Lloyd's Maritime and Commercial Law Quarterly
RIGHTS AND DUTIES OF INSURANCE BROKERS
Senator B. R. Bamford
S.C., Cape Town.
An Australian decision1 has caused concern among insurance brokers in South Africa, and it is perhaps now opportune to re-state their rights and duties2. These are basic and well established, but some, for reasons of business and economics are certainly honoured more in the breach than in the observance.
A. PRE-CONTRACT LIABILITY
A broker’s legal relationship with an insured is governed by the contract of mandate or agency concluded between them. This needs no formalities, and can come into being by writing or verbally or tacitly by conduct: for example, P writes or telephones broker X:— “Get me the best forest insurance right away.” If X does anything indicating acceptance of that request a binding contract has been concluded.
There is, however, a rather uncertain possible field of pre-contractual liability: for example, P asks X:— “Is it possible to get defamation insurance in South Africa?” If X gives the wrong information, he will probably be liable for damages, provided it can be shown that he acted negligently. This is an action based on delict, not contract. A South African Court would probably impose the following conditions on liability, set in an American judgment:—
“Liability … arises only where there is a duty, if one speaks at all, to give the correct information. And that involves many considerations. There must be knowledge, or its equivalent, that the information is desired for a serious purpose; that he to whom it is given intends to rely and act upon it; that if false or erroneous, he will because of it be injured in person or property. Finally, the relationship of the parties, arising out of the contract or otherwise, must be such that in morals and good conscience the one has the right to rely upon the other for information, and the other giving the information owes a duty to give it with care.”3
B. DUTIES TO THE INSURED
A broker has seven main duties, which may of course be affected expressly or impliedly by the terms of the particular mandate. First, a broker must perform his mandate fully to the extent of the authority and as expeditiously as possible, unless he has sufficient excuse, or the mandate is terminated. The duty to perform is positive, unlike, for example, that of an estate agent, who may sit indefinitely with a client on his books. A broker must follow instructions. If these are not clear, and he cannot readily communicate with the insured, he must exercise his discretion bona fide in
1 Ogden & Co. Pty. Ltd. v. Reliance Fire Sprinkler Co. and Others
[1975] 1 Lloyd’s Rep. 52.
2 This outline is orientated to South Africa. The English common law probably applies in the Cape Province, Orange Free State, South West Africa and Rhodesia, and is persuasive in the Transvaal and Natal. The Marine Insurance Act 1906 (6 ed. 7 c. 41), to which reference should be had throughout, does not apply in South Africa.
3 International Products Co. v. Erie R.R. Co. 244 N.Y. 331 (1927). In a recent Dutch arbitration a forwarding agent was held not liable for an incorrect quotation given telephonically on request—see [1975] 2 LMCLQ 208.
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