Life Insurance Corporation (LIC) launched a salary-saving insurance scheme for employees wherein the employer was to deduct the premium from the salary of the employees and deposit the same to LIC at concessional rates. Employer X got the scheme for his 200 employees. Subsequently, because of losses, X failed to give salaries to his employees....Will the employees succeed?

Question: Life Insurance Corporation (LIC) launched a salary-saving insurance scheme for employees wherein the employer was to deduct the premium from the salary of the employees and deposit the same to LIC at concessional rates. Employer X got the scheme for his 200 employees. Subsequently, because of losses, X failed to give salaries to his employees and also did not deposit the premium on their behalf. LIC consequently refused to pay the assured amount to those employees who asked for it. These employees claimed that X was the agent of LIC for their scheme. LIC must pay the assured amount. Will the employees succeed? [HJS 2007]

Find the answer to the mains question of the Law of Contract only on Legal Bites. [Life Insurance Corporation (LIC) launched a salary-saving insurance scheme for employees wherein the employer was to deduct the premium from the salary of the employees and deposit the same to LIC at concessional rates. Employer X got the scheme for his 200 employees. Subsequently, because of losses, X failed to give salaries to his employees....Will the employees succeed?]

Answer

In the given scenario, the Life Insurance Corporation (LIC) launched a salary-saving insurance scheme for employees, where the employer (X) was responsible for deducting the premium from the employees' salaries and depositing it with LIC at concessional rates. However, due to financial losses, X failed to pay salaries to the employees and also did not deposit the premium on their behalf. LIC subsequently refused to pay the assured amount to the employees who requested it. The employees argue that X acted as an agent of LIC for the scheme and, therefore, LIC should be liable to pay the assured amount. Let's discuss the situation in detail.

To determine whether the employees can succeed in their claim, we need to consider the following factors:

Agency Relationship:

An agency relationship exists when one party (the principal) authorizes another party (the agent) to act on their behalf, subject to their control and with the intent to create legal relations. The crucial question here is whether an agency relationship was established between LIC and X for the salary-saving insurance scheme.

Authority of the Agent:

For an agency relationship to be valid, the agent must have the authority to act on behalf of the principal. In this case, it depends on the terms and conditions of the agreement between LIC and X. If the agreement expressly stated that X was acting as an agent of LIC, with the authority to collect premiums and perform other related tasks, it strengthens the argument that X was indeed an agent of LIC.

Fiduciary Duty:

If an agency relationship is established, X, as the agent, owes a fiduciary duty to LIC. This duty requires X to act in the best interests of LIC and the employees and to fulfill the obligations outlined in the agreement.

Breach of Duty:

In this case, X's failure to pay salaries and deposit the premium on behalf of the employees constitutes a breach of duty. X's failure to fulfill their responsibilities as an agent may result in liability.

Vicarious Liability:

Vicarious liability refers to the responsibility of a principal for the actions or omissions of their agent performed within the scope of their authority. If X is considered an agent of LIC, LIC may be vicariously liable for X's actions or omissions that occurred within the scope of the agency relationship.

Based on these factors, if it can be established that X was indeed acting as an agent of LIC for the salary-saving insurance scheme, and X's failure to pay salaries and deposit the premium was within the scope of the agency relationship, the employees may have a valid claim against LIC. The argument would be that LIC, as the principal, should be held responsible for the actions of its agent, X, and should pay the assured amount to the employees.