The law as it relates to contracts of insurance in Nigeria has undergone changes since Nigeria’s independence in 1960. These changes were heralded by different insurance laws: The Insurance (special provisions) Act, 1988; The Insurance Act 1991, the Insurance Act (No. 2) of 1997 and the Insurance Act, 2003. The changes were amongst others with respect to the receipt of insurance premium and standardization (adhesion) of insurance policies.
A contract of insurance is one whereby a person called the ‘insurer’ agrees, in consideration of money paid to him called the ‘premium’ by another person called the ‘insured’ to pay the latter a sum of money equivalent on the happening of a specified event.
The form of every contract of insurance is derived from the general principles pervading the law of contract. In essence, issues relating to the freedom of contracting parties should be achieved by consensus of the minds sealed by the existence of a valid consideration.
A contract ordinarily suggests a negotiation of, and agreement of its terms.
But, this position is negatived in contracts of insurance because of their peculiar nature.
Contracts of insurance being specially designed contracts and belonging to a special breed, needs little or no bargaining to crystalize. They’re in reality standard form contracts in which the terms are hardly open to negotiation. The insurer dictates the terms and expects the insured to adhere to them.
An insurance policy in Nigeria is one of adhesion. The extant law regulating contracts of insurance in Nigeria protects this position. Sections 6 (1)(e) and 20 (1) of the Insurance Act 2003, Cap. I17 Laws of the Federation of Nigeria (L.F.N) 2004 requires every insurance company in Nigeria to submit its standard policy documents containing the terms and conditions of policies to the National Insurance Commission (NAICOM) and obtain approval. The typical purchaser has little or no power to negotiate the price or other terms in the policy document. It is a case of ‘take it’ or ‘leave it’! The inequality of bargaining power between the insurer and the insured is obvious. This will make the limits of an insurer’s liability uncertain and create tremendous difficulties in predicting loss.
SPECIAL CONSIDERATION (PREMIUM)
A valid contract – contracts of insurance – presupposes the element of consideration. For, consideration is an act of forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.
A valuable consideration in the sense of law may consist either in some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.
In general contracts consideration takes many forms but in contracts of insurance, consideration is special or specific in the form of a premium. The premium is the special consideration that gives flavour to contracts of insurance when viewed against the backdrop of the definition ascribed to the term premium.
Earlier in this article, we have noted that the ‘insurer’ agrees to cover the prospective insured under a policy in consideration of money paid to him called ‘premium’. The premium becomes the consideration insurers receive from the insured in exchange for their undertaking to pay the sum insured on the happening of an event insured against.
The commonest example of a thing in law that possess value at law is money. Because, the premium is the consideration in contracts of insurance, it must have value at law.
Under the common law, the premium may be paid by the insured at any time before or after the contract of insurance has taken effect or comes into force. The English courts in Kelly v. London & Staffordshire Fire (1883) 1 Cab & E.L. 47,48 and Lewis v. Norwich Union Fire Insurance Co. (1916) A.C. 509 expressed the position that the premium is the price for which the insurer undertakes his liabilities. Actual payment of the premium is not necessary to the creation of a complete and binding contract of insurance, and, a stipulation that the insurance shall not attach until the premium is paid will not be implied. The Supreme Court per Belgore JSC (as he then was) in Ngillari v. National Insurance Corporation of Nigeria (1998) 8 NWLR (Pt. 560) 1 @ 21 arrived at the same conclusion. That was the former position of the law both in England and Nigeria.
The Common Law approach as to non-attachment of particular importance to premium, and the premium not necessarily forming the basis of contracts of insurance in Nigeria have changed due the special nature of insurance contracts as embossed in standard form and backed by statutory flavour.
Section 50 (1) of the Insurance Act 2003 shows that special consideration which is the premium in monetary terms became practically the underlying factor in contracts of insurance in Nigeria. The said section provides that “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”. The Act in essence placed much attachment to the advancement of premium by the insured to the insurer before a policy could be said to have been undertaken, and the insured to be indemnified against the insured peril upon the happening of the event.
The phrases ‘shall be a condition precedent’ and ‘unless the premium is paid in advance’ in Section 50 (1) of the Act stands as exclusive preserve. In Re Lees Exp. Collins (1875) 10 Ch. App. 360; (1876) 7 Q.B.D. 410, James L.J., held that a condition is precedent when, unless it is complied with, the estate does not arise. There is a condition precedent when the rights or obligations under the agreement – contract of insurance – are suspended until the happening of a stated event: the payment of premium. Pats Acholonu JCA (as he then was) aptly captured this position in Irukwu v. Trinity Mills Insurance Brokers (1997) 12 NWLR (Pt. 531)113 @ 135 Paras C – F when he stated that ‘Section 50 (1) of the Insurance Decree No. 2 of 1997 (same as Section 50 (1) of the Insurance Act, 2003) makes provision as to when a contract of insurance can be said to have taken place’. He does not ‘share in the belief or faith on a transaction which doesn’t feature payment of premium. There cannot be an insurance where the insurer will be indemnified without the payment of premium. In that case no liability has been covered.
Other provisions in the Act further lend credence to the importance attached to payment of premium.
Section 41 (1) – (5) of the Act exposes an insurance broker who refuses to remit premium collected from the insured to the insurer. The refusal within 30 days may amount to an offence which upon conviction may lead to the broker paying a certain amount as fine depending on the degree of the offence; to the outright cancellation of the registration or refusal to renew the registration of the broker.
Section 51 (1) – (5) provides for restriction on general increases in premium charged on motor insurance as well as penal consequences against defaulters thereof.
A fortiori, the premium in the form of money becomes the special basis or special consideration on which contracts of insurance in Nigeria anchors. As a condition precedent with special characteristics attached to it, the premium in a contract of insurance is usually paid in money and the amount is charged at a specified rate based on the sum insured. Payments made by cheques, promissory notes or bills of exchange will only be conditional on them being accepted or honoured.
There is no doubt that over the years contracts of insurance have attracted many principles of its own to such an extent that it is proper to speak of a law of insurance. It is this dynamic evolution and growth that heralded the enactment of the Insurance Act, 2003 bringing in new dimensions of the business of insurance of which two parts were examined in this article: Special Consideration (Premium) and Standardization (Adhesion).
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