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CS Professional · Banking and Insurance - Laws and Practice · Concept of Insurance

An insurance intermediary received commission from an insurer in a way that did not follow the regulations, on policies issued in India. The insurer was also in breach of the same provisions. Under Section 40(3), what is the intermediary's exposure, and how does it relate to the insurer's liability?

The intermediary faces a penalty that may extend to one lakh rupees under Section 40(3). This is without prejudice to Section 102, so the insurer's own liability for its contravention continues separately and is not replaced or shared by the intermediary's penalty.

  1. AA penalty up to Rs 1 lakh for the intermediary, without prejudice to Section 102 for the insurer's contraventionCorrect
  2. BA penalty up to Rs 1 lakh, which replaces any liability of the insurer under Section 102
  3. COnly cancellation of licence, with no monetary penalty
  4. DA penalty up to Rs 10 lakh, payable jointly by the insurer and the intermediary

Explanation

Section 40(3) provides that, without prejudice to Section 102 for the insurer's contravention, an agent or intermediary who contravenes the provisions or regulations is liable to a penalty which may extend to one lakh rupees. The intermediary's penalty does not displace the insurer's separate liability, so the replacement and joint-liability options are wrong.

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