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CS Professional · Banking and Insurance - Laws and Practice · Regulatory Framework in Insurance

A life insurer's agent, Kiran, violates the code of conduct specified by the regulations while selling policies. The insurer argues it is not liable because the breach was solely the agent's. Which statement is correct under Section 42 of the Insurance Act, 1938?

The insurer is responsible for all acts and omissions of its agents, including code-of-conduct violations, and is liable to a penalty which may extend to one crore rupees. Section 42(5) imposes this responsibility directly, so the insurer cannot escape by blaming the agent.

  1. AThe insurer is not liable, since only the agent is bound by the code of conduct
  2. BThe insurer is responsible for the agent's acts and omissions including code-of-conduct violation, and is liable to a penalty up to one crore rupeesCorrect
  3. CThe insurer is liable only up to ten thousand rupees
  4. DThe insurer is liable only if the Authority first cancels the agent's licence

Explanation

Section 42(5) makes the insurer responsible for all acts and omissions of its agents, expressly including violation of the code of conduct under clause (h) of sub-section (3), with a penalty up to one crore rupees. The ten thousand limit relates to a person acting as an agent in contravention, not to this vicarious responsibility.

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