Breaking the Ice
I have read with great sadness news of the recent fire outbreak at Balogun Market in Lagos. My thoughts and prayers are with all those affected by the fire outbreaks and similar incidents elsewhere. Though it is impossible to prevent that which has already happened, it augurs well that the future be well prepared for and risks mitigated to the extent minimally possible.
Raison d’être for the article
The foregoing background in mind, this article builds on a 2015 paper I co-authored with some erstwhile colleagues at one of the leading Nigerian law firms. In the 2015 article, we analysed the implications of Section 50(1) of the Insurance Act 2003 and critically examined the legal issues as well as market practices with respect to the collection of insurance premiums. Fast forward to the present day and taking into account how advisable it is for one to have a ‘valid’ insurance policy that covers risks, this article asserts that while it is important to have an insurance policy, the premium on such policy is expected to paid in full and in advance’ before the commencement of an insurance policy.
Generally, one would expect that an insurance policy is legally binding between the insurer and the policyholder. While this should be the ideal default state, this is not often the case as will be demonstrated in this publication. This article will examine how and why, under Nigerian law, an insurance ‘policyholder’ may sometimes, be deprived of getting the compensation that should ordinarily flow from the insurance policy taken.
Working Example and Questions for Determination
For the purpose of this discussion, I will use the hypothetical situation below and formulate two questions for determination.
Let us assume Mr A decides to purchase an insurance cover or policy for his car and then enters into an agreement with the insurance company (insurer) to pay the premium for the policy on a monthly basis spread over a number of months.
I have formulated the two questions below and I will attempt to provide my responses in the succeeding paragraphs:
Question 1: Would Mr A be able to enforce the ‘insurance contract’ upon the happening of the event (risk) insured against?
Question 2: Can the insurer deny Mr A the compensation he is supposedly entitled to, further to the ‘policy’ taken, on the ground that Mr A did not pay in full and in advance premium on the insurance policy, as mandated under Nigerian law?
Legal Position on ‘No Premium No Cover Basis’
In responding to the question of whether Mr A would be able to enforce the ‘insurance contract’ upon the happening of the event insured against, it may be best to start by making recourse to Section 50 (1) of the Insurance Act 2003 (the ‘Insurance Act’) which provides:
‘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 paid in advance.’ [Emphasis supplied]
Upon a reading of the above-stated provision, it could be argued that the intent of the drafters is that a valid contract of insurance would only come into force when the insured party has paid the insurance premium in advance of the commencement of such contract. The argument that premium must be paid in full finds great support in the decision of the Court of Appeal in Industrial and General Insurance Company Limited v. Adogu (2009) 3 CLRN. In that case, the Court of Appeal held that Section 50(1) of the Insurance Act does not contemplate installmental payment of premium in an insurance contract. Similarly, the Court of Appeal equally held in Unitrust Insurance Co. Ltd v. AmbicoSendiran Nigeria Ltd (2012) LPELR-15417(CA), that premium must be paid fully, and in advance, for there to be a valid contract of insurance.
Additionally, the Supreme Court inCorporate Ideal Insurance Ltd v. Ajaokuta Steel Co. Ltd &2Ors. (2014) 2 CLRN have also held that non-compliance with Section 50(1) of the Insurance Act renders the contract of insurance invalid. According to the Learned Justices of the Supreme Court, the implication of Section 50(1) is that there shall not be any valid contract of insurance until and unless the premium is paid in advance. Their Lordships further reiterated the point that payment of premium is a condition precedent to a valid contract of insurance.
Meanwhile, Paragraph 4 of the National Insurance Commission (NAICOM) Guidelines 2013 provides that ‘all insurance cover shall only be provided on a strict, no premium no cover basis.’ It further stipulates that ‘only cover for which payment has been received, directly by the Insurer or indirectly through a duly licensed broker, shall be recognisable as income in the books of the insurer.’
From a combined reading of the provision of Section 50(1) of the Insurance Act and Paragraph 4 of the NAICOM Guidelines 2013, it could be argued that Nigerian law does not recognise an insurance contract where the premium has not been paid in full in advance of the commencement of such insurance contract. In other words, it is questionable whether Mr. A has a valid contract of insurance, having failed to pay the insurance premium in full and in advance of the insurance contract. As unfortunate and unfair as it may sound, a review of relevant decisions in Nigeria will reveal Mr. A may be unable to enforce the insurance contract as the court may likely hold there was no valid contract of insurance to begin with.
In the second part of this publication, I shall consider whether the insurer can effectively deny Mr A the compensation he is supposedly entitled to, further to the ‘policy’ taken, on the ground that Mr A did not pay in full and in advance, the premium on the insurance policy, as mandated under Nigerian law? Making recourse to relevant judicial decisions, I will provide a befitting response to this lingering question.
• For more discussion on this publication or any other (legal) issue, please feel free to reach out to the author via e-mail – firstname.lastname@example.org