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Chuks Udo Okonta
Understanding laws governing insurance practice and adhering to them has remained a major challenge to the growth and development of the underwriting industry.
To ensure practitioners operate according to stipulated laws, the insurance industry regulator, National Insurance Commission (NAICOM) has continued to issue guidelines; circulars; regulations amongst others.
Aligning with regulator’s efforts, a former Director of NAICOM Dr. Sam Chukwuka Onyeka, has written a book titled; Essentials of Insurance Law, in a simple language to provide insurance practitioners and readers with a solid “feel” of the relevant laws and principles.
The 214 pages book has a cover price: 7,500.
PREFACE
Although Insurance as a field of learning has existed for some time, Insurance Law as a separate subject is only fledgling. This explains the reason for the near absence of clear and definitive texts on the subject. As someone who has traversed the entire segments of insurance practice, including as practitioner, regulator, teacher, researcher, and publisher, I have over the years observed the dare need for an exploratory text on Insurance Law in Nigeria. This book has become my immediate response to this felt-need.
The intention in this book is not to be rigorous, but merely to provide the reader with a solid “feel” of the relevant principles. While this book is focused on Nigeria, deliberate references have been made to cases decided in other jurisdictions, where locally decided cases on particular principles are either scanty or do not exist.
This book is written in plain English language, to suit the needs of the diverse audience.
Also, its contents have been systematically arranged in such a way as to ensure that each succeeding chapter presents a new and distinct idea, thus guaranteeing a sustained reader appetite until the end.
Chapter 1 explains the nature of insurance and insurance law.
Chapter 2 explains the basic ingredients of insurance contract.
Chapter 3 reviews the evolution of insurance business in Nigeria.
Chapter 4 analyses the existing configuration of the insurance industry in Nigeria.
Chapter 5 identifies the legal and institutional framework for insurance business in Nigeria.
Chapter 6 evaluates the major sources of insurance law in Nigeria.
Chapter 7 attempts a brief classification of insurance business.
Chapter 8 reviews the basic principles of insurance law.
Chapter 9 deals with assignment of insurance contract. Chapter 10 explains the nature of reinsurance and identifies the legal implications.
Chapter 11 explains some salient legal issues around insurance claims settlement.
Chapter 12 reviews existing insurance dispute resolution methods.
Chapter 13 analyses some important decisions of courts in Nigeria affecting insurance contracts, especially those which are based on interpretation of Section 50 of the Insurance Act 2003.
Chapter 14 reviews the regime of compulsory insurance policies in Nigeria.
Chapter 15 explains the nature of financial inclusion insurance, and discussed some legal issues around microinsurance and takaful.
Chapter 16 examines the various component parts of a typical insurance policy.
Chapter 17 analyses the methods of construction of insurance contracts, and paying particular attention to the contra proferentem rule.
Chapter 18 scrutinises the courts with jurisdiction on insurance matters. Chapter 19 summerises the main ideas in the book and also formally concludes it.
This book adopts the standard referencing style of the Law Teachers Association of Nigeria (LTAN). The law on this subject has been stated as at 31 September 2023.
INTRODUCTION
In year 2000, the Nigerian insurance industry entered the early maturity stage in its historical trajectory.
Expectedly, this current stage of the insurance industry’s development, which typically is signified by several ongoing reform initiatives, including by the reform of the industry’s legal framework, will engender the much-awaited revolution in the sector.
Despite this changing reality of the insurance industry, most Nigerians are still unfamiliar with the idea of insurance. Even the few elites, who parenthetically are aware of it, seem to have only little faith in the local insurers, and would rather personally assume their private and business risks. This apparent knowledge gap and the seemingly public apathy for insurance protection have generally limited the growth and development of both the insurance industry and insurance law in Nigeria. This book has been inspired generally by the need to help generate public awareness about insurance in Nigeria, and in particular, to engender lasting appetite for insurance law.
In this book, the reader will find thoroughly explained, the concepts of “Insurance” and “Insurance Law”. The real utility of insurance lies in its ability to enable the transfer of risk from one individual to another, or sharing of losses on an equitable basis, by all the members of a defined group. The mechanism of insurance allows individuals, businesses and other entities to protect themselves against potential losses and financial hardship. It enables a large group of people who desire to insure against particular losses, to deposit some premiums into a definite insurance pool. By combining a large number of homogeneous exposures, the insurers are able to make predictions regarding the maximum loss that will arise out of an insured event or series of insured events. After many years of experience, the insurers have learnt how to operate profitably and be able to settle the claims which may arise during a particular insurance period.
Insurance has been defined in this book from a purely legal perspective, as a contract between the insurer and the insured by which the insurer, for valuable consideration undertakes to indemnify the insured or his legal representative, upon death or injury to life assured or upon the happenings of a specified event, within a specified period. Also, insurance is explained in this book as a financial business which is currently undertaken by professional and highly regulated financial service providers.
Insurance is typically a legitimate business transaction, and more specifically a contract. Like other financial services providers, insurers engage in financial intermediation, especially when they offer life insurance and other benefits policies. The difference between the premiums received by insurers and claims they paid out to the insured constitutes their income. Insurers also earn income by way of interests on their investments.
In this book, the reader will discover that insurance law is practically a product of the accident of human history.
The early merchants who were parties to insurance contracts realised soon afterward that they had created a novel trade or business for which they did not find any sufficient legal framework or rules in the existing laws. In a planned response, they created their own lex mercatoria (business law) by launching a set of clauses that would slowly evolve into lex assecurationis (insurance law). As a peculiar business which is founded on uncertainty, insurance business has endured the misfortune of operating outside the mainstream of business and more notably, has remained in a rather marginal legal position.
Understandably, therefore, early insurance law was scanty and for the most part, involved contractual terms and conditions of the insurance policies, unilaterally drafted by insurers in a sphere of barely limited freedom of contract. Similarly, the minute regulation, in the sense of a public law framework of insurance business, had existed in corporate charters, codes of professional ethics, and in some relatively unpredictable views on the insurance business held by some common law judges.
Insurance law has been employed in this book as the law that regulates insurance contracts and related transactions within the insurance industry. Insurance practice is largely predicated on the general law of contract. Over the years, however, insurance practice has attracted several principles of its own, such that it is now fashionable to make allusion to insurance law.
The essential elements for an insurance contract are explained in this book. These include consensus ad idem, consideration, capacity, insurable interest and utmost good faith. The absence of any or all of these essential elements of a contract of insurance may render the contract empty and unenforceable.
This book traces the origins of modern insurance contract to the practices adopted by the Italian merchants from the fourteenth century onwards. Marine risks (the risk of losing ships and cargoes at sea) was the basis for the development of medieval insurance, which dominated insurance for several years. The evolution of insurance business has been traced through England and subsequently to Nigeria.
This book explains the composition of the insurance industry in Nigeria. The insurance industry in Nigeria is composed of the insured, insurers, intermediaries, and some relevant market associations. The insured include private individuals, corporate bodies, governments, government agencies, clubs and unions. Insurers include reinsurers, who underwrite risks at different configurations. The primary underwriters are also known as direct insurers or the ceding offices. Reinsurers are secondary underwriters and their major role is to support the underwriting capacities of the direct insurers. Insurance agents include the ordinary agents and the brokers or the professional agents.
The main insurance market associations include Nigerian Insurers Association (NIA), Nigerian Council of Registered Insurance Brokers (NCRIB), Institute of Loss Adjusters (ILAN) and Association of Registered Insurance Agents (ARIAN). Also, given their grassroots capacities, non-governmental organisations (NGO’s) can support the insurance industry development.
The extant legal and institutional framework for insurance business in Nigeria are thoroughly analysed in this book. The legislation which directly and indirectly affect the operation of the insurance industry in Nigeria include Insurance Act 2003, National Insurance Commission Act 1997, CBN Act 2007, CAMA 2020, BOFIA 2020, Investments and Securities Act 2007, Pension Reform Act 2014, National Health Insurance Authority Act, 2022, Companies and Allied Matters Act, 2020, Financial Reporting Council of Nigeria Act, 2011, Economic and Financial Crimes Commission (Establishment) Act, 2004; Finance Act, 2020; Money Laundering (Prevention and Prohibition) Act, 2022; and Terrorism (Prevention and Prohibition) Act, 2022.
The primary institutions that drive the operation of the insurance industry in Nigeria include Pension Commission (PenCom), Central Bank of Nigeria (CBN), Securities and Exchange Commission (SEC), Economic and Financial Crimes Commission (EFCC), Federal Inland Revenue Service (FIRS), Corporate Affairs Commission (CAC), Federal Competition and Consumer Protection Commission (FCCPC), and National Health Insurance Authority (NHIA).
This book identifies the major sources of insurance law in Nigeria. These include the common law, doctrines of equity, and statutes of general application which were in force in England on the 31st of December 1900. Other sources include Nigerian statutes, case laws, and the opinions of some respected text writers.
The Insurance Act 2003 has reclassified insurance business into two broad categories namely; life insurance business, and general insurance business. Other classes of insurance business include cooperative insurance, microinsurance, takaful, and captive insurance.
Over the years, some insurance law principles have become crystallised. While some of these principles relate to formations of insurance contract, others are only relevant during claims settlement. These principles are: indemnity, utmost good faith, insurable interest, contribution, subrogation, and proximate cause.
Assignment is a legal concept and it describes the process whereby an individual, the “assignor,” transfers rights, property, or other benefits to another known as the “assignee.” This concept is used in both contract and property law. In this book, assignment has been reviewed specifically in relation to insurance contract.
For the purposes of regulation and supervision, insurers and reinsurers are classified together but definitely, reinsurers perform distinct role in the insurance value chain. This critical role of reinsurance has been thoroughly evaluated in this book.
From the insured’s perspective, the incentive for taking out an insurance policy is the reasonable expectation that the insurer will promptly settle genuine claim in the event of loss insured against occurring. Most Nigerians have been led to accept the wrong notion that insurance is a fraud hence they are unwilling to patronise the insurers. Restoring the image of the Nigerian insurance industry will require among other things, guaranteed prompt settlement of all genuine claims. This book contains a review of some salient legal issues around insurance claims settlement in Nigeria.
Insurance is easily the most litigated subject matter around the world. In insurance transactions, disputes are bound to arise. Beyond the desired settlement of these disputes, the means of settlement and the period within which these disputes can be resolved are important considerations for the stakeholders. The primary method of settling insurance disputes is litigation, but it seems that arbitration and other alternative dispute resolution methods (ADRs) are becoming popular in the insurance industry in Nigeria. This book explains the idea of litigation and reviews the available alternative dispute resolution methods in Nigeria.
Law making is properly the province of the legislature.
However, Judges are known to make law when they interpret the provisions of national constitutions and when they construct certain provisions of an existing legislation. As part of reflecting the role of the judiciary in the development of insurance law in Nigeria, some important decisions of the courts affecting insurance contracts have been analysed in this book, with particular emphasis on Section 50 of the Insurance Act 2003.
Certain types of insurance policies have been made compulsory by law, although they need not be. In Nigeria, insurance policies which have been made compulsory by law include, motor vehicle (third party) insurance; insurance of import; group life assurance, insurance of public buildings, insurance of buildings under construction, and medical professional indemnity insurance.
Financial inclusion products are products designed for the protection of low-income people. In many jurisdictions, there are strong evidence that these products are helping the poor to cope with and recover from financial losses. The primary channels for financial inclusion insurance in Nigeria are microinsurance and takaful. This book explores the nature of financial inclusion insurance products and identifies some legal issues involved in their processes.
The document in which a contract of insurance is contained is known as the policy. In this book, all the component parts of a typical insurance policy have been analysed. Finally, in this book, the reader will be taken through the methods of interpreting an insurance contract, with emphasis on the contra proferentem rule.
FOREWORD
I consider it a privilege to have been invited by Dr. Sam Chukwuka Onyeka, to write a foreword to his book, Essentials of Insurance Law.
This book is very timely, especially having to coincide with the reactivation of the Market Development and Restructuring Initiative (MDRI) of the National Insurance Commission (NAICOM).
For several years, the insurance industry in Nigeria has struggled under the burden of public apathy. While the majority of the people are unfamiliar with the idea of insurance, the few elites in the society, who are aware of insurance, do not seem to trust the local underwriters, and therefore, would generally feel reluctant to identify with the industry. Current statistics available at NAICOM shows that just about one percent of the over 200 million Nigerians have any form of insurance protection.
This poor image of the insurance industry in Nigeria has largely discouraged the growth and development of insurance and insurance law in the country.
This book is therefore very instructive. It aims to assist in the noble task of creating insurance awareness in Nigeria. Also, it seeks to provide the much-needed guidance on the relevant principles of insurance law, with a localised appeal. This book is, therefore, an ideal learning resource on the subject.
I dare state that, the unique nature of this book stems from the author’s blend of his rich academic background, deep and practical knowledge of the insurance industry in Nigeria, and his reasonable exposure to the global insurance universe.
I am confident that this book will be a welcome addition to the growing library of resources on the subject, with particular reference to Nigeria.
I heartily commend this unique text to lawmakers, regulators, academics, public servants, lawyers, business professionals, and all members of the reading community, who desire to update their knowledge on this exciting subject.
Talmiz Usman, PhD.,
Deputy Director and Head Legal Services,
National Insurance Commission.
Abuja.
September, 2023.
