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Legal Update

Failure by Insurer to Report Termination of Agent's Appointment Results in Breach of Duty

8 October 2012
Mayer Brown JSM Legal Update

Abstract

In Dah Sing Insurance Service Ltd v Singh [2012] HKDC 575, the District Court found that Dah Sing breached its statutory duty and duty of care to its insurance agent for failing to report the termination of his appointment and his CPD credits. Dah Sing was liable to pay damages to its insurance agent.

Facts

In January 2007, Dah Sing appointed Mr. Singh as a Technical Representative and Senior District Manager. Mr. Singh was entitled to a sign-on fee, monthly allowances and other allowances.

Dah Sing paid Mr. Singh a sign-on fee and monthly allowances for January and February 2007. Mr. Singh was suspended in March and his appointment was terminated in August 2007.

Dah Sing failed to notify the Insurance Agents Registration Board (IARB) that Mr. Singh was no longer an agent of Dah Sing. Without such notification, the IARB would not allow Mr. Singh to register as a technical representative or insurance agent for another insurance company. Dah Sing also failed to report Mr. Singh's CPD credits to the IARB. As a result, Mr. Singh was de-registered for 3 months from November 2007 to February 2008.

Dah Sing brought proceedings against Mr. Singh for repayment of the sign-on fee and monthly allowances on the basis that his appointment was terminated within one year. Mr. Singh counterclaimed for the outstanding monthly allowances up to the termination of his appointment and other allowances. He also claimed damages as a result of Dah Sing's failure to notify the IARB of the termination of his appointment and of his CPD credits.

Monthly Allowances

Mr. Singh accepted he needed to repay the sign-on fee but disputed liability to repay the monthly allowances. As there was nothing in the agency agreement about repaying the monthly allowances, the Court dismissed Dah Sing's claim.

The Court held that pursuant to the agency agreement, Dah Sing was entitled to review monthly allowances at the end of each quarter (being end of March 2007) and was therefore entitled to suspend monthly repayments from April 2007 onwards. The Court therefore allowed Mr. Singh's counterclaim for March 2007 only.

The Court also allowed Mr. Singh's counterclaim for office allowances on the basis that this is a “title fee” and he was entitled to such allowances up to the termination of his appointment.

Failure to Notify IARB of Termination

Part C of the Code of Practice for the Administration of Insurance Agents ("the Code") requires insurers to notify the IARB within seven days of terminating the appointment of an insurance agent. Insurers are required to comply with the Code pursuant to Section 67(4) of the Insurance Companies Ordinance, Cap 41. Insurers could be liable for fines up to HK$100,000 for failing to comply with the Code.

Although Mr. Singh was a Technical Representative of Dah Sing, the Court held that he was an "insurance agent" for the purpose of the Code based on the nature of his role.

Mr. Singh's appointment was terminated in August 2007 but his registration with Dah Sing was not cancelled until November 2007. Dah Sing argued that its usual practice was to notify the IARB only upon the termination. However, as there was no evidence of this, the Court found that Dah Sing's failure to report Mr. Singh's termination was in breach of its statutory duty as well as its common law duty of care.

The Court only awarded one month of damages for this failure. Mr. Singh was aware in September 2007 that he remained registered as Dah Sing's agent although his appointment had already been terminated. The Court found that Mr. Singh ought to have complained to the IARB shortly thereafter and not have waited until his registration was cancelled in November 2007.

Failure to Report CPD Credits

Pursuant to the Code, insurance agents are required to comply with CPD requirements. Insurers are responsible under the Guidance Note on "Compliance with the Requirements of the Continuing Professional Development (CPD) Programme" to dispatch and collect declaration forms to report CPD credits.

Mr. Singh submitted the CPD certificate to Dah Sing, but Dah Sing failed to pass it onto the IARB. Dah Sing also failed to provide Mr. Singh with the declaration form as required by the Guidance Note. By failing to do so, the Court found that Dah Sing breached its statutory duty as well as its duty of care under negligence. Damages for loss of income for the three months that his registration was cancelled were awarded.

Takeaway

This case is a useful reminder to insurers to duly report the termination of an appointment of an insurance agent as well as an agent's CPD credits. As demonstrated, failure to do so in certain circumstances could result in insurers being liable to compensate the insurance agent. Insurers are well advised to have in place proper systems to deal with the notification of termination and the passing on of CPD forms to the IARB to avoid being in breach of their statutory and common law duties.

For inquiries related to this Legal Update, please contact Tow Lu Lim or your usual contacts with our firm.

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