent but who was exceeding his authority, or even by a person who at the time the act was done was in no sense an agent of the principal.
Classes of agent:

v.

- special agent - general agent - universal agent

DUTIES OF AN AGENT
Some of the duties imposed on an agent in addition to his

express contractual obligations are provided as follows: i. To render accounts to the principal as required. ii. Not to let his own interest conflict with his obligations to the principal. iii. Not to disclose confidential information obtained during the course of his duties as an agent to other parties except the principal insurance company. iv. Not to take any secret profit or bribe from any party with whom he deals on behalf of the principal. v. Not to delegate his duties to a sub-agent without authority, express or implied. vi. To comply with his principals instructions and to notify him when compliance becomes impossible.

RIGHTS OF AN AGENT
Receive payment for his service, usually in the form of

a commission. Entitled to reimbursement of moneys which he has expended with the express authority of his principal. has the right to perform his duties in the manner which he considers to be appropriate.

OBLIGATION OF THE PRINCIPAL

To pay remuneration and expenses as

agreement, or failing agreement, as it customary, or failing a custom, to pay what is reasonable. Indemnity the agent against consequences of any act lawfully done, within his authority, on behalf of his principal.

TERMINATION OF AGENCY
By notice of revocation given by the principal to the

agent. By notice of renunciation given to the principal by the agent. By the completion of the transaction where the authority was given for that transaction only. By expiration of the period stipulated in the contract of agency. By mutual agreement. By death, lunacy or bankruptcy of the principal or agent. By operation of any law, which renders the contracts of an illegal.

CHARACTERISTICS OF INSURANCE AGENTS

The essential characteristics of an insurance agent is that he is

vested with legal power to establish contractual relations between the insurance company and the policyholders.

AGENTS OF WHOM?
Quite possible for an agent of the

insurer to be legally regarded as agent of the insured for a given act, and vice versa.

IMPLICATIONS OF THE INSURANCE ACT, 1996

Before the passing of the 1996 Insurance Act, if the insurance

agent helps the proposer by filling up the proposal form or personal statement, he is acting as the agent of the proposer or the policyholder and not the insurance company. If the insurance agent commits any mistake whether innocently or wilfully by providing misleading information, he is doing it on behalf of the policyholder. If the policy is voided or repudiated on the ground of such misrepresentation, the policyholder cannot plead that the insurance agent had filled the form without his knowledge. Because of that, the insurance agent is highly responsible when he is completing the proposal form on behalf of the life to be insured or the proposer.

PREMIUM COLLECTIONS
Section 160 of the Insurance Act 1996 made specific

provisions for the collection of premiums at policyowners address eg in home service life policy. BNM may prescribe the manner in which a life insurer carries on life business in respect of life policies where premiums are ordinarily collected at the policyowners address by a person whom the life insurer employs for this purpose. In respect to such a life policy, payment to that person so employed shall be deemed to be payment to the life insurer.

by express appointment by implication of the law, which may arise i.From the conduct of the parties, or ii.From the necessity of the case. By subsequent ratification of an unauthorized act By statute (Section 151, Insurance Act, 1996)

Under the common agency system, an insurance agent is appointed by the insurer :i.For the primary purpose of canvassing for new business; and. ii.To carry out other tasks or duties as may be required by the insurer from time to time and for no other purpose.

In most of the agency agreements between the insurance agent and insurer, an insurance agent is expressly not allowed to perform the following acts : To represent more than one life insurance company

and/or more than two general insurance companies, other than the companies which appointed him, during the continuance of the agency agreement; To incur any forms of liability on behalf of the insurer in respect of any debt whether personal or official, acceptance of risks, reinstatements of lapsed policies, alterations of policy contract, waiver of any premium payment, extension in the period of payments or issue official receipts unless otherwise permission has been granted by the insurer; Though there is no law specifically for the conduct of insurance agents, Subsection 150(4), Sections 151 and 160 (both section expounded earlier) of the Insurance Act 1996 activities of insurance agents in the field.

Subsection 150(4) is reproduced below for the guidance of agents : No licensed insurer or insurance agent, in order to induce person to enter into or offer to enter into a contract of insurance with it or through him
a. Shall make a statement which is misleading, false or

deceptive, whether fraudulently or otherwise; b. Shall fraudulently conceal a material fact; or c. In the case of an insurance agent, use sales brochures or sales illustration not authorised by the licensed insurer Penalty: One million ringgit