INSURANCE LAW 1.1 GENERAL INTRODUCTION.
Please consult Professor C.K Agomo’s, Modern Nigerian Law of Insurance wherein the principles and facts of cases are well explained.
HISTORY.
A walk through the sands of time would reveal the -practices of early 12th century Italian merchants, -the 14th century marine insurance business in Genoa Italy, -the informal insurance at Lloyd’s coffee house in London, -the Great Fire of London 1666 and -the Industrial Revolution and so on. These (in one way or the other) contributed to the development of insurance being one of the exigent mechanisms to cater for risks which were inevitable.
Pre-colonial Nigeria practiced mutual insurance. Where under various customs, members of the family or the family come to the financial aid of a member in times of calamity.
The modern concept of insurance was introduced into Nigeria by the British Colonialists with the Royal Exchange Assurance Company being the first to open its office in 1921… others followed. By independence (1960), there were about 25 insurance companies in existence in Nigeria. The insurance regime was largely unregulated until 1961 when the Insurance Companies Act was enacted. The Act required compliance with sound insurance principles and registration with the Registrar of insurance with a paid up capital of not less than E25,000 and E50,000 for indigenous and foreign insurance companies respectively. The case of State V Daboh, illustrated the shortcomings of the 1961 act in terms of enforceability and punishment. The Insurance (Miscellaneous Provisions) Act amended the 1961 Act and introduced investment of insurance funds.
Then came the Insurance Act of 1976 which added the requirement of registration under the Companies and Allied Matters Act-Section 3.
Then came the 1991 Insurance Decree which added the requirement that no one person can hold more than 25 percent of an insurance company’s shares. It also recognized NIICON and Nigeria Reinsurance Corporation. Section 37 of the 1991 Act also provided for the payment of a premium for a valid and binding contract of insurance.
In 1997 the Insurance Act and National Insurance Commission Act were enacted as regulatory law and body respectively.
Then came the Insurance Act of 2003 which (together with the National Insurance Commission Act) regulates the insurance industry in Nigeria till date (2015).
In conclusion, the various legislations sought to ensure a sound and viable insurance industry and protect the interest of policy holders.
NATURE, CHARACTERISTICS AND DEFINITION OF INSURANCE.
The idea behind insurance is to ameliorate rather than prevent loss–Prudential Insurance Co V Inland Revenue Commissioner. More like a fallback mechanism rather than a loss prevention mechanism.
Characteristics:
- Uncertainty: Insurance is a contingent contract which depends on the happening of an uncertain event. There can be no insurance if the event is certain to occur except the time of occurrence is uncertain-University of Nigeria Nsukka V Turner and Sons and Anor.
- Insurable interest: The insured must have a stake/concern in the subject matter of insurance which is susceptible to loss or damage. He should be adversely affected if the subject matter is destroyed/lost. This is what separates insurance from wager-Tomlinson V Hepburn. In UNN V Turner and sons, their contract lacked this element.
- Uberima Fidei: because of its uncertain nature, the parties are required to disclose all material facts within their knowledge.
- Insurance intermediaries (agents and brokers) are used.
Definition: no widely accepted definition- Medical Defence Union V Department of Trade. In Prudential Insurance Co V Inland Revenue Commissioners, it was seen as an agreement to pay a sum of money upon the happening of an uncertain event after the payment of consideration (called premium).
A contract whereby the insurer agrees to indemnify the insured against loss upon the happening of an event after the payment of consideration called premium.-Charles Chime V United Nigeria Insurance (not verbatim).
Professor Agomo has noted that insurance is better described than strictly defined… it can be described as a contract whereby;
- One party called the insurer.
- For a consideration called premium.
- Paid by another called the insured.
- Agrees to pay money or provide compensation to the insured or his beneficiaries.
- On the happening of the insured event.
The subject matter of insurance is anything capable of sustaining loss, damage, injury or death while the subject matter of the contract of insurance is money, services or benefit in kind like reinstatement or repair of the damaged subject matter of insurance. This distinction determines assignment, description of risk, and so on.
Insurance is generally classified into life and non-life insurance-Section 2 of the insurance Act 2003. There are further sub classifications.
PARTIES TO THE CONTRACT OF INSURANCE.
Capacity is the same as capacity for other commercial transactions. The rules relating to age mental capacity and authority must be satisfied.
The parties include:
- The insurer.
- The insured
- The insurance intermediary.
THE INSURER: must be incorporated under the CAMA and registered by NAICOM in accordance with the insurance act-Section 3. Section 6(1) provides for the conditions that must be met viz.
- The applicant must be willing to operate in accordance with sound insurance policies and principles.
- There must be adequate reinsurance of the category of insurance proposed
- The applicant must have adequate, professional and competent staff.
- The applicant must have a satisfactory 5 year business plan and feasibility study of the insurance business to be transacted.
The insured: The one who takes out the insurance cover. He must have insurable interest in the subject matter of insurance-Section 7 Marine Insurance Act 1961, Section 56 Insurance Act. Insurable interest shall be discussed in relation to certain endeavours:
Insurable interest in property insurance: before 1988, it was required at the time of contracting. However, in Lucena V Craufurd, a ship was insured. The insured was to have legal interest when it arrived at Britain. The ship was lost at sea and did not arrive the port. Laurence J (following Les Cras V Huges) held that since the insured stands to benefit from the existence of the ship or be prejudiced from its destruction, they had insurable interest. This is the same position under Section 56(2) of the Insurance Act… where the insured would benefit from the safety or be prejudiced from the occurrence an event to his property.
- A trustee, beneficiary and executor have insurable interest in trust property.
- Bailees, consignees, carriers, hires, agents and others with legal liability have insurable interest in their principal’s properties in their possession-Macura V Northern Assurance Co. Tomlinson V
- An unpaid seller in possession of goods after a binding contract of sale has been concluded has insurable interest… so does the purchaser where risk has passed but the vendor retains possession.
- The owner of goods on hire has insurable interest-Royal Exchange Assurance V Tailor because he retains reversionary interest until the hirer exercises his option to purchase.
- Shareholders: In Macura V Northern Assurance Co, the court held that a shareholder does not have insurable interest as the business is a separate legal entity. Even though in this case, the insured was the sole shareholder. However, in American Indemnity Co V Southern Missionary College, the court regarded the separate legal entity concept as fiction. So long as the shareholder would benefit from the existence or be prejudiced from the loss of the company’s property-Constitution Insurance Company of Canada V Furthermore, in British Indian General Insurance Ltd V Thawardas, where the insured took out an insurance in the name of his business (Shamco) which is a non-entity. The court nevertheless held that he has insurable interest.
- Creditor: do not have insurable interest over the property of his debtor except the debt is secured by a specific charge on the property-Jia Enterprises (electrical) Ltd V British Commonwealth Insurance Co Ltd.
- An authorized agent can insure his principal’s goods. Where unauthorized, his action should be ratified before the loss-Grover V Mathews. In marine insurance, ratification can be made after the loss.
In Saddlers Co V Badcock the court held that in property insurance, insurable interest must be present both at the time of contracting and loss. This is disputable.
INSURABLE INTEREST IN LIFE INSURANCE.
By Section 56(2) of the Insurance Act: … where a person stands in any legal relationship to that person or would be prejudiced by the death of that person or benefit from the safety of that person. For example:
- Spouses have insurable interest in one another’s life- Section 11 MWPA 1882. Provided they are living together-Griffiths V Fleming. Same goes for parent and children (although this was not the case at common law-Harse V Pearle Life Assurance Co.
- An employer has insurable interest in his key employees to the amount that it would cost him to replace the employee-Heddon V West. Similarly, an employee has insurable interest in the life of his employer to the extent of his obligations.
- A creditor has insurable interest in the life of his debtor to the maximum value of the debt provided the debt has not been liquidated-Godsall V Bolderd. A debtor has no insurable interest in the life of his creditor notwithstanding that the creditor promised not to enforce the debt-Hebdon V West where it was held that such promise did not create an insurable interest.
In Dalby V India and London Life Assurance Co, the court held that such insurable interest in life must exist at the time of contracting.
FORMATION OF THE CONTRACT OF INSURANCE.
In addition to the parties being legally capable, and the other essentials of a contract being fulfilled, there should be:
- Consideration: Agreement on the amount, mode and periodicity of premium payable.
- Intention to create a binding contract.
- Proper identification of the parties and their roles.
- Proper Identification of the subject matter the insurance.
- A description of the risk.
The contract need not be in writing-Esewe V Aseimo except contracts for marine insurance-UNIC V Fadco Industries Ltd.
OFFER
An offer is an unconditional and unequivocal proposal made by the offeror to the offeree with the intention that it shall be binding once accepted. This offer generally comes from the insured by filling the proposal form. Except where there is a counter offer by the insurer like instructing the prospective insured to undergo medical examinations-Council of Yaba College of Technology V Nigerlec Contractors. An offer should be accepted in toto… varying any term of the offer amounts to a counter offer-UNIC V Fadco Insurance Nigeria Ltd.
ACCEPTANCE
Generally occurs where the insurer demands or accepts the premium-Ngillari V National Insurance Corporation of Nigeria. A change of risk may vitiate acceptance. In Canning V Farquhar, acceptance was made subject to the payment of the first five premiums. Before the premium was paid, the deceased fell over a cliff and suffered serious injuries. The insurer was entitled to reject the premium subsequently tendered as there has been a material change of risk. Lindley J in this case posited that the tender of the premium after the accident was a counter offer for a new risk which could be rejected by the insurer. Silence does not amount to acceptance except the offeree’s conduct implies acceptance maybe delay in communicating acceptance or rejection. In Rust V Abbey Life Assurance, retaining the policy for a long time was construed as acceptance. Acceptance, once given becomes binding on the parties-UNIC V Fadco.
COVER NOTES.
A cover note is a temporary (Independent) contract binding on the parties pending final determination… A “temporary cover” in case loss arises before the main insurance contract is concluded. It does not apply to life policies. It is not an acceptance of the proposal form… thus, either party can withdraw before the acceptance of the proposal form. A cover note lasts for about 7 days to 1 month… however, it lapses once the proposal has been accepted and policy issued.
Professor Keeton noted that cover notes are important because;
- Risk may occur during the interval before final determination and issuance of policy.
- It reduces the possibility of the prospective insured patronizing another insurance company. In Taylor V Allon, the insured obtained another cover with another insurance company.
- Another reason is to prevent the insured from lying (to the authorities) that negotiation is still ongoing.
- Satisfies the impatient car owners who cannot wait to use their property before the insurance contract has been concluded.
An insurance company, its authorized agent or its agent with ostensible authority can issue binding cover notes Mackie V European Assurance Society. Similarly the insured or his authorized agent can accept a cover note.
The terms of a cover note can be found in the standard full policy of the insurance company. Such terms are usually incorporated by reference and binding on the insured whether he had a copy of the policy or not-Northern Assurance Co V Wuraola Ltd: Yorkshire Insurance Co ltd V Haway. However, recent authorities like Re Colman’s Depositories Ltd and Life and Health Assurance, are to the effect that ignorance of the conditions may exculpate the insured. In this case the claim mandated immediate notice to be given to the insurers upon loss. Court held that since the insured was unaware of the condition, he was not bound. Moreover, by virtue of Section 55 of the insurance Act 2003, mere failure to observe a condition without more would not entitle the insurer to repudiate/escape liability.
Section 19 mandates that an advance copy of the draft policy should be delivered to the insured not later than 30 days from the payment of premium else, N10,000 fine. This impliedly connotes that an insurance contract should be in writing.
CONSIDERATION (PREMIUMS).
A Premium is the consideration furnished by the insured to the insurer in return for the undertaking to compensate the insured on the happening of the insured event.
At Common Law, payment of premium was not strictly a condition precedent to the creation of a valid contract of insurance. Provided an agreement to pay was entered into before the loss occurred-Wooding V Monmouthshire and South Wales Mutual Indemnity Society. This position was upheld in NICON V Power and Industrial Engineering Co Ltd even though premium was paid after the risk had occurred.
However, the Post-1991 position is that payment of premium is a condition precedent to the creation of a valid contract of insurance-Section 50(1) Insurance Act. Restated in Charles Chime V UNIC, Esewe V Eseimo. In Unitrust Insurance Ltd V Ambico Sendirian Nigeria Ltd, the question was whether part payment would suffice. The court held that premium must have been paid in full. Until this is done, the insured cannot claim compensation… nor can the insured sue for the unpaid part of premium. Furthermore, in IGI Insurance Co V Adogu, the court noted that Section 50 does not contemplate payment by instalment.
Section 51 of the insurance act prohibits arbitrary increase in the rates of motor insurance premiums except with the prior approval of the commission. Contravention grounds a fine 10 times the rate so unlawfully charged. May also lead to suspension of operations for not less than 6 months or even cancellation of certificate coupled with refund of the sum so unlawfully charged to the insured.
RENEWAL: indemnity insurance policies (i.e. non-life) usually lapse after one year and automatically terminates therefrom. A period of grace is usually given. But if risk occurs during this period, the insurers would not be liable except in life insurance-Stuart V Freeman. Provided the insured does not unreasonably delay where time is made of the essence-FIG Ltd V Mander.
The premium shall be returned where consideration has failed totally or where the contract was entered into under a mistake of fact. e.g. the insurer lacked capacity, insurance is illegal, non-existence of subject matter-Huges V Liverpool Victoria Friendly Society.
Payment to broker is regarded as payment to insurer under Section 50(3) of the insurance Act.
