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IAI Actuarial Core Principles · Business Management · Trusts and agency

Kavita is an agent for Sunrise Life Ltd with authority to collect premiums only. Without any instruction, she signs a contract with a printer to buy brochures in the insurer's name. Sunrise Life learns of it, accepts the brochures and tells the printer it will pay. Which statement best describes the position?

The insurer has ratified the unauthorised contract by accepting the brochures and promising payment. Ratification may be implied from conduct and relates back to the date of the act, so the insurer is bound from the time Kavita made the contract.

  1. AThe contract was void and cannot be validated by any later conduct
  2. BThe insurer has ratified Kavita's unauthorised act by its conduct, so it is bound from the time of the contractCorrect
  3. COnly Kavita is liable, because she exceeded authority
  4. DThe printer can sue only after a court declares the contract valid
  5. The insurer is bound only from the date it accepted the brochures

Explanation

A principal may ratify an unauthorised act done on its behalf, and ratification can be implied from conduct such as accepting benefits and promising payment. Ratification relates back to the time of the act. Thus the insurer is bound from the outset, not only from acceptance.

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