Cedric Stephens QUESTION: I bought insurance for my Nissan Sunny through an insurance broker in
1998. In the following year, insurers told me that the premium was unpaid. The brokerage firm took hundreds of other persons' money and mine and did not pay it over. I had to find another $18,000 to cover my car. Can I get my money back? Secondly, the insurers have honoured my policy since the brokers were their agents? I could use the money now!
-- C.C., Kingston 5.
Answer: I know it is painful, but forget the $18,000. Your chances of recovering it are almost zero. The probability of getting your money back is zilch. The most important thing at this stage is to understand what happened. Insurance brokers are agents of buyers. They are not agents of insurers -- except in certain limited situations. When you paid the $18,000 to the broker you handed it over to your agent.
In strict legal theory therefore, you had not paid the premium until the brokers sent it to the insurance company. Had the broker been an insurance agents instead -- that is, they were the representatives of insurers -- the situation would have been very different.
The insurer, the agent's principal, would have been obliged to bear that type of loss. You were the broker's principal. The risks associated with the premium were yours, not the insurer's.
The implications that flow from this principle are quite important. Consumers assume some types of risks when they deal with brokers. One kind is what bankers call credit risk. Will the broker pay over the premium to the insurer? The Insurance Act 2000, which is expected to go before Parliament later this year for approval, recognises this. It seeks among other things, to remove that risk. It says in section 81:
" (1) -- a broker -- shall, for the purpose of receiving any premium for a contract of insurance, be deemed to be the insurer's agent and -- the registered insurer shall be deemed to have received any premium received by the -- broker--"
" (2) An insurer on whose behalf a broker -- has received a premium or part thereof, shall accept liability arising under the policy, notwithstanding that the insurer has not received the premium."
The draft legislation goes further. Section 85 states that a -- broker "commits an offence if he fails to pay over to the insurer, any money received from the insured in respect of premium" within fifteen days of the receipt.
This is welcome news, but it does not help you one bit in getting back your $18,000. There is perhaps a smidgen of hope that you could get back a few cents on the dollar.
A bright person at the Office of the Superintendent of Insurance reminded me that brokers buy employee dishonesty insurance. Failure to pay over clients' premiums to insurers is evidence of dishonesty. There are probably some grounds for a claim under that insurance. Whether the policy will respond and for how much is an entirely different matter.
I suggest that you wait for six weeks before contacting the Superintendent of Insurance again. By then, they should be in a position to give you information whether this approach is likely to bear fruit. On the other hand, if it doesn't work out there is a very good chance that the rascality that led to your loss is likely to be stamped out later this year.
Cedric E. Stephens is the founder of INSURANCE HELP-LINE, a telephone-based advisory service, and the co-host of Risky Business, a radio programme that deals with risks and insurance. If you need free advice write to The Financial Editor or Mr. Stephens at aegis@cwjamaica.com
