Topic 3 - Formation Of insurance contract Flashcards
Leadway Assurance v JUC ltd
There is only a contract of insurance where there has been an unqualified acceptance by one party of an offer made by the other party.
Fact: A company (appellant) claimed it had a marine insurance contract with another (respondent) for imported fish lost at sea. The respondent denied liability, arguing the goods were already lost when the contract was made and that premium hadn’t been paid before the loss. The appellant sued, initially winning, but the Court of Appeal overturned this, citing Section 50 of the Insurance Decree of 1997, which requires premium payment for a valid insurance contract.
The appellant appealed to the Supreme Court, arguing the lower court erred and that Section 50 didn’t override Section 23 of the Marine Insurance Act of 1961 (which allows contract formation upon acceptance of a proposal, regardless of policy issuance).
The Supreme Court upheld the Court of Appeal’s decision. It held that Section 50(1) of the Insurance Act 1997 makes premium payment a condition precedent for a valid insurance contract, superseding Section 23 of the Marine Insurance Act 1961. The Court emphasized that a contract only exists with unqualified acceptance of an offer, and non-payment of premium (even if other steps are taken) is merely an intention to contract, not a valid contract itself. They stated that where a law states no cover exists without prepaid premium, the contract is void without prepayment. They defined premium as payment to keep a policy alive and marine insurance as indemnity against sea-related damage to ships, cargo, or profits.
General Accident Insurance Corporation v Cronk [1901]
The proposalform that the applicant completed did not contain some terms that were in the policy hesubsequently received. He declined to pay the premium, arguing that the sending of the policywith different terms was merely a counteroffer that he chose not to accept. It was held that hewas liable for the premium as parties to the contract are not required to have reached anagreement on every single term in the policy but rather need only show that there is consensusad idem on the essential matters of agreement.
Eseiwe v Aseimo
Principles:
(1) Except for marine insurance contract, other insurance contract need not be in writing. It may be oral and remains valid.
(2) An insurance contract need not contain all the terms of insurance, it suffice that it contains all the Essential terms and they as follow;
(1) The identity of the parties: who is the insured? (nowhere more than one insured)
(2) The identification of the subject matter of the insurance - is it life, motor vehicle, etc
(3) The description of the risk or peril insured against, e.g. fire or injury
(4) Agreement on the amount of premium payable, the mode of payment and the periodicity of payment.
United Nigeria Insurance Corp v. Fadco Industries ,
Principle: An insurance contract need not contain all the terms of insurance, it suffice that it contains all the Essential terms and they as follow;
Fact: UNIC offered to insure Fadco’s machinery for transit and fire risks in a letter dated June 19, 1986, stating the premiums for each. The letter also stated they considered Fadco “covered” and requested payment. Fadco paid the requested amount on June 20th and received a receipt. On June 25th, the machinery was damaged during transit. UNIC denied the claim, arguing no binding contract existed at the time of the accident because the terms hadn’t been fully agreed upon.
The court held that UNIC’s June 19th letter constituted an offer to insure and cover Fadco’s goods. The court emphasized that, except for marine insurance, insurance contracts need not be in writing. An oral contract is valid if there’s a clear intention to create a contract and the essential terms are agreed upon. The payment and acceptance of the premium solidified the agreement, meaning a binding contract existed even before a formal policy was issued. Therefore, Fadco’s claim was valid.
Murfit v Royal Assurance
Definition: Acceptance is any positive act indicative of the intention the create a contract.
Fact: Murfit v Royal Insurance Company Ltd, it was held that a letter from the head office of the company indicating that cover had been extended in a particular situation constituted a cover note. The cover note operates as a contract between the proposer and the insurer on the terms and conditions embodied therein or imputed from the type of the policy applied for. The insured is entitled to enforce the contract evidenced by a cover note should the risk attach. If the document is comprehensive the insured recovers on the basis on its terms and conditions, if not he recovers on the terms of the policy applied for. The cover note is ordinarily effective for 30 days. Under section 75 of the Stamp Duty Act a policy should be insured within 30 days of receipt of the proposal form. However in practice its duration varies. If the insurer declines to take the risk such refusal must be communicated to the proposer so as to bring to an end the effect of the cover note
Canning v Farquhar
Fact: the deceased completed a proposal
form for life insurance. The risk was considered and approved by the insurers, but the acceptance was made subject to the condition that “no assurance can take place until the first 5 premium is paid.” Before the premium was paid, the deceased fell over a cliff and suffered serious injuries. The premium was thereafter tendered and the company was informed of the changed circumstance. The company refused to accept the premium. The deceased died. His administrator sued the company claiming that a contract to insure had been made on the day the actuary wrote that the proposal was “accepted”
The question that needed an answer therefore was whether or not a binding contract of insurance had been concluded at the time of the deceased’s death. It was unanimously held by the Court of Appeal that there was no contract before the premium was tendered. According to Lindley J The change in the risk released the company from any obligation to accept the premium when tendered.
Allis-Chalmer v Maryland Fidelity
A company applied for fidelity insurance for their Paris manager. The application stated the policy would be effective from the date of issue. The defendants approved the application on March 5th, 1912, and executed the policy on March 8th, sending it to the Paris office on March 9th. Due to a request, it was redirected to the London office, where the defendants requested premium payment on March 18th. The premium wasn’t paid, and the policy wasn’t received by the plaintiffs until April 18th. Meanwhile, the Paris manager left on April 13th, and by April 18th, it was suspected he had absconded with funds, which was later confirmed. The plaintiffs’ claim was rejected by the House of Lords because no agreement on the premium or other essential contract terms existed before April 18th. By then, the loss had already occurred and should have been disclosed, invalidating the claim.
Rust v Abbey Life Assurance
The defendant company refused to settle the claims of the assured (plaintiff) which under the contract had become mature. This was based on a claim of misrepresentation on the part of the Assured in the proposal form.
However, it was held that the proposal had been accepted by conduct whether or not there was a misrepresentation, since it was kept for 7 months without any challenge against the binding effect of the contract.
Taylor v Allon
Principle: A cover note is not an acceptance of an insurance proposal but a separate contract. This, an insurance applicant who has obtained a cover note is not precluded or restrained from obtaining an insurance cover from another competitor
Mackie v European Assurance Society
The agent of the defendant insurance company later became the agent of the plaintiff and upon the expiration of the plaintiff insurance policy, granted the plaintiff an insurance cover note in the business of the defendant of whom he is an agent to.
While the defendant argues that they where not bound, the court ruled that the agent had an implied and an apparent authority to issue cover notes since the defendant company has expressly granted its cover note to the agent for a period of two years with the assent of his superiors.
Thus, the contract is valid and binding.
Northern Assurance Co. Ltd u Wuraola Ltd,
The insured signed a proposal form for the insurance of his motor vehicle. By the signature, he agreed to accept a policy subject to the terms, provisions and conditions of the company’s standard policy. He received a cover note by which the risk was held covered “on the terms of the company’s usual form of policy.
Subsequently, he received a certificate of insurance. No policy was delivered to him. The insured vehicle was involved in an accident while being driven by a driver. A term of the policy required the insured to give the “insurers notice of any impending prosecution in respect of any occurrence which might lead to a claim. The driver of the vehicle was prosecuted and convicted, but no notice was given to the insurers because the insured was unaware of such a term. The insurers repudiated liability for breach of the notice condition. The insured instituted an action against them. The trial judge gave judgment in favour of the insured but the Supreme Court reversed that decision on the ground that the pertinent question was whether the plaintiff was bound by the terms and conditions of the policy and not whether or not he had a copy of that policy.
Yorkshire Insurance Co. Ltd u Haway
The defendant completed a proposal form for a comprehensive insurance of a number of vehicles with the plaintiffs. He was given a cover note in respect of the vehicles and later also a certificate of insurance. Neither the cover note nor the certificate contained any conditions or terms. One of the insured vehicles was involved in an accident leading to injury to a third party. The plaintiffs settled the claim and then sued the defendant for an indemnity on the ground that he failed to notify them immediately according to a condition of the policy. Adefarasin J. (as he then was) held, at first instance, that the defendant was not liable to refund the money paid by the plaintiffs because he could not have known of the alleged condition until the contents of the policy were known to him. Again, just as in Wuraola’s case, the Supreme Court reversed that decision on the ground, inter alia, that the cover note was issued in terms of the insurers’ usual form of policy.
Re Coleman’s Depositories Ltd v Life and Health Assurance.
A company completed a proposal form on December
28 and received a cover note the same day. But unlike the other two cases, no mention was made of any conditions. Rather, the insurers accepted the offer by affixing a seal on the policy on January 3. The policy was expressed to be effective for January 1.
It was however delivered to the insured on January 9. Meanwhile on January 2, one of the employees of the insured sustained an injury in the course of the employment, which was not initially considered to be dangerous. However, he subsequently deteriorated and died on March 15. A day before the death, on March 15, the insured gave notice of a possible claim to the insurers. They denied liability on the ground that the insured had failed to give immediate notice of the claim as required by a condition of the policy. The English Court of Appeal by a majority, held that the insured was not bound by this condition because it Was inapplicable until communicated to the insured and that this was not done until January 9. By then, the injury that eventually led to the claim had already happened.
Wooding v Monmouthshire and south Wales mutual indemnity Society
the insurer, in a claim under an employer’s liability policy, repudiated liability on the ground that the insured had failed to pay the premium. Viscount Maughan said that although there was a great deal of commercial good sense in insisting on “no premium no cover,” it was equally without doubt that a contract of insurance may involve merely a promise by the assured or his broker to pay the premium.
National Insurance Corporation of Nigeria v. Power and Industrial Engineering Co. Ltd.”
A cargo of rice was shipped to the respondent from Bangkok to Lagos on 3rd January 1978. Later the same January, the respondent approached the appellant for a marine insurance cover. The parties reached an agreement. On 15th February 1978, the appellant issued a marine open cover and a certificate of insurance. (Both satisfied the requirement under S. 24 of the Marine Insurance Act, but the premium was not paid until February 24, 1978, after the risk had occurred.) The respondent gave notice of loss but the appellant denied liability on the grounds, inter alia, that the premium was not paid before the accident.
Obaseki, JSC, in the lead judgment said that:
“A contract of insurance may involve merely a promise to pay the premium. It is not the law that there must be implied in a contract of insurance a provision that the right of indemnity by the insured is conditional on his previous payment of the premium.”
Ojeahere v Alakija & Orst
it was held that what keeps an insurance policy valid or afloat is up-to-date payment of the premium or consideration by the insured or policy holder, to the insurance company or the insurer. The onus of proof payment of the premium lies primarily on the insured, unless the insurer does not dispute the payments. The appeal was unanimously allowed in part and the cross-appeal was dismissed.
Ajaokuta Steel co v Corporate Insurance Co. (2004)
This case concerns a dispute between Ajaokuta Steel Company (Insured) and Corporate Insurance Limited (Insurer) regarding an insurance contract. The Insurer provided coverage without receiving the premium upfront, waiving the “no premium no cover” rule. The Insured failed to pay the outstanding ₦226 million premium despite budgetary allocation.
The Supreme Court ruled that:
- Premium payment is a condition precedent: A valid insurance contract requires upfront premium payment. Failure to do so renders the contract void and unenforceable. Insurers cannot waive this statutory requirement (Section 50(1) of the Insurance Act).
- Government property insurance: Insuring government property requires approval from the Head of State if not done through the National Insurance Corporation (Section 93(1) and (2) of the Insurance Act). The Insurer lacked this approval.
- Illegal and void contract: Because of both the lack of upfront premium payment and the lack of proper authorization to insure government property, the contract was deemed illegal and void, contravening the Insurance Act. The court distinguished between illegal contracts (expressly prohibited by statute with sanctions) and void contracts (not expressly prohibited, no sanctions, no party rights). Illegality must be pleaded, unless the contract is “ex facie” (on its face) illegal, in which case the court must refuse enforcement.
Therefore, the Supreme Court upheld the lower courts’ decisions, effectively ruling against the Insurer due to the contract’s illegality.
Prestige Assurance v Sara Foods
Prestige Assurance Plc v Sara Foods,[5] goods stored in a warehouse were destroyed by fire. The insured had issued post-dated cheques which the insurer accepted in full payment of the premium and had obtained credit on some of the cheques before the loss. Upon a claim by the insured, the insurer relied upon section 50(1) of the Act to repudiate liability on the ground that that the premium was not paid fully in advance. The Court of Appeal held that the insurance contract was invalid and unenforceable. Ekanem, JCA said,
“The payment of premium by post-dated cheques runs foul of the requirement of section 50(1) of the Insurance Act, 2003. Acknowledgement and receipt of such post-dated cheques, as in this instance, does not change the situation as they do not turn those post-dated cheques into money. Unless and until a cheque is honoured, it cannot be said to be the same thing as money. There was therefore no valid contract of insurance to ground the respondent’s claim of indemnification against the appellants.”
Unitrust Insurance v Ambico
Unitrust
Insurance Co. Ltd. v. Ambico Sendirian Nigeria Ltd.” appellant, Unitrust Insurance Co. Ltd, entered into various contracts of insurance with the respondent, Ambico Sendirian, the insured, who paid only part of the premium. The insurance company subsequently instituted an action for the sum of N7, 357, 585.15 against the insured. After filing of pleadings by both parties, the insured thereafter raised a preliminary objection challenging the validity of the contract and the jurisdiction of the court. The trial court upheld the preliminary objection that it lacked jurisdiction to hear the suit on the ground that the condition precedent to a valid contract of insurance had not been met. The insurance company as appellant appealed that ruling.
One of the issues for determination raised by the respondent was
“Whether the failure to pay insurance premium as provided for by the provisions of section 50 (1) of the Insurance Act renders an insurance contract invalid and in (sic) actionable as held by the lower court?”
Pemu, JCA, delivering the lead judgment, agreed with the respondent’s brief of argument that the interpretation of section 50 (1) was at the heart of the matter.
Pemu JCA thereafter concluded that “where the law is silent on whether the premium shall be paid fully or by instalment, the presumption is that it should be paid fully, and this, by virtue of Section 50 (1) in ADVANCE without which the contract is void.
IGI v Adogu
For there to be a valid insurance contract, the insured must have paid the premium in full and in advance without which the contract is void per Section 50(1) of the insurance act.
Anglo African Merchants v Bayley
The common law position is that both in marine and in non-marine insurance an insurance broker is the agent only of the assured whether in matters relating to the placing of the policy or in matters arising when a claim is made. Since an agent who has accepted employment from one principal cannot in law accept any engagement inconsistent with his duty to the first principal, unless he first makes the fullest disclosure of all material facts to both principals and obtains their informed consent to his so acting, an insurance broker would be in breach of his duty to the assured if, without his by-your-leave, he accepted the underwriter’s instructions to obtain an assessor’s report on the claim, the contents of which he was precluded from passing on to the assured and no custom which contradicts this principle will be upheld in the courts
Fact, Decision & Ration
The insurer instructed the broker to engage a lass assessor to investigate the facts. The broker did so and refused to disclose the report to the insured. The Court held that the broker was, in following those instructions, acting as agent of the insurer while still being the insured’s agent. There was a conflict of duty. Megaw J, was highly critical of the broker. He said that [t]he potential dangers and undesirable consequences are obvious in any case where, as here, an agent permits himself, without the express consent of his principal, to make a compact with the opposite party whereby he is supplied with information which he is, or may be, precluded from passing on to his principal. Such a relationship with the insurer inevitably, even if wrongly, invites suspicion that the broker is hunting with the hounds whilst running with the hare.a Megaw J. also said [clounsel for the defendant conceded that, in all matters relating to the placing of the insurance, the insurance broker is the agent of the assured, and of the assured only. I do not think that this proposition of law has ever been in doubt amongst la~yers.~ However, his Honour did acknowledge that if an insured engages a broker solely for the purpose of effecting a particular insurance there would be no conflict of duty and hence no breach of the obligations owed to the insured in he subsequently acts for the insurer.
Stuart v. Freeman,
the policy was for one year and
the premium payable quarterly. The policy provided that if at the time of the death of the assured any quarterly premium should be more than 30 days in arrears, the policy should be of no effect.
The life assured died during the 30 days of grace but after the contract period. The premium was paid during the days of grace and it was held that the plaintiff was entitled to recover as the policy was prevented from lapsing by the payment of the premium.65
Pritchard v Merchant’s and Tradesman’s Mutual Life Assurance Society(1858) 140 ER 885
The beneficiary of a life insurance policy, which had lapsed because of non-payment of premiums, paid a renewal premium to revive the policy. However, neither party was aware that the insured had died before the payment was made. The premium was paid and accepted on an implied understanding on both sides that the party insured was alive but both parties were labouring under a mistake. Thus, the transaction was void ab initio because of the absence of the thing on which the contract was based
it was held that there was no intention on the part of the insurers to insure irrespective a life dropping.
Hughes V Liverpool Victoria Friendly Society
Principles
When two persons are involved in an illegal transaction, one of them can enforce his rights under such transaction if he is able to show that he was unaware of the illegality. In other words, a party can escape liability by showing that he is not in pari delicto with the other party. In pari delicto means that someone is at fault.
Case Summary
The plaintiff effected an insurance on the life of a person in which he had no insurable interest in, on the fraudulent representation by the defendant that it was valid.
Held:
The plaintiff was allowed to recover the premiums he had paid because he was induced into the contract by the defendant’s fraudulent misrepresentation
F.I.G. Re Ltd. Mander
Cresswell J. Identified three situations under which a failure to pay premium on a due date amounted to repudiatory breach thereby entitling the insurers to terminate the contract. They are:
(a) Where time was stipulated to be of the essence;
(b) where the circumstances of the contract or the nature of the subject matter showed that time was impliedly of the
(c)
where time was originally neither expressed nor impliedly of the essence, but the assured has been guilty of unreasonable delay, and the insurer then gives a notice requiring the premium to be paid within a reasonable time.*
