The Insurance Act follows several amendments and repeals since 1961, in 1976 one of the Insurance Decrees was promulgated which introduced a separate section purportedly handling settlement of insurance claims in Nigeria. The provision has since then survived subsequent amendments and repeals with little or no substantial change. It was a laudable innovation but very inordinate and unwholesome.

A replica of the section 43 of the 1976 Insurance Decree in the 2003 Insurance Act is section 69. The provision is flawed with errors of misappropriation and legislative paradox.

Unfortunately, the errors have been carried into fruition by the attitude of the courts through a somewhat inadvertent statutory interpretation that has heralded the application of that provision over the past three decades.

This paper intends to expose these statutory defects and recommend amendments as we argue that the law as it is means more or less that Nigeria has no specific provision in its insurance Act dealing with settlement of insurance claims

Excerpt

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

1.1. INTRODUCTION:

Settlement of insurance claim is the crux of an insurance contract

. 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

such as

notice, proof of loss, and measurement of loss

. 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

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

J. O. Irukwu, Insurance Law and Practice in Nigeria, Revised Edition, (Heinemann Educational Books: Ibadan,

1991), p. 121

Olusegun Yerokun, Insurance Law in Nigeria, (Emmanuel Center: Lagos, 1992), p. 185

Ibid

Sidney Preston and Raoul P. Colinvaux, The Law of Insurance, 2

Ed., (Sweet & Maxwell: London, 1961), p. 141

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

and the sum may be payable to the

beneficiaries of a life policyholder

. 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

. 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

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

. Further to this, if before the

happening of the event which gave rise to the proceeding, the certificate of insurance has been

Section 69(1)a & b, we shall return to this provision shortly.

Section 69(6)

Section 69(2)a

Section 69(2)b

Section 69(2)c

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

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'

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

) 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

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

Section 69(2)(c)i

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.

Section 69(5)

Section 69(4)

Emphasis supplied

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

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

`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'

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.

Emphasis added, the amendment is highly recommended.

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

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

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

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

(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.

Frequently asked questions

What is the main topic of this document?

This document primarily discusses the settlement of insurance claims under Nigerian law, specifically focusing on Section 69 of the Insurance Act, 2003.

What is the 'Error of Legislative Paradox' discussed in relation to Section 69(2)(c)(ii)?

The 'Error of Legislative Paradox' refers to the ambiguity created by the use of the words "after" proceeding the phrase "before or" and the word "or" preceding the word "within" in Section 69(2)(c)(ii), leading to confusion regarding when an insurer can avoid liability.

What is the proposed solution to the 'Error of Legislative Paradox'?

The document suggests that the word "or" preceding "within 14 days..." in Section 69(2)(c)(ii) should be construed as "but," to clarify the timing requirements for an insurer to commence proceedings related to the surrender of the certificate of insurance.

What is the 'Error of Misappropriation' in Section 69 of the Insurance Act, 2003?

The 'Error of Misappropriation' is the alleged undue importation of provisions from Section 10 of the Motor Vehicles Third Party Insurance Act, 1950, into Section 69 of the Insurance Act, 2003, without adequately considering the general scope of the latter and that provision originally intended to protect third parties in motor insurance claims.

How does Section 69 relate to third-party interests in insurance claims?

Section 69 is argued to be derived from legislation intended to protect third parties in motor insurance. However, its broader application under the Insurance Act, 2003, raises questions about its relevance in insurance contracts without third-party involvement.

What is the main critique of Section 69(3)(b) of the Insurance Act, 2003?

Section 69(3)(b) is criticized for potentially allowing insurers to avoid liability for reasons not explicitly stated in the policy, which could undermine the policy’s enforceability and fairness.

What are the conditions under which an insurer is NOT compelled to pay a claim under Section 69?

According to the document, an insurer may not be compelled to pay if: they weren't notified of the legal proceedings within 7 days of commencement; the execution of the judgment is stayed, or is under appeal; the policy was cancelled by mutual consent/under a policy term before the event occurred; the certificate of insurance was surrendered before the event occurred; the insurer obtains a declaration to avoid the policy within three months from legal proceedings based on misrepresentation or non-disclosure; or the insurer avoids the policy with justifiable reasons outside policy provisions.

What does the document recommend regarding Section 69 of the Insurance Act, 2003?

The document recommends revisiting and amending Section 69 to clarify its language, particularly concerning the "Error of Legislative Paradox," and re-evaluating its scope to ensure its appropriate application across various insurance contexts, especially in cases without third-party interests.

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Details

Title: Nigeria's Insurance Act of 2003. The True Import of Section 69 and its Legislative Paradox
College: University of Lagos
Course: Insurance Law
Grade: 4.0
Author: Obinna Ilechukwu (Author)
Publication Year: 2016
Pages: 12
Catalog Number: V334838
ISBN (eBook): 9783656989011
ISBN (Book): 9783656989028
Language: English
Tags: Settlement of Insurance Claims Insurance Law section 69 section 10 insurance Act 2003 motor vehicle insurance Act 1950
Product Safety: GRIN Publishing GmbH

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

Nigeria's Insurance Act of 2003. The True Import of Section 69 and its Legislative Paradox