CONTRACT OF INSURANCE AND INSURANCE CLAIMS IN NIGERIA

Introduction

 

A contract of insurance and the making of insurance claims usually involve the insurer, insured, insurance brokers, third party claimants and solicitors. This edition of Akintunde Esan’s Legal Illumination seeks to provide useful hints to these insurance service providers and receivers on the conditions necessary to constitute a valid contract of insurance and insurance claims in Nigerian Insurance jurisprudence.

1. Formation of Contract of Insurance

 

a) Non-marine Insurance Contracts

 

In non-marine insurance contracts,  the usual practice is for the proposer to complete, sign and return the proposal form to the insurers, there is no legal necessity on his part to complete any proposal form before a valid and enforceable contract may arise. It is only in marine insurance transactions that writing is a conditio sine qua non for an enforceable contract to arise. 

b) Marine Insurance Contracts

 

A contract of marine insurance is a contract of indemnity and hence the policy and or insurance certificate bears the signature of the insurer only. 

The law, in so far as non-marine insurance transactions are concerned, is that even an oral contract of such insurance is valid so long as it is reasonably clear that there is a definite intention on the part of the parties to enter into such a contract provided, however, the parties concerned are in consensus ad idem on the fundamental essentials of such insurance contract. Ngillari v. NICON (1998) LPELR-1989(SC) per Iguh J.S.C. (Pp. 38-39, Paras. B-A)

 

c) Acceptance of Insurance Proposal

 

A contract of insurance should be one of utmost good faith, “uberima fidei”. To constitute a contract of insurance therefore, there must be an unqualified acceptance by the other party. In other words, a prima facie contract of insurance only comes into existence the moment an insurance proposal in the normal form is accepted unequivocally without qualification by the insured. Industrial and General Insurance Company Limited v. Kechinyere Adogu (Mrs.) (infra) per Aji, J.C.A.(P. 22, paras. D-F)

 

d) Payment of Insurance Premium

 

The fundamental purpose of an insurance contract is to give cover to an insurance risk. Section 50(1) and (2) of the Insurance Act makes payment of insurance premium a condition precedent to a valid contract of insurance. 

e) Interpretation of Statute - Section 50 (1) of the Insurance Act 2004

 

The provisions of section 50(1) of the Insurance Act provides as follows: 

“The receipt of an insurance premium shall be a condition precedent to a valid contract of insurance and there shall be no cover in respect of an insurance risk, unless the premium is paid in advance.”

In Industrial and General Insurance Company Limited v. Kechinyere Adogu (Mrs.) (2009) LPELR-15093(CA) Aji, J.C.A. at Pp. 20-21, paras. E-F held that:

“Section 50(1) of the Insurance Act is clear and unambiguous. It is simply to the effect that the receipt of an insurance premium is a condition precedent to a valid contract of insurance, and there is not cover in respect of an insurance risk unless the premium is paid in advance. In other words, a valid insurance contract is made when a premium for the insurance is paid in advance by the insured."

f) It should be noted that, a contract of insurance may involve merely a promise to pay the premium. It is not the law that there must be implied in a contract of insurance a provision that the right of indemnity by the assured is conditional on his previous payment of the premiums. See National Insurance Corporation of Nigeria v. Power & Industrial Engineering Company Ltd. (1986) LPELR-1965(SC) Per Obaseki, J.S.C. at P. 42, paras. D-F.

 

2. Subject Matter of the Contract of Insurance

 

Where the subject matter of the contract of insurance had ceased to exist before the contract of insurance is concluded, the contract is void. See LEADWAY ASSURANCE CO. LTD VS. J.U.C LTD (2005) 5 NWLR (PT. 919) 539 AT 555-556.

 

3. Premium to be Arranged

 

The words 'Premium to be arranged' have been held to mean premium to be agreed. Libercan Insurance Agency Inc. v. Mosse (1977)2 Lloyds Rep 560 QBD. at 568. The clause does not contemplate any alteration in the terms of the insurance other than in respect of premium. National Insurance Corporation of Nigeria v. Power & Industrial Engineering Company Ltd. (1986) LPELR-1965(SC) Per Uwais J.S.C. (P. 42, paras C-D)

 

4. Insurance Broker

 

An insurance broker is not the agent of the insured but that of the insurer since the insurer usually pays commission to the broker. Unity Kapital Assurance Plc v. Akut Investment Limited.

 

Where the parties contract through an agent, in this case a broker, the incidences of the contract between the insured and the broker and between the broker and the insurer are distinct from that between the insurer and the insured. This is because once the insured pays his premium to the broker he has met his obligation to the insurer and the insurer cannot resile from the contract whether or not the broker remits the sum paid to the insurer. Shoreline Liftboats Nigeria Ltd. & Ors v. Premium Insurance Brokers Ltd. & Anor (2012) LPELR-9795(CA) Per Agbo, J.C.A at P. 10, paras. B-D.

 

5. Unforeseen Future Occurrence

 

It is trite that a contract of insurance is meant for unforeseen future occurrence and not for an incident that has occurred. See Ajaokuta Steel Co. Nig v. Corporate Insurers Ltd (supra), 

6. A Third Party Claiming against an Insured in Respect of a Risk Insured Against

 

The common law position is that a third party cannot join an insurer but the position has since changed by legislation. See the case of Unity Life and Fire Insurance Co. v Ladega (1996) 1 NWLR (Pt.427) where OGUNTADE JCA (as he then was) held as follows:

"Under the common law, the Plaintiff in this matter, could not have joined the appellant as a party to the suit brought against the persons said to be responsible, for the Plaintiff's injuries. However, Section 11 of the Insurance (Special Provisions) Decree No.40 of 1988 altered the position. The Section provides: "Where a third party is entitled to claim against an insured in respect of a risk insured against, he shall have a right to join the insurer of that risk in an action against the insured in respect of the claim: provided that before bringing an application to join the insurer, the third party shall have given to the insurer at least thirty days notice of the pending action and of his intention to bring the application."

It should be noted that though, the argument that the insurer cannot be sued along with the insured is not correct, doing so however is subject to some conditionalities. Per NIMPAR, J.C.A. (Pp. 41-42, paras. C-D) DAREGO v. A.G. LEVENTIS NIGERIA LTD & ORS (2015) LPELR-25009(CA).

 

7. A Passenger Vehicle

 

"A passenger vehicle" was defined in section 2(1) of the Motor Vehicles (Third Party Insurance) Act as "a motor vehicle used for carrying passengers for hire or reward", so that it is only if the person is being carried for hire or reward that an insured must be covered by a policy. See Lion Of Africa Insurance Company Ltd v. Mrs Stella Anuluoha (1972) LPELR-3181(SC).

 

8. Compulsory Insurance

 

The question whether direct remedies against an insurance company is available to a third party within the range of compulsory insurance was answered by the Supreme Court in Lion Of Africa Insurance Company Ltd v. Anuluoha (supra) per Lewis J.S.C. at Pp. 8-9, paras. G-D thus:

"Subject to certain exceptions a policy is not required to cover liability in respect of the death of, or bodily injury to, a person being carried in or upon, or entering or getting into or alighting from, the vehicle at the time of the occurrence of the event out of which the claim arises. Anyone who travels as a passenger in a private car has, of course, a right of action against his host, if negligent driving of the host, or of the host's servant if he is driving within the scope of his employment, results in injuries to the passenger, but this may be a barren remedy if the host is insured only within the compulsory limits. Even if the host has a wider insurance, the direct remedies against the insurance company available to a third party within the range of compulsory insurance will not be open to the passenger."

Conclusion

 

The insurance service providers and receivers in need of further illuminations on the conditions necessary to constitute a valid contract of insurance or claim are advised to contact Akintunde Esan.

 

CONTRACT OF INSURANCE AND INSURANCE CLAIMS IN NIGERIA is a legal illumination of AKINTUNDE ESAN known as The LEGAL ADVISER ONLINE. Akintunde Esan is the Managing Partner & Principal Consultant @ ASE OLODUMARE CHAMBERS (Legal Practitioners/Consultants & Chartered Mediators)