Insurance agency principal definition update#

What happened was the board of directors bypassed the shareholders to get the deal passed.

However, Kraft’s purchase of Cadburys in 2010 avoided doing so by restructuring the acquisition through an option made available in US law. If we look at company acquisitions, shareholders generally have a right to vote. The principal agent problem arises when the interests of the CEO do not align with the shareholders. They are the agent that acts on behalf of the principal – the shareholders. The problem then arises when the interests of the agent and the principal do not align.įor instance, the CEO of a big firm is in charge of running it. So the agent acts on behalf of the principal. In this case, the principal refers to the person who delegates authority and responsibility to the agent. The Principal Agent Problem is where there is a conflict of interest between ‘the principal’, and ‘the agent’. Hence the principal must reimburse the agent for any claims, liabilities, and expenses incurred while performing duties under the agency.WRITTEN BY PAUL BOYCE | Updated 25 March 2021 What is the Principal Agent Problem? This obligation is based on the fact that during the process of carrying out the assignments on behalf of the principal, the agent may incur some expenses that were not covered by the principal. Secondly, the principal is obligated to indemnify the agent. This means that the principal is first obligated to pay the agent when they carry out duties assigned to them by the principal.

Answer: The duties of a principal to an agent include compensation and indemnification.

What are Ethan's responsibilities in this situation? One of her business deals goes bad and a client sues her for breach of contract. Pursuant to her job description, Naomi will make purchases for the business but will not disclose that she is an agent of the business. The employment agreement is very short and lists only Naomi's primary responsibilities and compensation.

What is required to form a principal-agent relationship?Įthan hires Naomi to serve as his buying agent.

If the principal later ratifies the actions of the agent, she will incur the obligation to indemnify the agent against liability.

Note: If an agent exceeds or acts outside of the scope of her authority, the principal may be relieved from the duty to indemnify.

This generally arises when the instructions of the principal subject the agent to liability to a third party. Generally, a principal must indemnify an agent for liability incurred in the performance of her duties. Reasonable reimbursement includes the cost of travel, meals, lodging, incidental expenses, etc. The principal must reimburse the agent for a reasonable amount expended in carrying out her duties.

Example: Default rules in a relationship with a sales agent dictate that the agent will earn a reasonable commission on sales induced or completed.

If the agency agreement does not indicate the terms of compensation, the principal is obligated to provide the agent with reasonable compensation. Next Article: Duties of an Agent to the Principal Back to: AGENCY LAW What is the Duty to Compensate an Agent?Īn agency relationship may be paid or gratuitous. Generally, a principal owes the following duties to the agent: The terms of an agency may be laid out in the agency agreement.

Insurance agency principal definition update#

Update Table of Contents Duties of a Principal to an Agent? What is the Duty to Compensate an Agent? What is the Duty to Reimburse an Agent? What is the Duty to Indemnify an Agent? Discussion Question Practice Question Duties of a Principal to an Agent?