Issuance of post-dated cheques does not amount to advance payment of an Insurance Premium

PRESTIGE ASSURANCE PLC & ANOR v. SARA PRODUCT LTD & ANOR

COURT OF APPEAL

(LAGOS DIVISION)

(BOLA; KWAHAR; ONWOSI: JJ.CA)

 

FACTS

Prestige Assurance Plc (the 1^st Appellant) issued a Fire Insurance Policy to Sara Product Limited (the 1^st Respondent) in respect of its business premises. Upon the expiration of the initial policy, the parties renewed the insurance cover for the period of 1 September 2008 to 1 September 2009. The premium of ₦5,787,799 was payable by eight monthly post-dated cheques.

While the policy remained in force and before four of the post-dated cheques matured, a fire occurred on 23 January 2009 at the 1^st Respondent’s insured premises situated at No. 184/185 Happy Home Avenue, Kirikiri Industrial Estate, Lagos. Following the incident, the 1^st Appellant appointed Benevolent Loss Adjusters Ltd. to investigate the cause of the fire and assess the extent of the loss. In its report dated 20 July 2009, the Loss Adjusters concluded that the 1^st Respondent had breached certain warranties under the policy and was responsible for the fire incident and accordingly advised the 1^st Appellant to repudiate the claim.

Consequently, the 1^st Appellant declined liability under the policy. Aggrieved by the repudiation of its claim, the 1^st Respondent instituted an action against the Appellants and the 2^nd Respondent, seeking, among other reliefs, declarations that it was entitled to indemnity under the Fire Insurance Policy, that the repudiation of its claim was wrongful and constituted a breach of the insurance contract, and an order directing the Appellants to indemnify it in the sum of ₦901,981,400.15 being the assessed value of its loss or, in the alternative, the sum of ₦875,000,000.00 representing the total sum insured under the policy, together with interest.

Upon consideration of the evidence adduced by the parties, the trial Court found in favour of the 1^st Respondent and granted the reliefs sought. Dissatisfied with the judgment, the Appellants appealed to the Court of Appeal.

One of the issues for determination was: Whether the Trial Court was right to have held that there was a valid contract of insurance between the Appellants together with the 2^nd Respondent and the 1^st Respondent? 

ARGUMENTS

Learned Counsel for the Appellants argued that there was no valid and enforcement contract of insurance between the parties because the 1^st Respondent had not fully paid the insurance premium before the occurrence of the insured risk. Counsel submitted that the mere issuance and acceptance of post-dated cheques, which had not all been cleared at the time of the fire incident, did not amount to payment of premium in advance as required by law and as such the contract of fire insurance was unenforceable.

Counsel further argued that the trial Court erred in holding that the 1^st Respondent had substantially complied with the warranties contained in the insurance policy. It was submitted that the warranties constituted conditions precedent to liability and that their breach entitled the insurers to repudiate the claim irrespective of whether the loss was occasioned by the breach. Counsel contended that the 1^st Respondent breached the contract of warranty by failing to keep its books and records in a fire-proof safe, resulting in their destruction during the fire. Counsel also submitted that the 1^st Respondent breached the fire extinguishing appliances warranty by failing to provide the fire-fighting equipment required under the policy, including smoke detectors, fire alarms, and hydrants, notwithstanding that it was bound by the terms of the insurance contract.

Finally, Counsel argued that the 1^st Respondent’s claim was fraudulent, having exaggerated its losses far beyond the insured sum. According to Counsel, this overstatement constituted a breach of the duty of utmost good faith and entitled the Appellants to repudiate liability under the policy.

In response, Learned Senior Counsel for the 1^st Respondent argued that the issuance of post-dated cheques by the 1^st Respondent, and their acceptance by the 1^st Appellant as payment of the insurance premium, constituted payment of premium in advance as contemplated by the law. He argued that a valid and enforceable contract of insurance existed between the parties and that the 1^st Respondent had satisfied the statutory requirement for advance payment of premium. Counsel further submitted that the documents relied upon by the Appellants to establish the alleged breach of the policy warranties constituted documentary hearsay, having not been tendered through their makers, and urged the Court to discountenance them.

DECISION OF THE COURT

In resolving the issue, the Court of Appeal held that:

The issuance of post-dated cheques does not constitute payment of premium in advance where the cheques had not all matured or been cleared before the occurrence of the insured risk. The Court of Appeal held that payment of premium is a condition precedent to the formation of a valid and enforceable contract of insurance, and no liability can arise against an insurer in the absence of prior payment.

The Court of Appeal explained that the requirement of payment of premium in advance means that the premium must be fully paid before the insured risk occurs. Although parties may agree that the premium be paid by instalments or through post-dated cheques, such an arrangement only satisfies the statutory requirement where the entire premium is paid before the occurrence of the insured event.

In the instant case, the Court found that the fire occurred on 23 January 2009 before the last four post-dated cheques matured and before the full premium had been paid. Consequently, the requirement of advance payment under law was not satisfied, and as such no valid and enforceable contract of insurance existed upon which the 1^st Respondent could maintain its claim for indemnity.

 

Issue resolved in favour of the Appellants.

 T. Oloyede, Esq. for Appellant(s).

Obafemi, SAN, with him, O. Smith, Esq. – for 1^st Respondent.

O. Ladi, Esq., with him, A. Dagbo, Esq. – for 2^nd Respondent.

 

This summary is fully reported at (2024) 4 CLRN in association with ALP NG & Co.

See www.clrndirect.com ; www.alp.company.