Premium is an amount paid periodically to the insurer by the insured for covering his risk. In an insurance contract, the risk is transferred from the insured to the insurer. For taking this risk, the insurer charges an amount called the premium.
In Nigeria, the principal legislation governing insurance contracts is the Insurance Act 2004. 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.” From this provision, the law is settled that premium is a sine qua non foundation upon which a valid insurance contract is built. As such, no payment of premium; no valid insurance contract
Moving on, in Industrial and General Insurance Company Limited v Adogu (2010) 1 NWLR (Pt.1175), something interesting happened. The respondent in that case tried to unsettle the settled principle of law (lol). The facts of the case go thus: on 18th December 2002, the respondent entered into a contract of insurance with the appellant to cover her Mercedes Benz car against the incidence of loss of Seven Million Eight Hundred Thousand Naira (N7,800,000.) The premium was fixed at N520,000. On the same day, the respondent paid the sum of N220,000 leaving out the balance of N300,000.
Unfortunately, on 15th February 2003, the car was stolen at gunpoint in front of the respondent’s residence. A formal complaint was lodged with the police and thereafter, on the 17th of February 2003, the respondent paid the balance of N300,000 to the appellant. Thereafter, she put in her claims for indemnity against the loss of her car. The appellant agreed to pay the respondent the sum of N6,318,000 but failed to do so.
Aggrieved by the non-payment of her claims, the respondent applied to the High Court of the Federal Capital Territory, Abuja for the appointment of an arbitrator upon which Chief J.K. Gadzama, Senior Advocate of Nigeria, was appointed as the Arbitrator on 8th February 2005.
The Arbitrator, in his decision dated 20th September 2005, awarded the respondent the sum of N6,318,000 with interest. Dissatisfied with the arbitral award, the appellant filed a motion on notice at the trial court seeking to set aside the award. The application was refused by the trial court on 6th November 2006 and the arbitral award was affirmed. Still Aggrieved, the appellant appealed to the Court of Appeal.
The learned counsel for the respondent hinged his argument on two standpoints. First, the contract between the parties was completed and became enforceable on the 17th of February, 2003. i.e. the day the respondent fully paid for the balance of the premium. As such, the insurer is meant to cover the loss. The second argument was that assuming without conceding that the premium was not paid in full as at the date of constituting the contract, being on the 18th December, 2002, it is submitted that the sum of N220,000.00 effectively covered the period between the formation of the contract and the occurrence of the event insured against.
Now the question is, whether there has from the facts of this case been full compliance with provisions of section 50(1) of the Insurance Act, 2004, and if so, whether a valid contract of insurance exists between the parties. In other words, whether or not part payment of a premium is recognized under the Act to enable a valid and enforceable insurance contract.
The Counsel submitted further, when he took the Court on a mathematical voyage, that when the total premium is divided by the period covered i.e. 12 months (N520,000.00 ÷12), an approximate sum of N43, 333.33 is gotten and if the sum of N220,000.00 is divided by N43,333.33, it gives cover for a period of five months. It was his argument therefore that the sum of N220,000.00 effectively covered the period between payment and occurrence of the event and so Section 50(1) of the Insurance Act, 2004 was fully complied with. (Lawyers 🤝 thinking outside the box).
Welllll, “the overthinking no fit solve problem”. On the first standpoint of the respondent’s argument, the Court held that “the payment of premium is a condition precedent to the contract of insurance and where parties have entered into a conditional contract, the condition precedent like in the instant case, that is, the full payment of premium must happen before either party becomes bound by the contract. In the instant case, by the time the full premium was fully paid, the subject insured has ceased to exist and there is therefore no enforceable contract”
On the second standpoint, the Court was guided by the literal rule of interpretation where it held that Section 50(1) of the Insurance Act does prohibit payment of premiums in part or by installment. The court per Abba-Ajji (JCA) held that: “with respect to the learned counsel, this argument is also misconceived. If the Section intends to make payment of premium in part or by installment, it would have stated so as what is not stated, is meant to be excluded. Section 50 of the Act, therefore, does not contemplate installment payment of premium in an insurance contract.”
At the end of the Appeal, the judgment of the trial court was reversed and the Court held that the appellant can not be held responsible to cover the respondent’s loss. As such, the loss lay where it fell. This principle of law was also reaffirmed in Shoreline Lifeboats (Nig) LTD & Ors v Premium Insurance Brokers LTD & Anor (2012) LPELR-9795(CA).
In conclusion, 50(1) of the Insurance Act does not contemplate installment payment of premium. An insured must comply with the provision of the law in order to enjoy its protection in instances of an insurer’s breach.
Thank you for reading. See you next week
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