Intermediaries

• Author: Denis Boivin
• Pages: 146-169

146

A. INTRODUCTION

The insurance industry would soon grind to a halt if it were not for

intermediaries. As noted in Chapter 1, an insurance intermediary is a

person who comes between insurers and insureds in order to assist

them with their relationship. They are the faces seen by consumers of

insurance; the voices heard over the phone; the men and women who

sell and service insurance products. The main types of insurance inter-

mediaries are agents, brokers, and adjusters. In this chapter, we will

look at the role played by intermediaries in the formation of insurance

contracts; hence, the discussion will be concerned mostly with insur-

ance agents and brokers. The impact of intermediaries on the enforce-

ment of insurance contracts (i.e., the role played by adjusters) will be

considered in Chapters 9 and 11.

Intermediaries play a key role in contract formation: an insurance

contract is rarely negotiated without the assistance of an insurance

agent or broker. Intermediaries carry out many functions during this

process, depending on the terms of their specific mandates. They can

help consumers find the coverage that best corresponds to their needs.

They can help applicants complete insurance applications. They can

estimate the premium that will be due and, in some cases, offer inter-

im coverage while the proposal is under review. They can submit the

application and communicate the insurer’s acceptance or refusal. In

INTERMEDIARIES

chapter 6

brief, insurance intermediaries are the conduit through which many

insurers and insureds conduct their negotiations.

The regulatory framework that applies to agents and brokers has

already been introduced in Chapter 1. This chapter deals with another

dimension of this framework: the common law. In particular, we will dis-

cuss defects in contract formation. When the process runs smoothly, the

fact that intermediaries are involved is of little legal significance. A con-

tract negotiated with the help of an insurance agent has the same validity

as one purchased online, directly from the insurer. But what happens

when things go wrong? What is the legal significance of a procedural

defect attributable to the intermediary? Assume, for instance, that an

applicant verbally discloses a material fact concerning the risk for which

insurance is being sought. Assume further that the intermediary who is

filling out the proposal omits this fact. Can the insurer nullify the contract

based on failure to disclose? If the insurer is able to nullify the contract,

what remedies are available to the applicant as against the intermediary?

B. LAW OF AGENCY PRIMER

1) Meaning of Agent

In order to answer the questions posed in the introduction, it is neces-

sary to give a brief summary of agency law as it applies to insurance

intermediaries.1In insurance law, an intermediary is first and foremost

an “agent.” In this context, the term is used in a broader sense than it

has been used thus far. In the law of agency, an agent is someone who

acts under the authority of his or her principal and whose function it

is to carry out a specific mandate. Agents operate in all spheres of social

interaction. With respect to the formation and enforcement of insur-

ance contracts, this definition embraces all insurance intermediaries,

including agents, brokers, and adjusters. Potentially, it also includes

people who facilitate the sale and service of insurance products but

who are not licensed to act as agents, brokers, or adjusters. For exam-

ple, financial institutions and automobile dealerships will often play

roles in securing life insurance and automobile insurance, respectively,

for their clients. Strictly speaking, these facilitators are not acting in the

capacity of insurance agents, as the term was defined in Chapter 1.

Intermediaries 147

1 For a complete review of agency law, see G.H.L. Fridman, The Law of Agency,

7th ed. (Toronto: Butterworths, 1996) and C. Harvey, Agency Law Primer, 2d ed.

(Toronto: Carswell, 1999).