INSURANCE LAW

1.1. Insurance as a Contract The insurance contract is contract like any other, but with particular peculiar principles. The insurance interest should be beyond the control of either party and there must be an element of uncertainty. In insurance risk exists a priori; and would continue to exist whether or not we insure unlike in a wager where there is no prior risk but is only created by the agreement itself. It has been observed that the contract of insurance is basically governed by rules which form part of the general law of contract. As Lord Clerk in Scottish Amicable Heritage Securities Association Ltd v. Northern Assurance Co. noted, It is a contract belonging to a very ordinary class by which the insurer undertakes in consideration of the payment of an estimated equivalent beforehand to make up to the assured any loss he may sustain by the assurance of an uncertain contingency. Equally, however, there is no doubt that over the years, it has attracted many principles of its own to such an extent that it is perfectly proper to speak of the law of Insurance. In the words of Collinvaux, “Insurance contracts also exhibit certain features which as a matter of common law apply only to them.” 1.2. Definition of Insurance As a general rule statutes dealing with the regulation of insurance business do not or have not defined the contract of insurance to obviate the danger of excluding contracts within or that should be within their scope. However a definition is essential as insurance business is closely regulated. As Ivamy states: A contract of insurance in the widest sense of the term may be defined as a contract whereby one person called the insurer undertakes in return for the agreed consideration called the premium, to pay to the other person called the assured, a sum of money or its equivalent on the happening of a specified event And in the words of John Birds: It is suggested that a contract of insurance is any contract whereby one party assures the risk of an uncertain event which is not within his control happening at a future time. In which event the other party has an interest and under which contract the first party is bound to pay money or provide its equivalent if the uncertain event occurs.5 Channel J, also attempted to define insurance in Prudential Assurance Co. Ltd v. Inland Revenue Commissioner,6 when he held that: A contract of insurance then must be a contract for the payment of a sum of money or for some corresponding benefit such as the rebuilding of a house or the repairing of a shape to become due on the happening of an event, which event must have some amount of uncertainty about it and must be of a character more or less adverse to the interest of the person effecting the insurance. The Judge further observed that, “it must be a contract whereby for some consideration usually but necessarily for periodical payments called premiums, you secure yourself some benefit usually but not necessarily the payment of a sum of money upon the happening of some event.” 1.3. Classification of Insurance Contracts Insurance contracts may be placed or classified into broad categories. 1.3.1. By Nature of Event by Which the Sum Becomes Payable This classification places the insurance contracts into categories such as Marine, Fire, Life etc. it places emphasis on the homogeneity of the group. 1.3.2. Nature of the interest affected This classification places insurance contracts into three broad categories namely: • Personal insurance e.g. life, accident, fidelity etc. • Property insurance e.g. fire, marine, motor, solvency, crop, hypothecation etc. • Liability insurance - where policies are taken out in compliance with statutory provisions e.g. the compulsory third party motor insurance, workman’s Compensation, NSSF, NHIF 1.3.3. By Nature of the contract of insurance A contract of insurance may be an indemnity or non-indemnity. An indemnity contract is a contract of insurance where the insured pays a premium on the understanding that in the event of loss, he will be indemnified for the actual loss sustained. He must be restored to the position he was before the loss. It was observed that policies of insurance under fire and Marine risks are properly speaking indemnity contracts i.e. the insurer engages to make good within limited amounts, the losses sustained by the insured and nothing else. A nonindemnity insurance contracts, on the other hand, is one in which the insured secures the payment of a fixed sum of money, previously determined as the value of the subject matter of insurance. There is an assurance that the amount is payable should risk attach e.g. of life policies/assurance.