By Olaniyi Timothy Olamide

INTRODUCTION

In day to day business all over the world uncertainties is inevitable and risk management becomes crucial. The Contract of Insurance evolved overtimes in order to manage risks involve in business activities. The role Insurance Cover Policy plays in the economy is imperative and its importance cannot be overemphasized.

This is the reason why jurisdictions all over the world provide legal framework within which the business of Insurance is being carried out.

CONSTRACT OF INSURANCE IS DEFINED

To begin with, Contract of Insurance is aleatory in nature i.e an agreement concerned with an uncertain event that provides for unequal transfer of values between parties.[1] In other words, insurance policies are aleatory contracts because an insured can pay premiums for many years without sustaining a covered loss.[2]

Insurance Contract is defined as a contract whereby for a specified consideration, one party undertakes to compensate the other for loss relating to a particular subject as a result of the occurrence of designated hazards[3][i].

It is equally a contract of uberrimae fidei   which literary means “utmost good faith” It simply connotes the duty on the insured to disclose all facts material to the risk.  This principle of utmost good faith was established by Lord Mansfield in 1776 in the case of CARTER V. BOEHM (1776) 93 ER 1162.

Lord Mansfield held authoritatively thus : Insurance is a contract based on speculation. The special facts, upon which the contingent chance is to be computed, lie most commonly in the knowledge of the insured only; the underwriter trusts to his representation and proceeds upon the confidence that he does not keep back any circumstance in his knowledge, to mislead the underwriter into belief that the circumstances does not exist, and to induce him to estimate the risk as if it did not exist. Good faith forbids either party by concealing what he privately knows, to draw the other into a bargain from his ignorance of that faith,and his believing the contrary.

THE LEGAL FRAMEWORKS FOR INSURANCE IN NIGERIA

The principal legislation regulating General insurance business in Nigeria is the INSURANCE ACT, 2003.

However, this article does not intend to delve into all the laws regulating insurance business in Nigeria as this is not within the purview of this write up. Hence only the INSURANCE ACT, 2003 would be considered as it relates to the case of CORPORATE INSURANCE LTD V. AJAOKUTA STEEL COMPANY LTD & ORS.

NO PREMIUM NO COVER POLICY UNDER SECTION 50(1) OF THE INSURANCE ACT

Payment of premium in advance by the insured is a condition precedent to a valid contract of insurance under the Nigerian Insurance Law, failure of which the contact would be declared, null, void and illegal.

Section 50(1) provides thus;  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 insurance risk, unless the premium paid in advance.

FACTS OF CORPORATE INSURANCE LTD V AJAOKUTA STEEL COMPANY LTD

In 1996, the 1st Respondent requested the appellant to provide insurance cover for its equipment (government property) from 1996-2000. It was agreed between the parties that the insurance premium would not be paid immediately by the 1st Respondent to the appellant. In other words, the appellant and the 1st respondent agreed that the “no premium, no cover” principle would not apply to the contract of insurance. It was their agreement that the contract would be binding on the parties as if the insurance premium had been fully paid.

Eventually, the total premium the 1st Respondent owed the appellant became N226 million. The 1st Respondent also caused the sum of N226 million to be appropriated in the 2000 budget of the Federal Government of Nigeria, which was enacted into law as the Appropriation Act 2000, for the payment of the insurance premium owed by the 1st Respondent to the Appellant.

However, the 1st Respondent did not pay the premium to the Appellant. Consequently, the Appellant sued the Respondents at the Federal High Court for payment of the sum of N226 million as insurance premium and other reliefs. The Appellant filed a motion for judgment against the 1st Respondent upon an admission of its claims by the 1st Respondent in its statement of defence. Judgment was entered against the 1st Respondent accordingly.

Dissatisfied with the decision of the trial court, the 1st Respondent appealed and sought for leave to argue fresh issues relating to the illegality of the insurance contract which were not raised at the trial court.

The Court of Appeal found the contract of insurance between the parties was in breach of the Insurance Act and declared same illegal, void and unenforceable accordingly. Not satisfied the Court of Appeal decision, the appellant appealed to the Supreme Court. One of the issues before the Supreme Court is whether the purported violation of Section 50 and 93 of the Insurance Act No. 2 of 1997 by Insurance Contract between the parties render the said Insurance Contract unlawful, illegal, null and void.

In resolving the issue and determining the case in favour of the respondent, the Supreme Court held inter alia:

How does one identify or recognize an illegal contract or transaction? This question has since been answered by this court in a plethora of authorities. In Alao v. A.C.B. Ltd. (1998) 3 NWLR (Pt. 542) 339 at 370, paras. B-C, per Iguh, JSC, this Court held as follows:-

“It is trite that a transaction or contract, the making or performance of which is expressly or impliedly prohibited by statute is illegal and unenforceable. Where a contract made by the parties is expressly forbidden by statute, its illegality is undoubted and no court ought to enforce it or allow itself to be used for the enforcement of alleged obligations arising thereunder if the illegality is duly brought to the notice of the court

This case is in accord with the English case of Anderson Ltd v. Daniel (1924)1 KB 138, though with different content but with the same context and same reasoning of decision. Thus, Fertilizer Act 1906 required every person that sold for use as fertilizer any soil that had been subject to an artificial process, to provide the purchaser with an invoice stating the respective percentage of certain chemicals. The court held that the effect of non compliance did not merely render the vendor liable to pay a penalty, but made the sale illegal and precluded the vendor from suing for the price of the contract.

THE CASE OF CORPORATE INSURANCE LTD V AJAOKUTA STEEL COMPANY LTD AND DOCTRINE OF EXTURPI CAUSA

The Latin maxim of Ex turpi causa non oritur action means that no person should be able to found a claim on an illegal or moral act.[4]It simply means court will not enforce an illegal contract or provide for any other remedies that arise out of it…

It has been aptly argued that this doctrine has been used by English courts to dismiss actions which arise from illegal dealings[5]  Some of these cases include Williams v. Everrett[6] popularly known as Highwayman case where a robber sued his accomplice for not producing his share of the loot as agreed; Holman v. Johnson[7] where the court per Lord Mansfield stated ‘no court will lend its aid to a man who founds his cause of action upon an immoral or illegal act’

It can be aptly submitted that Nigeria court’s decision is not from the English Courts.

However, this article will not dwell on an in -debt analysis of the Maxim but seek to argue that it is the fulcrum upon which the Supreme Court based its judgment in this case despite the fact that sanction which is one of the two tests for illegality in statutory provisions, is absent in section 50(1) of Insurance Act, 1997.

In view of the above, the Apex court held ; A contract which violently violates as in this case, with the sole aim of circumventing the intendment of the law maker is to all intents and purpose, illegal, null and void and unenforceable.

The supreme court in making the contract of insurance unenforceable in this case went further in interpreting section 50(1) of the Insurance Act, 1997 held that the use of the word “shall” in section 50(1) supra  is instructive here. It is now well settled that where the provisions of a statute is garbed with the word shall as in the instant provision, it connotes that it is imperative for the provision to be obeyed. The word ‘shall’ makes the provision mandatory, imposes a duty and is a word of command…

In essence, it can be swiftly submitted that payment of premium in advanced by the insured to the insurer is a condition precedent to valid contract of the insurance.

EFFECTS OF THE RULING ON INSURANCE BUSINESS IN NIGERIA

The research shows that what is obtainable in practice is different from what the law provides. Insurance companies are in the practice of issuing covers to their customers while still awaiting the payment of premium or receipt of notification of payment of premium from brokers.

The issue of no premium no cover is a deterrent to insurance business in Nigeria which has already been declared fragile[8]. Prospective insured would have make payment of full premium in advance before a valid contract of insurance can be made.  What happens to an insured who does not enough fund as at the time of entering into the contract?  This writer puts it that the law makers should have considered the true practice in the insurance business and come up with a balance remedy.

This case is an image of how law is necessarily called an ass and how possible for things to go wrong for an insurance companies without first securing payment of premium in advance from the insured.

CONCLUSION

This case has shown the attitude of courts towards condition precedent to formation of Contract of Insurance in Nigeria. That is payment of premium is a condition precedent to valid contract of insurance.

In sum insurance companies must exercise caution when contracting with their customers in order to avoid this kind of ugly decision against them in the future. The provisions of the law must strictly be followed.

References

  1. http://www.irmi.com/term/insurance-definitions/aleatory-contract > accessed 27 September 2020.
  2. Ibid…
  3. http://legal-dictionary.thefreedictionary.com/Insurance+contract > accessed 27 September 2020
  4. Nina Bot- Timothy ‘ Governor’s Consent: Should The Court or The Law Be Blamed? (An Appraisal Of The Case Of Savanah V. Ajilo (1989) nwlr (pt97) 305) < https://unilaglawreview.org/wp-content/uploads/2019/12/UCL-Vol-3-No-2.pdf > accessed 5 October 2020
  5. Timothy Olamide, ‘Exturpi Causa Non Oritur Actio: A Rule of Justice or Public Policy, < http://dnllegalandstyle.com/2020/exturpi-causa-non-oritur-actio-a-rule-of-justice-or-public-policy-timothy-olamide/ > accessed 27 September 2020
  6. (1725) 104 ER 725
  7. (1775) 98 All ER 1120
  8. Agbonlahor Osagie Esq, ‘No Premium, No Cover: Supreme Court Affirms Insurance Commission Guidelines, < http://www.google.com/amp/s/businessday.ng/analysis/article/no-premium-no-cover-supreme-court-affairms-insurance-commission-guidelines/amp/ > accessed 5 October 2020

Timothy Olamide is a final year student from Ahmadu Bello University, Zaria, Kaduna State and can be contacted via [email protected]