Nigerian Insurance Act of 2003
This post provides a summary of some
of the salient provisions of the Insurance Act of 2003 including the
insurance policies made compulsory by the law.
- 1. COMPULSORY INSURANCE
Compulsory Insurances are those
insurance policies which every person must have or face penalties for
default and it is therefore important for people know what insurance
policies are compulsory. In Nigeria, there are six (6) insurance
policies made compulsory by the law. It is important to emphasize that
these six (6) classes of Insurance are made compulsory under their
enabling laws and failure to comply with the law is regarded as a
criminal offence and employees can also sue for compensation in a civil
suit. The policies and their relevant legislation are as follows:
1.1 Motor Third Party Insurance
as required by the Motor Vehicles (Third Party Insurance) Act of 1950.
This is the minimum insurance that owners of motor vehicles plying
Nigerian roads are required to have. The policy covers liability for
death or bodily injury to a third party arising from the use of the
vehicle. Section 68 of the Insurance Act 2003 extends the liability to
cover damage to the property of a third party to the tune of One Million
Naira. It also makes it a criminal offence not to have a motor vehicle
third party insurance policy and the penalty for non-compliance is
imprisonment for one year or a fine of N250,000 or both.
1.2 Employee Group Life Insurance as
required by the Pension Reform Act of 2004. Section 9(3) of that Act
requires every employer of labour with five (5) or more employees to
take out a life insurance policy for a minimum of three times the annual
total emolument of the employee. This law is applicable to both private
and public sector employees. Failure to comply with this provision is
an offence punishable with imprisonment for up to one year or a fine of N250,000 or both.
1.3 Health Care Professional Indemnity
as required by the National Health Insurance Scheme Act of 1999.
Section 45 of that Act requires all licensed health care providers to
have a professional indemnity policy. The law defines a health care
provider as any registered Government or private healthcare practitioner
and hospital or maternity center.
1.4 Insurance of Public Buildings
as required by the Insurance Act of 2003. Section 65 of that Act
requires the owner or occupier of every public building to be insured
against liability for loss or damage to property or death or bodily
injury caused by collapse, fire, earthquake, storm or flood. The Act
defines a public building as one to which members of the public have
access for educational, recreational, medical and commercial purposes.
The penalty for non-compliance is a maximum fine of N100,000 or one year imprisonment or both.
1.5 Insurance of Buildings under Construction
as required by the Insurance Act of 2003. Section 64 of that Act
requires every owner or contractor of any building under construction
with more than two (2) floors must take out an insurance policy to cover
liability against construction risks caused by his negligence or that
of his servants, agents or consultants which may result in death, bodily
injury or property damage to workers on site or members of the public.
This insurance policy also covers liability for collapse of buildings
under construction. Failure to comply with this provision is an offence
punishable with a fine of N250,000 or three years imprisonment or both.
1.6 Employers Liability Insurance
as required by the Employee Compensation Act of 2010 (which repealed
the Workmen Compensation Act of 1987). The Act requires every employer,
within the first two years of the commencement of the 2010 Act, to make a
minimum monthly contribution of 1% of the total monthly payroll of
employees to the Employee Compensation Fund. The Fund shall be used to
pay adequate compensation to employees or their dependants for any
death, injury, disease or disability arising out of or in the course of
their employment.
- 1. THE INSURANCE ACT 2003
We shall examine in summary some of the salient provisions of the Insurance Act of 2003
2.1 Section 50 of the Insurance Act: No Premium No Cover.
Section 50(1) of the Act states that,
“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 is paid in advance.”
Section 50(2) of the Act states that,
“An Insurance premium collected by an insurance broker in respect of an
insurance business transacted through the insurance broker shall be
deemed to be premium paid to the insurer involved in the transaction.”
Comments: Payment of premium in
full is a condition precedent to a valid contract of insurance and an
insurance contract will not be enforceable where premium is not paid in
full before the commencement of the risk. Part payment of the agreed
premium does not constitute sufficient compliance with the condition
precedent. See, Industrial and General Insurance v Adogu (2009) 3 CLRN 256.
The decision in Ajaokuta Steel Co. v Corporate Insurers
(2004) 11 CLRN 78 held that, the absence of full premium in advance
renders the insurance contract void and illegal. However, there is
sufficient judicial authority that any party can waive a constitutional
or statutory right which is made for their benefit. See, Ariori v Elemo (1983) ANLR 1 and Mobil Producing v LSEPA
(2003) 1 MJSC 112. Therefore it is arguable that an insurance company
can be held to have waived the condition precedent in section 50(1) of
the Insurance Act even when premium has not been paid but the insurer
assumes the risk or holds the insured covered. In effect the failure of
the insured to pay the full premium only makes the insurance contract
voidable and void.
Where premium is paid through a broker,
the money is treated as already in the hands of the insurance company
and the insured shall not be held liable for the refusal or failure of
the broker to remit the premium.
2.2 Section 55 of the Insurance Act: Non-Disclosure and Breach of Contract.
Section 55(1) of the Act states that,
“In a contract of insurance, a breach of term whether called a warranty
or a condition shall not give rise to any right by or afford a defence
to the insured unless the term is material and relevant to the risk or
loss insured against.”
Section 55(2) of the Act states that,
“Notwithstanding any provision in any written law or enactment to the
contrary, where there is a breach of term of a contract of insurance,
the insurer shall not be entitled to repudiate the whole or any part of
the contract or a claim brought on the grounds of the breach unless:
(a) the breach amounts to a fraud; or
(b) it is a breach of fundamental term of the contract.”
Section 55(3) of the Act states that,
“Where there is a breach of a material term of a contract of insurance
and the insured makes a claim against the insurer and the insurer is not
entitled to repudiate the whole or any part of the contract, the
insurer shall be liable to indemnify the insured only to the extent of
the loss which would have been suffered if there was no breach of the
term.”
Section 55(4) of the Act states that,
“Nothing in this section shall prevent the insurer from repudiating a
contract of insurance on the ground of a breach of a material term
before the occurrence of the risk or loss insured against.”
Comment: It is not a breach of
every term, warranty or condition of the insurance contract that can be
valid ground for an insurance company to avoid liability. The insurance
company shall only be entitled to repudiate the contract or claim where
either, the breach amounts to fraud or the insured is in breach of a
fundamental term of the contract. The term fraud is quite clear but
fundamental term means any warranty or condition or other term which a
prudent insurance company will regard as material to the contract when
accepting to underwrite the risk. A fundamental term is one that goes to
the root of the contract such as, the age or the health of the insured
in a life insurance policy, or the description of the vehicle or house
in material damage insurance, or the description of the goods or voyage
in a marine insurance policy and so on.
2.3 Section 70 of the Insurance Act: Claims Settlement
Section 70(1) of the Act states that,
“In every case where a claim is made in writing by the insured or any
other party entitled thereto under insurance policy, the insurer shall;
(a) where he accepts liability,
settle the claim not later than 90 days after the
issuance of the discharge voucher;
(b) where any claim remains
unpaid as provided in (a) above, the insured may request the
Commission to effect the payment from the statutory deposit of the
insurer and the Commission shall have power to effect such payment;
(c) where he does not accept
liability deliver a statement in writing stating the reasons for
disclaiming such liability to the person making the claim or his
authorised representative not later than 90 days from the date on which
the person.“
Comment: It is important to note
that the 90 day period begins to run from the date the insurance company
issues it’s discharge voucher and not from the date the insured gives
notice of the claim. Where the insurance company does not accept
liability it must within 90 days deliver a statement in writing to the
insured stating the reasons for disclaiming such liability. Failure of
the insurance company to either settle the claim within 90 days or give
reasons for disclaiming liability within 90 days is an offence
punishable on conviction with a fine of N500,000.
This is a powerful weapon in the hands of an insured who can bring a
criminal complaint against the insurer in respect of this offence.
Where a discharge voucher is issued but payment is not made within 90
days, the insured may request NAICOM to effect payment of the claim from
the statutory deposit of the insurer. This is another powerful but
little known weapon in the hands of the aggrieved insured.
2.4 Section 71 of the Insurance Act: Motor Insurance Claims
Section 71(1) of the Act states that,
“Where any claim referred to in sections 69 or 70 of this Act arises out
of an accident involving one or more vehicles, it shall not be
necessary, if there is sufficient evidence of proof of loss or damage,
for any claimant to report and deliver police report to the insurer; but
where death of or serious bodily injury to a person is involved in any
such accident, the provisions of this section shall not apply.”
Section 71(2) of the Act states that,
“Without prejudice to any other mode of proof, it is sufficient evidence
of proof of loss or damage for the purpose of this section –
(a) Where only one person is
involved in the accident, the person delivers a statement of the facts
to the insurer concerned together with a statement of an eye witness to
the accident, if any; or
(b) Where more than one person
involved in the accident, each person delivers a statement of the facts
to the insurer or insures concerned and the alleged facts do not differ
in any material particular.”
Section 71(3) of the Act states that,
“Nothing in this section shall be construed as implying that a police
report is not required in the case of claims arising from car theft.”
Comment: Where an accident
involves material damage alone it shall not be necessary for the insured
to report the accident to the police and obtain a police report
provided there is sufficient evidence of proof of the damage. Sufficient
proof of the accident can be satisfied by the statement of eye
witnesses or by photographs of the accident. However, where the accident
involves death or bodily injury to any person the accident must be
reported to the police and the insured must obtain a police report.
Also, where a vehicle is stolen the loss must be reported and the
insured must obtain a police report. Failure to obtain a police report
in such cases will adversely affect the claims of the insured.
3. CONCLUSION
Where an insurance company either fails
to settle a claim without good reason or violates any of the provisions
of the Insurance Act, the insured may report the matter to the National
Insurance Commission or bring a criminal complaint against the insurance
company for any of the offences created by the Insurance Act. However
it is always advisable to seek legal advice before taking any further
action.
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