Report No. 21
General.-This deals with policies effected through brokers.
Importance of broker.-According to the general principles of the law of contracts, the insurer can directly claim his premium from the assured. But, in practice, the broker not only makes this contract with the insurer but "does so regularly for various assured who are often not even known to the underwriter",1 and that is how the usage developed of making the broker directly responsible for the premium-a usage which has become law now. This system has the advantage of
(i) avoiding cash payments between the insurer and the broker; and
(ii) enabling the broker to bring pressure to bear on the assured if he fails to pay the premium.2
Liability of the various parties.-It would be seen, that the insurer, the assured and the broker-the three persons concerned-have their liabilities defined as follows in the Act:-
(i) As between the insurer and the assured-
As regards payment of the premium, though the assured is, speaking in the abstract, liable to the insurer (section 52), the acknowledgment of the receipt of the premium contained in the policy effected through a broker is conclusive as between the insurer and the assured (section 54). It has been stated3 that even where the policy does not acknowledge such payment, by custom every policy is regarded as a receipt for the premium and the assured cannot be sued by the insurer for the premium if the policy is effected through a broker.
As regards liability under the policy, the insurer is directly responsible to the assured for the amount payable in respect of losses. As regards return of premium also, he is directly responsible to the assured-[section 53(1)]4.
(ii) As between the broker and the assured-
In the event of the non-payment of the premium by the assured, the broker can recover it as a commercial debt.3
As regards liability under the policy, the question does not arise. The broker does not bear the losses.
As regards return of the premium also, he is not liable.
(iii) As between the insurer and the broker-
As regards payment of premium, the broker is directly responsible to the insurer under section 53(1).
As regards liability under the policy, the question does not arise. The insurer is not liable to the broker.
As regards return of premium also the insurer is not liable to the broker.
1. Lord Chorley Shipping Law, 3rd Edn., p. 337.
2. See the lien under section 53(2) of the English Act-clause 31(2).
3. Dover, p. 377.
4. As to return of premium, see sections 83 and 84 read with section 82 of the English Act-clauses 85 and 84 read with clause 83.