Every human being is faced with the possibility that one or more of the hazards which form part of life will sooner or later befall him and which may cause him pecuniary loss. This misfortune is uncertain as to time or period it will occur and this among others include: fire outbreak, accident or even death. It could be seen that all those are beyond human control as their occurrence cannot be controlled by the individual. For example, the family bread winner knows it is beyond his control to prevent death from coming his way. This therefore necessitates the need to take out insurance policy which suites every occasion.
Very few persons really take the trouble to read through their insurance policies in order to ascertain and note the terms and conditions of the insurance well in advance of a claim. Of the few who bother to read through the policies, only a small proportion of them actually understand them. The result is that when a claim arises and it is found that the particular loss is not covered by the terms of insurance contract, there is always the tendency to blame it all on the insurance company. There might, of course, be some ‘black sheep’ amongst the insurers, but a lot of this unpleasantness is due to a lack of understanding of the terms of insurance contracts generally.
The essence of this study therefore is to eliminate or at least to minimize such misunderstandings by stating the ‘rules of the game’ not only for the parties to the transactions but for those who may in the future decide to take an insurance policy.
Due to the high level of illiteracy in the Nigerian society, many people are unaware of
insurance policies. However, with the enactment of Insurance Decree1, the awareness of insurance policies was enhanced. Thus, more people took steps to insure their properties or lives. Unfortunately, however, much as the high percentage of them normally end up unable to have their claims indemnified, either as a result of a breach of one insurance principle or another. These principles are numerous and they are the basis upon which insurance contracts are based. Failure to adhere to any of the principles may render an insurance contract void. The need to understand as well as having a second knowledge of the basic principles of insurance cannot be over emphasized.
These principles of insurance which are i) Insurable interest; ii) Utmost good faith/Duty of disclose; iii) Subrogation; iv) proximate cause; v) Indemnity; vi) ‘No Premium, No Policy’, are the bedrock of insurance contract, the absence of any of which the purpose of insurance will be defeated
The purpose of insurance cannot be farfetched. This can easily be seen from the various definitions of insurance. Insurance contract has been defined in the case of
PRUDENTIAL INSURANCE COMPANY V INLAND REVENUE COMMISSIONER2, as
a contract whereby a person called the ‘insurer’ undertakes in return for the consideration called the premium to pay another person called the ‘assured’ a sum of money or its equivalent on the happening of a specified event
Insurance is an intricate economic and social device for the handling of risks to life and property. It is social in nature because it represents the various co-operations of various individuals for mutual benefits by combining together funds to reduce the consequence of similar risk.
Simply put, insurance is the placing back of a person who has suffered a loss in the same position he was before loss occurred. It aims to eradicate the consequence of a loss by not allowing the insured to suffer the consequential loss. However, as earlier stated, unless one meets the requirements of all the basic principles of insurance, he will be estopped from claiming under an insurance contract.
1.1.0 BACKGROUND TO THE STUDY
Insurance law is reputed for its general principles, and the principles of indemnity is one of them, others are insurable interest, utmost good faith, subrogation, contribution and
proximate cause. A principle denotes a general guiding rule, which does not include specific directions, which vary according to the subject matter.
The basic principles applicable to insurance law flow from the nature of insurance contract as conceived, many years ago, by Law Merchants and taken over by the Common Law. The principles are common to all classes of insurance, both life and non-life and both marine and non-marine. By its nature, insurance contract postulates that a sum of money will be paid on the happening of the insured event by the insurers; however, the event must be uncertain. The uncertainty related to whether the event will ever happen as in fire or accident insurance or as in life insurance where death is a necessary end to all human life, but the time of death is uncertain. In comparison with other areas of the law, there is no other law, which attracts the number of general principle s with deep-rooted effect as insurance.
1.2.0 AIMS AND OBJECTIVES OF STUDY
The aim of this topic is to enlighten the general public about this area of insurance, which though seem insignificant yet is the basis of the insurance contract. This topic therefore aims to consider the position of the insurer as well as the insured. Also, the aims and objectives of this study is to eliminate or at least to minimize such misunderstandings by stating the ‘rules of the game’ for the benefit of the parties taking part in the insurance contract or transaction.
1.3.0 FOCUS OF STUDY
This project focus mainly on the basic principles of insurance under the Nigerian Law of Insurance, how it affects insurance policies, how this effects can be minimized as well as a determination of when an insured is entitled to claim and when he is not based on these principles.
1.4.0 SCOPE OF STUDY
The scope of this study is within the Nigerian Law of Insurance. The areas to be covered inter-alia include the analysis of the basic principles of insurance which consist of Insurance Interest, Utmost Good Faith, disclosure and Proposal, form, the Premium Policy, indemnity, Subrogation and Proximate cause, as it relates to the contract of insurance under the Nigerian Law of Insurance.
The style to be adopted in this essay will be expository and narrative. For this essay to achieve its aim, reliance will be placed on secondary sources of information gathered from textbooks, law reports, view of jurist, judicial decisions, dictionaries and encyclopaedia on the subject matter and of course, the internet. It is pertinent to mention that many articles, journals have not been written in this area of law, the few that are available will be well utilised.
1.6.0 LITERATURE REVIEW
Though many foreign books did not treat the topic of this essay in details but one of its concepts insurable interest, most Nigerian Authors however, lighten the burden of this work with their tactful treatment of the basic principles of insurance. Important Authors in this regard include J. O. Irukwu, on Insurance Law and Practice in Nigeria; Professor Olusegun Yerokun, on Insurance Law in Nigeria and Funmi Adeyemi, on Nigeria Insurance Law.
According to J. O. Irukwu, the fundamental principles of Insurance Law and Practice as applicable to Nigeria are insurable interest, utmost good faith, disclosure, indemnity, subrogation and proximate cause. Though Irukwu, on this subject has principles laid down before the now operating Insurance Act 2003 in Nigeria, some of these principles remains in conformation with the insurance Act 2003. To make the work an updated are however, Funmi Adeyemi and Professor Olusegun Yerokun’s insurance text which contains the prevailing law will equally be used among other materials. Olusegun Yerokun’s text which is Insurance Law in Nigeria provides a comprehensive analysis of insurance law in all its aspects. As a result of the repeal of the Insurance Decree, 1991 and the promulgation of the Insurance Decree, 1997, and the now operating Insurance Act 2003, the contents reflect the changes in law. The basic principles of insurance according to Yerokun are Insurable Interest, Utmost Good Faith, Indemnity, Subrogation, Disclosure, Premium and Proximate Cause. There is also the work of M. C. Okany on
Nigerian Commercial Law, which is of the opinion that contracts of insurance are governed by the general principles of contract but, on account of their special nature, all contracts of insurance are in addition governed by special or fundamental principles. These principles of insurance according to M. C Okany are Utmost Good Faith, Insurable Interest, Indemnity and Subrogation. The work and contribution of these distinguished authors are acknowledged to be of great value.
There are also foreign authors who have in no small measure distinguished themselves and whose works are relevant to this research, some of these authors are: John Birds on
Modern Insurance Law; Opined that the basic principles of insurance are insurable interest, fraud, Non-Disclosure and Misrepresentation, Premiums and Subrogation. He is of the view the most important and reliable is the insurable interest; There is also the work of MacGillivray and Parkington on Insurance Law. The General principles of insurance according to them are insurable interest, premium and subrogation, they never include non-disclosure and misrepresentation as John Bird. Raoul Colinvaux on The Law of Insurance, includes indemnity, which makes his none comprehensive than the other two, which is insurable interest, non-disclosure and misrepresentation premium, indemnity and subrogation and in addition, Hardy Ivamy ‘General Principles of Insurance Law will also be consulted. All these foreign authors in their books are of the opinion that the basic principles of Insurance are Insurable Interest, Non-Disclosure, The Premium, Indemnity and Subrogation.
Also, notable judicial pronouncements of the courts and the opinion of jurists are also relied upon coupled with reference to various legislations on insurance like the Marine Insurance Act, 1961; Insurance Act, 2003.
1.7.0 DEFINITION OF TERMS
For proper understanding of this project topic, there is need to acquaint ourselves with some basic insurance terminologies.
Risk: In insurance law, the danger or hazard of a loss of the property insured3. In a contract of insurance, the insurer undertakes to protect the insured from a specified loss and the insurer receives a premium for running the risk of such loss. Thus, risk must attach to a policy.
Mitigation of Loss: In the event of some mishap to the insured property, the insured must take all necessary steps to mitigate or minimize the loss, just as any prudent person would do in those circumstances. If he does not do so, the insurer can avoid the payment of loss attributable to his negligence, but it must be remembered that though the insured is bound to do his best for his insurer, he is nor bound to do so at the risk of his life.
Insure: To make sure or secure, to guarantee, as to insure safety to anyone. It also mean to indemnify a person against pecuniary loss from specified perils or possible liability
Insured: The insured is the policy-holder who is entitled to indemnity or monetary compensation on the happening of an event insured against. The insured is also the
person who obtains or is otherwise covered by insurance on his health, life or property5.
Insurer: He is the party who undertakes in consideration of an amount paid to him by the insured (premium) to pay money to the insured or assured on the happening of a stated event. Examples of the kinds of insurers we have include, the Mutual Insurance
Association, NICON Insurance Companies Limited, among other6.
Third Party: There are two parties to an insurance contract, the insurer and the insured. All others are strangers to the contract, and are referred to as third parties because they are not parties to the insurance contract between the insured and the insurer. For instance, the pedestrian who is knocked down by the insured in a motor accident is a third party
and a stranger to the contract between the insurer and the insured7.
Insurance Company: A corporation or association whose business is to make contracts of insurance.It must also be registered under the Nigerian Law.
Insurance is fast becoming a household name in Nigeria with more persons gradually becoming interested in the subject.
This chapter began with the general introduction which breakdown the issue in question and tried to see it’s important or usefulness in helping us to understand the meaning of insurance and also satisfy our curiosity of knowing what insurance and the basic principles of insurance is all about.
Though brief, the introduction has tried to shed light on the importance of insurance to our human race or existence and definition in place by judicial decisis. It went ahead to states its aims and objectives of the study. It continued with scope of study, focus of study and followed by the research methodology which had been stated that is the sources from which information concerning the project is gotten. The literature review is not left-out. Also, the research continued with certain terms that the reader would be coming across in the course of this work. This chapter in its little way is a form of a stepping-stone as to what should be expected in the research work in subsequent chapters.