The account thus far
In my first publication, I set out to examine how and why, under Nigerian law, an insurance policyholder may sometimes, be deprived of getting compensation that should ordinarily flow from the insurance policy taken. I came up with the hypothetical situation of Mr. A who decided to purchase an insurance cover or policy for his car and then entered 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 then formulated two questions for determination.
Last week, I answered the first question of whether Mr. A would be able to enforce an insurance contract upon the happening of event (risk) insured against where Mr. A failed to pay the premium for the insurance policies in full and in advance or such contract. I argued that a combined reading of Section 50(1) of the Insurance Act and Paragraph 4 of the NAICOM Guidelines 2013 would reveal 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. Thereafter, I submitted that it is questionable whether Mr. A had a valid contract of insurance, having failed to pay the insurance premium in full and in advance of the insurance contract.
This week, however, I shall be considering 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 the premium due on such policy in full and in advance as required by Section 50(1) of the Insurance Act. Making recourse to relevant judicial decisions, I shall be providing a befitting response to this lingering question.
Market practice on premium collection versus legal position on payment of premium
Some insurance practitioners have argued that what Section 50(1) of the Insurance Act requires is that the quoted premium, whether annual or for a short period, must be paid in advance but not necessarily that such payment be made in full before the commencement of the insurance policy (contract). Other commentators like Josephine Nneoma Ejiamaizu have opined that what is actually obtainable in practice is that Mr. A is told that the premium for a policy is for a certain amount per annum and if Mr. A is unable to pay the stipulated sum for the premium at once, “he is informed that he has an option of paying monthly.” Ejiamaizu further noted that “Mr. A is meant to be informed that if he pays monthly (say he has paid for January now) and the insured peril occurs in February, that peril is not covered in so far as he has not paid for February.”
Interestingly, Ejiamaizu conceded that this arrangement is caught by the ‘no premium no cover rule’ alluded to in my article published last week. Explaining further, how the market practice on insurance premium collection works, she noted that “…there is this intrinsic idea that insurance should be yearly, but that is not the case, especially with regards to some policies…policies can even be given to run on a daily or weekly basis.”
In attempting to proffer suggestion on the way forward out of this seemly unfortunate situation created by the law, Ejiamaizu underscored the need for ‘public enlightenment/advocacy” by all different stakeholders in the insurance sector and also emphasized the need for insurance marketers to always “take out time to explain to customers and prospective customers the implications of the policies they are taking and the forms of payment being adopted.”
While it is conceded that parties are generally free to stipulate the terms of an insurance contract, it is my considered view, having carefully researched the law on this point that such must be done within the confines of the law. Consequently, it is my submission that issues of premium and insurance cover, which are expressly regulated by a statute (in this case, the Insurance Act) can no longer operate in the realm of common principles that have been overtaken by clear statutory provisions. This is because it is a trite principle of Nigerian law that a statutory provision overrides any common law principle. As a matter of fact, it is well-settled that where a statutory provision is in conflict or differs from common law, the common law gives way to the statute. This much has equally been alluded to by the Supreme Court of Nigeria in Patkun Industries Ltd v. Niger Shoes Ltd (1988) NWLR (Pt. 93) 138; (1988) LPELR-2906(SC), Per Nnamani JSC.
Flowing from the foregoing, it is, therefore, my position that what the law envisages is not part or installmental payment but full payment of the premium well in advance of such policy and in respect of each cover period no matter the length of the cover.
My position is further buttressed by the decision of the Supreme Court in Corporate Ideal Insurance Limited v. Ajaokuta Steel Company (2014) 2 CLRN, where the Supreme Court held that Section 50(1) of the Insurance Act does not confer a right on insurers that may lend itself to a waiver. In Corporate Ideal Insurance Ltd V. Ajaokuta Steel Co. Ltd & 2 Ors, the Appellant, an insurance company, agreed to provide insurance cover for the 1st Respondent’s equipment from 1996 to 2000 with a further agreement that the premium will be paid at a later date. The Appellant (insurance company) demanded payment of the premium, the 1st Respondent, however, failed to pay stating that it had no money.
As a result, the Appellant instituted an action at the Federal High Court, Abuja claiming among other things, the sum of N226 million being the sum unpaid insurance premium. The 1st Respondent admitted that it owed the Appellant the sum claimed but that the federal government had not released funds to it. The Appellant applied for judgment based on the above admission. Judgment was entered against the 1st Respondent. Aggrieved, the 1st Respondent appealed to the Court of Appeal and raised the issue of the illegality of the insurance contract. The Court of Appeal unanimously set aside the trial court’s decision. Dissatisfied, the Appellant further appealed to the Supreme Court. One of the issues formulated for determination before the Supreme Court was whether there was a violation of Section 50(1) of the Insurance Act such as to render the Insurance Contract between the parties unlawful, illegal, null and void.
The Supreme Court, in unanimously dismissing the appeal and agreeing with the finding of the Court of Appeal held that non-compliance with Section 50(1) renders the contract of insurance invalid. According to the Learned Justices of the Supreme Court, payment of premium is a condition precedent to a valid contract of insurance and further to Section 50(1) there can be no valid contract of insurance until and unless the premium is fully paid in advance.
In Mr. A’s case, it is rather unfortunate that he decided to take a policy and agree to pay the premium installmentally further to the suggestion of either the insurance agent or the insurer itself. As much as I do empathize with Mr. A and believe the provision of the Insurance Act relating to payment of premium in full and advance quite negates the principle of sanctity of contract and the freedom of parties to contract, it is doubtful if a court of competent jurisdiction would compel the insurance company to honour the insurance contract in the event of a breach by the insurance company. Mr. A could be denied the compensation he is supposedly entitled to, further to the ‘policy’ taken, on the basis that Mr. A did not pay the premium due on such policy in full and in advance as required by Section 50(1) of the Insurance Act.
Final remarks and direction for next publication
The foregoing notwithstanding and at the risk of sounding academic, I shall, in my next publication consider: (a) whether parties can contract out of the Insurance Act with respect to payment of premium or whether the provision of Section 50(1) is such that is mandatory and admits no exception; and (b) whether Mr. A could invoke the doctrine of waiver as it relates to his relationship with the insurance company, having been induced to enter into an insurance contract with the understanding that the premium could be made installmentally.
Joseph cut his teeth in legal practice, at one of the top tier law firms in Africa, where he routinely advised development finance institutions (DFIs), multinationals, commercial banks, startup firms, and international corporations/organizations on different areas of law. firstname.lastname@example.org