An insurance refers to a contract of indemnity; it is a contract whereby the insurer agrees to indemnify the insured where he suffers an unforeseen loss of a particular kind in exchange for a monetary consideration paid by the insured (that is, a premium). Thus, the purpose of insurance contracts is to cushion the loss of the insured. In Nigeria, insurance contracts are primarily governed by the Insurance Act of 2003 and the National Insurance Commission Act (NAICOM) of 1997.
There are three parties to an insurance contract: the insurer (the insurance company), the insured (who may be a person or corporation), and the insurance intermediaries, who act on behalf of the parties (the intermediary that acts for the insurance company is called the broker, and the intermediary that acts for the insured is called the agent).
One may wonder: if an insurance company remedies the loss of an individual or a company, who then remedies the loss of an insurance company? Indeed, an insurance company is also vulnerable to loss, which will not only affect it but also affect its insured clients, hence the existence of reinsurance companies whose responsibility is to indemnify insurance companies against their loss and protect them from insolvency. There are three reinsurance companies in Nigeria, the Nigerian Reinsurance Corporation being the premier. The Nigerian Reinsurance Corporation Act of 1977 obligates every insurance company to be reinsured with the Nigerian Reinsurance Corporation. As its name implies, the Act regulates reinsurance companies and governs reinsurance contracts.
Elements of Insurance
Since insurance is a kind of contract, it contains the elements of a typical contract. These include offer, which is the proposal made by the person seeking to be insured; acceptance, which is the agreement by the insurance company to insure such person; intention of both parties to create a legal relationship; a monetary consideration, which is known as premium and must be fully paid by the insured to the insurer in advance of the loss sought to be insured against; legality of the contract (that is, the contract must be for a lawful purpose); and legal capacity to contract—under the law, a minor, which, in Nigeria, is a person under 18, cannot enter into an insurance contract. Similarly, a person of unsound mind cannot enter an insurance contract. Additionally, Section 3 of the Insurance Act, 2003, stipulates that only companies duly incorporated as limited liability under the Company and Allied Matters Act (CAMA) 1990 and bodies duly established by or pursuant to any enactment to transact business or insurance are permitted to own and operate insurance businesses in Nigeria.
Another element of insurance is the insurable interest of the insured. In other words, the insured must have an interest that has been adversely affected or suffer some kind of loss where the event sought to be insured occurs. Little wonder why a person cannot take out life insurance for his own life. Such a person does not suffer any loss as a result of his own death; however, he can suffer some kind of loss as a result of someone else’s death.
Where any of these elements are absent, the insurance contract is regarded as invalid, meaning there is no insurance contract in the eyes of the law. Hence, no legal proceeding can be instituted to enforce such a contract.
A vital requirement of an insurance contract, although not an element affecting its validity, is that insurance contracts are expected to contain a disclosure of all material facts by all parties to the insurance contract.
This is known as ‘uberrimae fidei’ which translates to “utmost good faith.”. Where any of the parties fail to disclose any material fact, the contract becomes voidable, meaning the innocent party can decide whether or not he wants to enforce it.
Types of Insurance
Section 2 of the Insurance Act, 2003 classifies insurance into two types, which are life insurance and general insurance (that is, non-life insurance). The section further classifies these two types. Section 2(2) classifies life insurance into individual life insurance, group life insurance, and health insurance, whereas Section 2(3) classifies general insurance into fire insurance, general accident insurance, motor vehicle insurance, miscellaneous insurance (others), and so on.
Going by this distinction, where a person rents a hall for an event and a fire breaks out in the hall during the event, and the owner of the hall has a fire insurance contract, he will be indemnified for any loss consequent to the fire outbreak once he provides proof of the fire outbreak and the insurance company validates the proof. These include the cost of the hall if it got destroyed by the fire, the cost of anything in the hall destroyed by the fire, the cost of injury suffered by persons who were present in the hall, and the amount of damages owed to the person who rented out the hall in the event of negligence on the owner’s part being the major cause of the fire outbreak. However, this depends on the terms of the insurance contract.
Miscellaneous insurance covers other kinds of insurance policies not listed in Section 2, such as insurance against theft, disability insurance, travel insurance, and so on. For instance, in the event of a money lender whose office was invaded by thieves and some money was stolen, and the money lender happens to be a party to a theft insurance contract for his business, he can simply provide proof of the theft, and once the proof is validated by the insurance company, he will be indemnified for the money lost.
Steps to Entering an Insurance Contract
The steps to entering an insurance contract are simple. Once you know the kind of insurance you desire, contact an insurance company that offers that kind of insurance. It is advisable to ensure that the company is registered and authorized to operate an insurance business, in line with Section 4 of the Insurance Act, 2003.
The next step is to carefully study and fill out the proposal/application form (this is the offer). Remember to disclose all material facts to avoid breaching the rule of “uberrimae fidei.“. After filling out and submitting the form, the insurance company will provide you with the policy document (this is the element of acceptance), which will contain the terms of the insurance contract. These terms are usually negotiable because every contract must have ‘consensus ad idem’, which means “meeting of the minds.”.
Finally, after negotiating and adjusting the policy document, if necessary, you are to pay the premium, which, as already stated above, is the consideration given to the insurance company in return for indemnity against your loss and must be fully paid before the company can begin to provide coverage.
Should you need further advice on what kind of insurance to undertake or which insurance company to engage, you may contact us here
REFERENCES.
- Get It Insurance, ‘Insurance Against Theft’ (Getitinsurance.ng, 14 June 2022), accessed 14 June 2023.
- Isochukwu, ‘Insurance Law: General Introduction.’ (Isochukwu Ltd., 3 January 2018), accessed 13 June 2023.
- James Onoja, ‘Legality and Enforceability of Insurance Contracts in Nigeria’ (Mondaq, 23 July 2020), accessed 14 June 2023.
- Saylor Academy, ‘Entering into the Contract’ (Saylordotorg.github.io), accessed 14 June 2023.
- Victor Ifegwu Mbonu, ‘Conditions for Validity of an Insurance Contract in Nigeria’ (Connect Nigeria, 2022), accessed 14 June 2023.
