Payment of commission

The role of brokers is something of an anomaly in English law. Many of the practices found in the modern market date back to the early days of marine insurance, in many situations before the development of legal principles against which the role of brokers could be judged. There is, for example, a long-standing rule that a broker is liable for the premium, and the courts have not objected to the ability of a broker to hold an open cover for insurers while at the same time acting as the agent of persons seeking that very cover. The most difficult of the rules is, however, that which says that the broker acts as the agent of the assured in placing insurance but is remunerated by the insurer for finding the business. The rule has raised eyebrows but remains intact, and indeed under the Financial Services Authority Handbook a broker is not required to disclose the amount of his commission to a consumer and need only do so at the request of a commercial assured. The legality of this has been tested before Reyes J in the Hong Kong Court of First Instance in Hobbins v Royal Skandia Life Assurance Ltd and Anr [2012] HKCFI 10, and has survived.

Hobbins: the facts

Mr Hobbins wished to purchase Investment Linked Assurance Scheme (ILAS) products, and instructed Clearwater, an insurance broker, to arrange the purchase for him. From the outset Clearwater disclosed that it made money from commissions and fees paid by insurers who provided ILAS products, and it was also made known to Mr Hobbins that he would not be paying Clearwater for its services or its advice. Clearwater had a mandate from a number of insurers which allowed it to negotiate the sale of their products, but the agreements were specific in stating that Clearwater had no authority to bind the insurers.