The Insurance Act 2003 & Compulsory Insurance

This article 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. 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. 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.