Insurance Agent - Definition and Authority

DEFINITION OF AN AGENT

1. An agent is one who acts on behalf of another. The 'another' on whose behalf the agent acts, is called the principal. This is the simple definition. The lawyer is the agent of the client, when he argues the case in court. An ambassador is an agent of his country. It is the function, which determines the relationship of agency, not the designation.

2. According to Section 182 of the Indian Contracts Act, an 'agent' is a person employed to do any act for another or to represent another in dealing with a third person. The person for whom such act is done or who is so represented is called the 'principal'. In the insurance industry, the term 'agent' is ordinarily applied to a person engaged by the insurer to procure new business. The Insurance Act defines an insurance agent as one who is licensed under Section 42 of that Act and is paid by way of commission or otherwise, in consideration of his soliciting or procuring insurance business, including business relating to the continuance, renewal or revival of policies of insurance. He is, for all purposes, an authorised salesman for insurance.

3. There is a legal maxim 'qui facit alium, facit perse', which means that he who acts through others, acts to himself. The principal is bound by what the agent does. Therefore, contracts entered into through an agent, and obligations arising from acts done by an agent, may be enforced in the same manner and will have the same legal consequences, as if the contracts have been entered into, and the acts done, by the principal himself.

4. Under Section 183 of the Contracts Act, any person who is a major, according to the law to which he is subject, and who is of sound mind, can employ an agent. Section 184 provides that as between the principal and third persons, any person may become an agent. Thus, though a minor may be employed as an agent and the principal would be bound by his actions, the minor himself will not be liable to his principal. Unlike other contracts, no consideration is necessary to create an agency contract.
INSURANCE 

The act however did set out the duties and functions of the Agent, namely
1. To contract business according to the directions given b the person / company they represent (the principal)
2. To exercise reasonable diligence and skill while conducting business.
3. To submit proper accounts to the principal.
4. To act in good faith towards the principal (disclose all material facts etc).
5. To perform his duties personally.

Although the principles of the 1872 act apply to Life Insurance Agents, they are governed more particularly by the rules set out in the Insurance Act 1938 and the Insurance Regulatory Development Act 1999.

The 1938 Act defines as “a person who receives payment by the way of commission or other remuneration in consideration for his soliciting or procuring insurance business, including business relating to the continuance, renewal or the revival of policies”.
AUTHORITY OF AN AGENT 
While the maxim cited above makes the principal liable for all the acts done by the agent, he can restrict his liability by specifying the extent of authority granted to the agent. This authority may be expressed or implied. An authority is said to be expressed when it is stated by words, spoken or written. It is implied when it is to be inferred from the circumstances of the case. 
The L.I.C. does not authorize its agents to collect premia (except first premium along with the proposal) or other amounts from policyholders. But if the agent collects such amounts, remits them to the insurer and gets receipts to be handed over back to the policyholder, implied authority can be inferred or construed. The LIC's stand has been that its agents are not authorized to collect renewal premiums and that if they do so, they are acting as agents of the policyholders and not of the LIC. The implication is that if an agent collects premium from a policyholder and does not remit the same in the office, the L.I.C would not be liable for that amount. The courts have upheld this stand. Other insurance companies in India may not follow L.I.C' s practice. They may grant more or less authority. 

Disclaimer: This information was obtained from the insurance-solutions information website.