Excerpt
2
Table of Contents
1. ABSTRACT ... 1
1.1.
INTRODUCTION: ... 3
1.2.
SETTLEMENT OF INSURANCE CLAIMS UNDER SECTION 69 OF THE INSURANCE ACT, 2003 ... 4
1.3.
THE ERROR OF LEGISLATIVE PARADOX ... 6
1.4.
THE ERROR OF MISAPPROPRIATION ... 8
3
1.1. INTRODUCTION:
Settlement of insurance claim is the crux of an insurance contract
3
. This is the payment of
insurance proceeds by the insurer to the insured in satisfaction of a claim within the guidelines
stipulated under the insurance policy after the satisfaction of preliminary requirements
4
such as
notice, proof of loss, and measurement of loss
5
. At common law, failure to satisfy the
requirements where the risk insured against occurs absolves the insurer of liability especially
where they are conditions precedent
6
no matter how serious the risk. Risk is the motivating factor
in insurance contracts. Risk in insurance law connotes uncertainty, thus, a person who is to face
the risk (the insured) transfers it to another (the insurer). Hence, there is an element of
relationship created between the insurer and the insured. Therefore, the legal regime of insurance
refers to the body of rules that regulate interactions and dealings in insurance such as the creation
of the relationship, the running of the relationship and the termination of the relationship;
whereupon a successful operation of the industry would be better enhanced with a more effective
legal regime governing insurance transactions.
In Nigeria, there are some legal instruments (legal regime) actually governing insurance
transactions but they leave much to be desired in their applications. For example, the Insurance
Act, section 69(2)C(ii) thereof, and section 10 of the Motor-vehicle (Third Party Insurance) Act
among others. This paper will examine the relevance of these provisions among others as they
relate to settlement of insurance claims. The objective is to expose the flaws of these applicable
statutes, and pontificate some of the principles ironically bedeviling the growth of the insurance
3
J. O. Irukwu, Insurance Law and Practice in Nigeria, Revised Edition, (Heinemann Educational Books: Ibadan,
1991), p. 121
4
Olusegun Yerokun, Insurance Law in Nigeria, (Emmanuel Center: Lagos, 1992), p. 185
5
Ibid
6
Sidney Preston and Raoul P. Colinvaux, The Law of Insurance, 2
nd
Ed., (Sweet & Maxwell: London, 1961), p. 141
4
industry through a hindered claims procedure and eventually make useful recommendations
where necessary for an improved settlement of insurance claims practice in Nigeria.
1.2. SETTLEMENT OF INSURANCE CLAIMS UNDER SECTION 69 OF THE
INSURANCE ACT, 2003
The Act provides to the effect that even though the insurer would have ordinarily been
able to avoid liability to compensate an insured for an insured loss, the insurer is notwithstanding
bound to pay or settle the claim, i.e pay the sum payable to the person entitled to the benefit of
that judgment within 30 days of delivering the judgment
7
and the sum may be payable to the
beneficiaries of a life policyholder
8
. However, the insurer must have been notified of the
bringing of the proceeding leading to the judgment within seven days of the commencement of
such proceeding else the insurer will not be liable
9
. Also, if the execution of the judgment is
stayed or the judgment is appealed against and the appeal is pending, the insurer would not be
bound to pay within the stipulated period
10
.
The insurer will not be compelled to pay where before the happening of the event which
gave rise to the legal action against it, the policy of insurance is cancelled by mutual consent of
the parties or by virtue of any reason contained in the policy
11
. Further to this, if before the
happening of the event which gave rise to the proceeding, the certificate of insurance has been
7
Section 69(1)a & b, we shall return to this provision shortly.
8
Section 69(6)
9
Section 69(2)a
10
Section 69(2)b
11
Section 69(2)c
5
surrendered to the insurer or a declaration has been made to the effect that the certificate of
insurance has been lost and could not be surrendered the insurer will not be bound to settle
12
.
Subsection 3 of section 69 adds escape routes for the insurer, apart from the two grounds
above on which an insurer can cancel and avoid a policy viz; by mutual consent or by the terms
of the policy, if the insurer obtains a declaration within three months of the commencement of
the proceeding leading to the judgment against the `insured'
13
that it is entitled to avoid the
policy on grounds other than as provided under the policy, bordering on non-disclosure or
misrepresentation of material facts, the insurer will still not be bound to pay. Where a proceeding
for settlement of claims has been initiated against the insurer before instituting this action for
declaration, the insurer cannot benefit from any declaration in its favour if it did not notify the
claimant (who may be joined in the suit
14
) of its own action for declaration against him (the
claimant) and the grounds on which it relies, within seven days of commencement of that
action
15
.
Section 69(3)b stipulates that the insurer will be able to escape liable to pay
notwithstanding a judgment against `the insured' if "the insurer has avoided the policy on the
ground that he was entitled to do so apart from any provision contained in `the policy
'16
. With all
due respect to The Parliament, it is submitted that section 69(3)b is of no comprehensible
essence. It seems to suggest that the insurer can decide to avoid liability for any reason as it
deems fit whether or not it is contemplated and contained in the policy. The grounds, apart from
12
Section 69(2)(c)i
13
Note that the emphasis has been repeatedly used with respect to the word, `insured' in this provision to convey
that it is a misnomer within the context of that section of the Insurance Act, 2003. More light will be shed on this
point subsequently.
14
Section 69(5)
15
Section 69(4)
16
Emphasis supplied
6
those stipulated under the policy on which the insurer can avoid liability notwithstanding a
judgment against `the insured' have been clearly spelt out under the Act. It is submitted here that
it is of much equitable appeal to set the expandable limits of the insurer's discretion to that range.
1.3. THE ERROR OF LEGISLATIVE PARADOX
Section 69(2)(c)(ii) seems not to be clear on another instance where the insurer may not
be liable. It provides that no sum shall be payable by the insurer;
(c) in connection with any liability, if before the happening of the
event which gave rise to the liability, the policy was cancelled by
mutual consent or by virtue of any provision contained therein and
(ii) before or `after' the happening of the event `or' within a
period of 14 days from the taking effect of the cancellation of the
policy, the insurers had commenced the proceeding under this Act,
in respect of the failure to surrender the certificate of insurance.
The grayness arises as a result of the use of the words, `after' proceeding the phrase,
`before or' and the word, `or' preceding the word, `within' in subparagraph (ii) of paragraph (c)
of subsection (2) of section 69. The circumstance under contemplation is clearly the occurrence
of the risk insured against on account of which the claimant has proceeded to court. 14 days also
clearly refers to the 14 days immediately following the cancellation of the policy of insurance.
Cancellation of policy under this provision is vividly premised on clear grounds thus;
where the parties have mutually agreed to cancel the policy, and where the policy stands
cancelled by the operation of the terms of the policy. Where a policy of insurance is cancelled,
the insured is required to surrender his certificate of insurance to the insurer or make a
7
declaration in lieu of the surrendering of the certificate, failure to do so, the insurer may exercise
his right of action against the insured for failure to surrender the policy. It is not clear why a risk
would have occurred and the parties would be considering or entitled to a cancellation of the
policy, which appears to be the purport of the provision by the use of the words, `after the
occurrence of the event' (the event being the event which gave rise to the proceeding from which
the judgment against the `insured' was obtained), rather than considering the issue as to whether
or not the insurer is liable to pay.
The complexity is further compounded by the subsequent sentence, `...or within 14 days
from the taking effect of the cancellation of the policy...' If this sentence is removed from the
clause by way of disjunctive reading because of the presence of `or' opening the sentence and a
comma being placed after the sentence, the provision would read that no sum shall be payable by
the insurer if "...after the happening of the event the insurer had commenced the proceeding
under this Act, in respect of the failure to surrender the Certificate of insurance". that way, it
seems to suggest that where a policy of insurance is cancelled but the certificate of insurance has
yet to be surrendered to the insurer, the insurer has an open lifeline to commence proceedings
against the insured to surrender the certificate of insurance at anytime after the occurrence of the
risk but before judgment is obtained against the insurer. But, by the insertion of the words `...or
within 14 days from the taking effect of the cancellation of the policy...', it is not clear whether
or not it is meant to limit the time within which the insurer must have commenced proceeding
against the insured for the surrendering of the certificate of insurance else it will still be liable. It
appears that it is meant to limit the time within which the insurer must have commenced an
action for the surrendering of the certificate of insurance else it will still be liable `to pay the
person entitled to the benefit of that judgment' notwithstanding the judgment against the
8
`insured'. The incident is that one part of a clause gives an unlimited access while the other part
of the same clause places a limitation of 14 days, an unwarranted legislative paradox.
It is therefore suggested that it makes a better meaning to construe the word `or'
preceding the words `within 14 days...' in section 69(2)(c)(ii) to mean `but' so that it reads thus;
before or after the happening of the event `but'
17
within a period of
14 days from the taking effect of the cancellation of the policy, the
insurers had commence the proceeding under this Act, in respect of
the failure to surrender the certificate of insurance.
1.4. THE ERROR OF MISAPPROPRIATION
The Insurance Act, 2003 was enacted essentially to correct the apparent inadequacies of
existing insurance laws and at the same time inject a proclivity for anticipative legislation. It
makes elaborate provision relating to the operation of insurance business in Nigeria. However, in
relation to settlement of claims, Section 69 was an inordinate importation from the provision of
section 10 of the Motor Vehicles Third Party Insurance Act, 1950. The error originated from the
1976 Insurance Decree, and carried through the 1988, 1991 and the 1997 Insurance Acts and
maintained in the 2003 Insurance Act. The said section 10 stipulates in part:
If after a certificate of insurance has been delivered under the provisions of sub-
section (4) of section 6 of this Act to the person by whom a policy has been
effected, judgment in respect of any such liability as is required to be covered by a
policy issued under the provisions of paragraph (b) of subsection (1) of section 6
of this Act, being a liability covered by the terms of the policy, is obtained
against any person insured by the policy then, notwithstanding that the insurer
may be entitled to avoid or cancel or may have avoided or cancelled the policy,
the insurer shall, subject to the provisions of this section, pay to the persons
entitled to the benefit of such judgment any sum payable thereunder in respect of
the liability including any sum payable in respect of costs and any sum payable by
virtue of any written law in respect of interest on that sum or judgment.
17
Emphasis added, the amendment is highly recommended.
9
Section 69 of the Insurance Act, 2003 provides in part:
where (a) civil proceedings are taken in court in respect of any claim relating to
any risk required to be insured against under this Act or any other law; and (b) a
judgment is obtained against the person insured then, not withstanding that the
insurer may be entitled to avoid or cancel or may have avoided or cancelled the
policy, the insurer shall subject to this section pay to the person entitled to the
benefit of such judgment the sum payable (including cost and interest sum) not
later than 30 days from the delivery of such judgment.
The italicized parts of the two provisions are essentially the same. The Motor Insurance
Act was an Act to provide for third party risks arising out of the use of motor vehicles and
section 10 is devoted to ensuring that the third party who the Act is meant to protect receives
payment. Where a subsisting Motor insurance covers a particular liability insured against and a
judgment is obtained against the insured by a third party, notwithstanding that an insurer by
virtue of the judgment, may be entitled to avoid or have avoided or cancel or have canceled the
policy, the insurer still have to, as a matter of compulsion pay the person entitled to the benefit of
that judgment the sum payable thereunder.
One of the question that may be asked from this provision is who is the person entitled to
the benefit of that judgment i.e the judgment creditor? Is it the insurer who is usually a co-
defendant with the insured, or the insured who judgment is obtained against, or the third party
who more often than not is the plantiff/claimant? The person entitled to the benefit of that
judgment is the third party who has suffered a loss arising out of the use of motor vehicles by the
insured, who the Act sets out to protect. Therefore, the import of that section is that the innocent
third party should never be left empty handed even though the insured is at fault and judgment is
given against the insured in a motor vehicles third party insurance policy. It is entirely for, and
10
leans in favour of third parties. The poser for the drafters of section 69 of the Insurance Act,
2003 is where there are no third parties in an insurance contract, how can the provision apply?
It is commendable that the legislature in 1976 deemed it necessary to introduce a separate
provision for settlement of insurance claims but it could have done better than lifting the words
in a statute specifically designed for Motor Insurance third party claims into a legislation meant
to serve virtually all insurance purposes.
The progression of the development of that provision particularly might be interesting to
chronicle; section 43 of the 1976 Act and section 54 of the 1988 Insurance Decree purported to
relate to `any claim' yet couched in the manner that they were, later in 1991 the Parliament
realized who the provision were actually meant to serve and used the words in section 59,
`arising from the use of motor vehicles' yet it was contained in an omnibus statute meant to serve
general insurance purposes, in 1997, it was still made clear in section 73 that the provision only
applied to `any claim relating to the death of or bodily injury to any person caused by or arising
from the use of a motor vehicle covered by a policy of insurance'. However, in the extant Act of
2003 the National Assembly decided to blur the import of that provision in section 69 by using
the words, with regard to the same provision, `any risk required to be insured against under this
Act or any other law' without changing the model of the body of that provision. Hence, the
provision superficially purports to be equally applicable to all policies of insurance.
It is not all claim disputes that involve a third party as a victim of the risk. Where there
are no such third parties can the insured lay claim to the benefit of that judgment notwithstanding
that it is obtained against him since it can be argued that the interest of the third party is
reminiscent of the interest of the insured, hence, in the absence of the third party, the insured is
11
entitled to the benefit of the judgment against himself? It is imponderable that the legislature
intended such absurdity. Thus, the approach of the court over the years has been to regard that
the judgment is obtained against the insurer and the insured to be the person entitled to the
benefit of that judgment and by extension, his beneficiaries, privies and assigns. It submitted
that the time is ripe for the legislature to put the words in their right positions.
The above examined section 43 of the Insurance Decree, 1976, now section 69 of the
Insurance Act, 2003 is a vivid reproduction of section 10 of the Motor Vehicles Third Party
Insurance Act, 1950. The Motor Vehicles Third Party Insurance Act, 1950 was modeled after the
1942 English Motor Vehicle Third Party Insurance Act. However in 1972, England exported that
provision and amended it in the Road Traffic Act, Part VI. Section 149 of the Act provides:
(1) If, after a certificate of insurance or certificate of security has been delivered under
section 147 of this Act to the person by whom a policy has been effected or to whom a
security has been given, judgment in respect of any such liability as is required to be
covered by a policy of insurance under section 145 of this Act (being a liability covered
by the term of the policy or security to which the certificate relates) is obtained against
any person who is insured by the policy or whose liability is covered by the security, as
the case may be, then, notwithstanding that the insurer may be entitled to avoid or
cancel, or may have avoided or cancelled, the policy or security, he shall, subject to the
provisions of this section, pay to the persons entitled to the benefit of the judgment any
sum payable thereunder in respect of the liability, including any amount payable in
respect of costs and any amount payable in respect of interest on that sum by virtue of
any enactment relating to interest on judgments.
(2) No sum shall be payable by an insurer under the foregoing provisions of this section
(a) in respect of any judgment, unless before or within seven days after the
commencement of the proceedings in which the judgment was given, the insurer had
notice of the bringing of the proceedings; or
(b) in respect of any judgment, so long as execution thereof is stayed pending an
appeal; or
(c) in connection with any liability, if before the happening of the event which was the
cause of the death or bodily injury giving rise to the liability, the policy or security was
cancelled by mutual consent or by virtue of any provision contained therein, and either
12
(i) before the happening of the said event the certificate was surrendered to the insurer,
the person to whom the certificate was delivered made a statutory declaration stating
that the certificate had been lost or destroyed, or
(ii) after the happening of the said event, but before the expiration of a period of
fourteen days from the taking effect of the cancellation of the policy of security, the
certificate was surrendered to the insurer, or the person to whom it was delivered made
a statutory declaration as aforesaid; or
(iii) either before or after the happening of the said event, but within the said period of
fourteen days, the insurer has commenced proceedings under this Act in respect of the
failure to surrender the certificate.
These provisions of the English law has been deliberately reproduced to show, first, that
it was originally intended to serve third party interest in a third party insurance policy and that
the legislature fell into grievous error in 1976 while importing the provisions of the Motor
Vehicle Third Party Insurance Act, 1950 hook, line and sinker without taking cognizance of the
enactment that has occurred in England just four years earlier (1972). The England 1972 Act
reflects our proposition in its section 149(2)c(ii)and(iii) regarding the use of the word `or' in the
provisions of section 69(2)C(ii) of the insurance Act, 2003, and section 10(2)C(iii) of Motor
Insurance Act.
In conclusion, It is particularly perturbing that four successive Insurance Acts have been
passed and the National Assembly is yet to detect and correct that defect in our laws, even more
nauseating is the fact that an ought-to-be-more-proficient legislature in 2003 carried this
ineptitude to an extreme post by entirely removing any recollection suggesting who the provision
was indeed meant to serve, a salient element that the previous lawmakers did not overlook, and
the courts have continued to apply the sections as though they are flawless. Giving the literal
interpretation of those provisions, they are practically inapplicable.
Excerpt out of 12 pages
- Quote paper
- Obinna Ilechukwu (Author), 2016, Nigeria's Insurance Act of 2003. The True Import of Section 69 and its Legislative Paradox, Munich, GRIN Verlag, https://www.grin.com/document/334838
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