Life Insurance and family takaful Intermediaries. Yusuf Sani Abubakar* Dr. Muhammad Anowar Zahid** Dr. Ruzian Markom**

Transcription

1 Life Insurance and family takaful Intermediaries Abstract Yusuf Sani Abubakar* Dr. Muhammad Anowar Zahid** Dr. Ruzian Markom** * PhD candidate at Faculty of Law Universiti Kebangsaan Malaysia. Yusuf700@gmail.com ** Senior Lecturer, Faculty of Law, Universiti Kebangsaan Malaysia *** Senior Lecturer, Faculty of Law, Universiti Kebangsaan Malaysia This is a doctrinal and comparative research between the traditional law and the Shariah with regard to insurance and takaful intermediaries. It has been found that under both life insurance and family takaful, intermediaries are considered as part and parcel of the business. Their role is not only limited to pre-contract stage but it is broad enough to cover any act related to the issuance, renewal or continuation of the contract. Moreover, any act done or statement made in the course of their duties is regarded as that of the insurer and operator. However, if an agent exceeds his authorization, the insurer or operator is exempted from liability; but the insurer or operator may ratify that unauthorized act (fudalah) done by the agent. Keywords: Agent, insurance, takaful, ratification Introduction This research would look into insurance and takaful intermediaries. An insurance/takaful intermediary is a person whose job is to invite others to make an offer or proposal and subsequently enter into an agreement with the insurer. 1 Under takaful, based on the Shariah agent is known as alwakil. The word al-wakil appears in the Holy Qur an about twenty four times 2 and they are all used 1 M. Billah, Applied Takaful and Modern Insurance Law and Practice, 3 rd Ed., Sweet & Maxwell Asia, Malaysia, 2007, pg Ibid

2 to indicate representation of other person(s) in certain dispositions. 3 Wakalah could also mean alhifz (to preserve or to defend) 4, or at-tafwid (to entrust) 5 or to take the responsibility of arranging one s affair. 6. The prophet (Peace and blessings of Allah be upon Him) was reported to have appointed Hakim bin Khiram as his agent to purchase a camel on his behalf. Additionally, Amit bin Aum has once acted as an agent (al-wakil) to the Prophet (Peace and blessings of Allah be upon Him) for marriage contract between his mother and the Prophet (Peace and blessings of Allah be upon Him). 7 According to Majallah 8 agency consists of one person (principal) empowering some other person (agent) to perform some act for him, whereby, the latter stands instead of the former in regard to such act (an authorized act). The discussion will include legal capacity; role of the agent; vicarious liability of the insurer/operator; cope of authority of the agent; and ratification. 1. Legal capacity Under life insurance, an agent should have the legal capacity of acting as an insurance agent in that he must be of sound mind and attained the age of majority. 9 He is only allowed to perform lawful acts in the course of the insurance business as authorized by the insurer. 10 Similarly, under family takaful, a takaful agent must also be of sound mind and attain the age of majority as prescribed by the Shari ah. 11 Thus, both the traditional law and the Shariah agree with each other pertaining to the legal capacity of an insurance/takaful agent. 3 Mohd Napiah, M. Deen, The Theory Of The Contract Of Agency (Al wakalah) In Islamic Law, Department of Law and Public Administration, Glasgow, 1995, p. 47; see also Doi, A. Rahman, Shari[ah The Islamic Law, Ta-Ha Publishers, London, 1984, p Al Qur an, Al Imran, 3:173, Al Nisa, 4: Al Qur an, Al Imran, 3:160, Yusuf, 12:67. 6 Majallah al Ahkam al Adliyyah, Art Ibid 8 Majallah al Ahkam al Adliyyah, Art Section 137 of the Contracts Act Section 141 of the Contracts Act A. Kharofa, Transaction in Islamic Law, pp

3 2. Role of the agent Under life insurance, the role of the insurance agent under the Insurance Act 1996 is not only limited to pre-contract stage but it is broad enough to cover any act related to the issuance, renewal or continuation of the policy. In discharging his duty to invite people to buy life insurance, the agent is required to make full disclosure of the name of the insurer, his relationship with the insurer and the premium charged by the insurer. 12 Under family takaful, the role of the takaful agent is also not only limited to pre-contract stage but it is broad enough to cover any act related to the takaful, renewal or continuation of the policy. And by virtue of Section 36 of the Takaful Act 1984, the agent is also required to explain to the people he invites to enter into takaful contract his connection with the operator. According to the Islamic Financial Services Act 2013, no person shall invite any person to make an offer or proposal to enter into a contract of takaful without disclosing the name of the licensed takaful operator; his relationship with the licensed takaful operator; and the takaful contribution charged by the licensed takaful operator. 13 Therefore, the traditional law does not differ with the Shariah regarding the role of insurance/takaful agent. 3. Vicarious liability of the insurer/operator Under life insurance, an insurer is vicariously liable for any acts committed by the agent provided they are committed in the lawful course of the business and within the authorization of the insurer. In Western Australian Insurance Co Ltd v Dayton 14 a principal was held to be vicariously liable for some acts committed by the agent of the company during the course of his business despite the fact that the acts were committed in good faith. However, an insurer cannot be held liable if the agent has exceeded the limit of the authorization given to him. Hence, if for example the agent 12 S. S. Dass, Law of Life Insurance in Malaysia,, p Schedule 8, Section 140, Paragraph 10. (1) of the Islamic Financial Services Act (1924) 35 CLR 355

4 commits misrepresentation and fraud, the agent himself should be fully responsible. This principle was followed in the case of Fitzherbert v Mather. 15 Under family takaful, by virtue of Section 66 of the Takaful Act 1984, the operator would also be vicariously liable for acts committed by the agent in the course of the business. However, where the agent exceeds the limit of the authorization given to him by the operator, the agent himself should be liable not the operator. Based on the Islamic Financial Services Act 2013, a person who is authorized by a licensed takaful operator to be its takaful agent who solicits or negotiates a contract of takaful in that capacity shall be deemed, for the purpose of the formation of the contract of takaful, to be the agent of the licensed takaful operator and knowledge of that takaful agent shall be deemed to be the knowledge of the licensed takaful operator. And a statement made, or an act done, by the takaful agent shall be deemed, for the purpose of the formation or variation of the contract of takaful, to be a statement made, or act done, by the licensed takaful operator notwithstanding the takaful agent s contravention of subparagraph 11 (1) or any other provision of this Act 16 Hence, both the Shariah and traditional law agree that an insurer/operator may be vicariously liable for the acts committed by its agent. 4. Scope of authority of the agent Under life insurance, if the agent acting within the scope of his authority (express or implied), enters into a contract with a third party, the result of that contract creates contractual obligation between the principal (insurer) and the third party (insured). 17 Hence, if the insurer intends to restrict the usual authority of their agent they have to give notice to the proposer or insured. In the case of Acey v Fernie 18, the insurer was held not to be bound by the acceptance of premium renewal 15 (1785) 1 TR Schedule 9, Section 141, paragraph 12 (1) & (2) Islamic Financial Services Act Hambro v Burnand [1904] 2 K.B [1840] 7 M & W 153

5 which was overdue accepted by his agent on his behalf because premiums receipt clearly stated that the agent had no authority of reinstating the policy. Likewise, in O Mara v National Mutual Life Association of Australia Limited 19, in this case an agent had accepted a premium after the lapse of a policy without submitting any evidence of good health. The policyowner, the insured and the agent were all aware that the agent lacked an authority of reinstating the policy. The insured died a day after the payment of the premium and it was decided that the insurer was not liable under the policy. Furthermore, for example an agent who has been appointed with the primary function of introducing new business and forwarding proposals to the insurer for approvals, has no implied or ostensible authority to enter into a contract on behalf of the insurer as normally it is not within the common responsibility of the agents to make a decision upon the acceptability of the risks that are presented for approval. 20 In the case of Linford v Provincial Horse & Cattle Insurance Company, 21 Romilly M.R. stated that the scope of the ordinary insurance agent s authority does not allow him to grant insurance coverage to an insured. Under family takaful, by virtue of Section 66 of the Takaful Act, the agent is authorized to enter into contract on behalf of the operator. Or where an agent has been authorised by the insurer to receive payment of premiums on behalf of the insurer, the law is that the agent is only allowed to accept that payment in cash, unless if the insurer has given the agent the authority to accept the payment in other forms. If the authority of payment in other forms is not given, even if payment is made, it is not binding on the insurer. 22 Under family takaful, this refers to wakalah muqayyadah (restricted agency). Normally, agents working for takaful companies are bound to observe certain restrictions under the terms of 19 [1892] 4 Q.L.R S. S. Dass, Law of Life Insurance in Malasia, p [1864] 34 Beav Tierman v People s Life Insurance Co [1896] 23 A.R. 342

6 the contract. 23 Therefore, where the agent has no actual or ostensible authority or where he exceeds the authority given to him by the operator, his actions are not binding on the operator. In this situation, the acts of the agent are considered as unauthorized acts or al-fudalah. 24 Thus, the Shariah and the traditional law agree with each other with regard to the scope of authority of agent under insurance and takaful. 5. Ratification Under the traditional law life, ratification is said to occur when a principal approves an act done by an agent, where there was no knowledge of the operator or his authority prior to the commission of the act. Thus, an insurer may approve the act done by his agent; and if this happens, the insurer would be bound by the act as if he had given the approval before the commission of the act. 25 Under family takaful, it has been provided that the takaful operators have the right to ratify or reject actions that are committed by their agents without their approval or knowledge. 26 Thus, the Shariah and the traditional law are in harmony pertaining to ratification of act done by insurance/agent agent. Conclusion It has been found that under both life insurance and family takaful, intermediaries are considered as part and parcel of the business. Their role is not only limited to pre-contract stage but it is broad enough to cover any act related to the issuance, renewal or continuation of the contract. Moreover, any act done or statement made in the course of their duties is regarded as that of the insurer and 23 Takaful Nasional Sdn. Bhd., Agensy Agreement, p Takaful Nasional Sdn. Bhd., Agensy Agreement, Takaful Nasional, Kuala Lumpur, 2000, p S. S. Dass, Law of Life Insurance in Malaysia, p Takaful Nasional Sdn. Bhd., Agensy Agreement, Takaful Nasional, Kuala Lumpur, 2000, p. 4

7 operator. However, if an agent exceeds his authorization, the insurer or operator is exempted from liability; but the insurer or operator may ratify that unauthorized act (fudalah) done by the agent. References Billah. M Applied Takaful and Modern Insurance Law and Practice. 3 rd Ed. Malaysia: Sweet & Maxwell Asia Dass, S. S Law of Life Insurance in Malaysia. Malaysia: Alpha Sigma Sdn Bhd Doi, A. Rahman Shari[ah The Islamic Law, Ta-Ha Publishers, London Islamic Financial Services Act 2013 Kharofa, A Transaction in Islamic Law. Kuala Lumpur: A.S. Nordeen Majallah al Ahkam al Adliyyah Napiah, M.D The Theory Of The Contract Of Agency (Al wakalah) In Islamic Law. Glasgow: Department of Law and Public Administration. Takaful Nasional Sdn. Bhd Agensy Agreement, Takaful Nasional, Kuala Lumpur