Legal controls of terms of insurance contracts in Nigeria: A comparative analysis

Ordinary policy conditions

Ordinary policy conditions could be an express or implied term of the insurance contract. The mutual intention of the parties, as far as that may be gathered from the policy, is, however, crucial in determining whether a particular term of the contract is a condition or not. Policy conditions are terms which neither avoid the policy in the event of a breach nor limit the risk, but impose certain obligations to enlarge or restrict the rights of the parties. Express conditions of the policy could relate to the requirement to disclose the existence of other policies effected by the insured on the same subject matter of insurance, the payment of premium, or condition which imposes on the insured an obligation to maintain a motor vehicle in an efficient condition as is usually contained in a number of motor vehicle policies. In Brown v Zurich General Accident and Liability Insurance Co Ltd, ⁹ for example, claimant's motor van was insured by respondent insurance company under policy containing, inter alia, the general condition that required the insured ‘to take all reasonable steps to safeguard from loss or damage and maintain in efficient condition’ the insured vehicle. Another condition of the policy provided that the due observance and fulfilment of the terms, provisions and conditions of the policy and of any endorsement thereon, in so far as they relate to anything to be done or complied with by the insured, was a condition precedent to any liability of the company to make any payment under the policy. Van was damaged as a result of skid on icy surface and the insured made a claim under the policy. The respondent denied liability on the ground that claimant had failed to maintain the van ‘in efficient condition’. It was held that the very smooth tyres on the front wheels showed a lack of reasonable care to maintain the van in an efficient condition and that the claimant was in breach of the policy condition. Similarly, in Hauwa v Nigeria People's Insurance Co Ltd, ¹⁰ a term of the motor policy in question was to the effect that the insured shall in respect of the insured vehicle ‘take all reasonable steps to safeguard the motor vehicle from loss or damages and to maintain it in a condition which is both efficient and safe for use on a road and for purposes described in the policy and Schedule …’ The court accepted the insurers’ representation that the term was a condition of the policy.

Implied conditions, on the other hand, are terms which are implied into the contract by reference to some established principles of insurance law or some statutory provisions. These include the condition that parties must observe the duty of utmost good faith towards each other, ¹¹ that the insured subject matter is in existence at the inception of the policy and that the insured has insurable interest therein. ¹²

Conditions precedent

Conditions precedent in contracts of insurance are generally of three types namely, conditions precedent to the validity of the contract itself, conditions precedent to the attachment of the insured risk and conditions precedent to the liability of insurers to honour a claim.

A condition precedent must be strictly complied with irrespective of its materiality to the risk insured as non-compliance could have some implication on either the continued validity of the policy or the insured's right to recover in respect of a particular loss without affecting the validity of the policy. ¹³ Nevertheless, whether any particular term would be regarded as a condition precedent is to be determined by the intention of the contracting parties as may be obtained from the words used in the contract.

Conditions precedent to the validity of the contract are conditions that must be satisfied before the contract can be said to be validly consummated and be legally enforceable. In this respect, contracts of insurance are also subject to the general principles of law applicable to ordinary contracts, such as offer and unconditional acceptance thereof, consideration, intention to create legal relations and capacity of parties. ¹⁴ In addition, the contracting parties must reach a consensus ad idem on the essential terms of the contract including the description of the subject matter, definition of the risks to be covered, duration of the cover, the amount and mode of payment of premium, which is the consideration in this type of contract, and the insured sum. Generally, while the insured is obliged to pay the premium as agreed, failure to do so would not absolve the insurer from liability which has been undertaken under the contract unless there is provision in the contract to that effect, or the failure to pay the premium amounts in the circumstance to a repudiation of the contract. ¹⁵ It is noteworthy, however, that, this common law rule is no longer applicable in Nigeria by virtue of section 50 of the Insurance Act 2003 which has made the payment of insurance premiums a condition precedent to the validity of a contract of insurance and that there is no cover in respect of an insurance risk unless the premium is paid in advance. ¹⁶

In respect of conditions precedent relating to conduct obligations pertaining to the attachment of the risk run by the insurer, the performance thereof by the insured is so vital to the operation of the contract and to the liability on the part of the insurer thereunder. Unlike the condition precedent to the validity of contract, condition precedent to the attaching of the risk does not affect the validity of the contract, but it is such that the insurer would not assume the risk unless it is fulfilled by the insured and the insurer would not be liable if the insured event occurs before the fulfilment thereof. ¹⁷ In Roberts v Eagle Star Insurance Company Limited, ¹⁸ by a term of the policy, it was made a condition precedent to the liability of the insurer that a burglary alarm be put into full and proper operation whenever the premises were closed for business or left unattended. The premises were broken into and the assured sought to recover. It was held that he could not recover as he had not put the alarm into operation before he left the premises. Generally, a breach of this type of condition precedent entitles the insurer to refuse to pay the particular claim in question without affecting the policy. ¹⁹ In this instance, the wording of the policy usually makes the due performance of such an obligation by the insured a condition precedent to the liability of the insurer by another term or condition of the policy. Provisions such as this are common in property and liability policies whereby the insured is required to safeguard the insured property from loss or damage, or to maintain same in an efficient condition in order to prevent or lessen the occurrence of the insured risk. In Milton Furniture Ltd v Brit Insurance Ltd, ²⁰ the insured had insured its business against loss or damage by fire to stock in trade, loss of gross profit and increased cost of working across a 12-month indemnity period. General Condition 7 of the policy required that the whole of the protection, including any burglar alarm, be in use at all times, out of business hours, or when the insured's premises were left unattended and such protection was not to be withdrawn or varied to the detriment of the interests of the underwriters without their prior consent. General Condition 17 of the policy provided that the due observance and fulfilment of all conditions, provisions and endorsements of the policy was a condition precedent to any liability on the part of the underwriters under the policy. On the night of the fire which damaged the property, the burglar alarm had not been set though the fire alarm system was turned on. The defendant's claim that the plaintiff was in breach of the conditions of the policy was upheld by the court and the insured's action for an indemnity for losses arising at the property from which it traded was rejected on the ground that compliance with General Condition 7 was a condition precedent to the insurer's liability. However, in Re Bradley and Essex and Suffolk Accident Indemnity Society, ²¹ wherein the employer kept no wages book in terms of a Workmen's Compensation policy which made it a condition that the names and wages of employees were to be entered in a wages book, and also a clause providing that the due observance and fulfilment of the conditions was a condition precedent to any liability of the insurers under the policy; it was held that the condition was not a condition precedent to the liability of the insurers in virtue of the construction of the language of the policy but a collateral promise relating to the adjustment of premiums.

Conditions precedent relating to claims, which pertain to claims procedure and subrogation rights of the insurer, generally, require the insured, after suffering a loss, to notify the insurer as well as furnish relevant information that could assist the insurer in assessing the extent of damage and liability. In Pioneer Concrete (U.K.) Ltd v National Employers Mutual Insurance Ltd; ²² wherein the insured was required to give written notice of ‘any accident or claim immediately the same shall have come to the knowledge of the insured or his representative’; the failure of the insured to provide the requisite written notice was held fatal to the claim on the accident insurance regardless of any prejudice to the insurer on account of the breach. Also, in Welch v Royal Exchange Assurance, ²³ by the terms of a policy of fire insurance, the conditions thereof were, ‘so far as the nature of them respectively will permit, to be deemed to be conditions precedent to the right of the insured to recover.’ Condition 4 provided that on making a claim, the insured should ‘give to the corporation all such proofs and information with respect to the claim as may reasonably be required’ and that ‘no claim under this policy shall be payable unless the terms of this condition shall have been complied with.’ A fire occurred on the insured's premises and he claimed to be indemnified under the policy. The insurance corporation repudiated liability and the dispute was referred to arbitration. The insured used and controlled for the purposes of his business certain bank accounts standing in the name of his mother. The insurance corporation repeatedly, before and during arbitration, requested the insured to furnish them with information as to the accounts, but the insured failed to disclose them until he was under cross-examination during the arbitration proceedings. It was held that the insured was not entitled to recover any sum in respect of his claim on the ground that, even if on the true construction of the policy the requirement of information in condition 4 was not a condition precedent, but merely a condition that the insurance corporation need not pay until the information they required was produced, the insured could not say that such information was in fact given before his claim was made. It was further held that on the true construction of the policy, that requirement was a condition precedent with which, in the circumstances, the insured had not complied. According to the court, the word ‘unless’ in the condition could not be construed as meaning ‘until’. Similarly, a condition requiring the insured to provide documentary particulars of loss to the insurer within a specified period of time after a loss, such as that which requires that a certificate of the insured's loss be produced before the insured sum is payable as in Oldman v Bewicke; ²⁴ or that which requires the insured to forthwith give notice of the loss and, within fifteen days after such fire, deliver as particular, an account of his/her loss or damage as the nature of the case would admit of as in Roper v Lendon; ²⁵ has been held to be a condition precedent such that non-compliance by the insured constitutes a defence to a claim from the insurer. Such notices and documentary particulars are usually required in order to enable the insurer confirm the authenticity of a claim and adjust loss as may be required.

Furthermore, the requirement of a notice of anticipated proceedings against the insureds by victims of motor accidents as in Northern Assurance Co Ltd v Wuraola ²⁶ and Yorkshire Insurance Co Ltd v Haway ²⁷ has been held to be a condition precedent to the liability of the insurer to satisfy any claim arising therefrom. In Northern Assurance Co. Ltd v Wuraola, ²⁸ the respondent signed a proposal form for the insurance of his motor car against third party risks by which he agreed to accept a policy subject to the terms and conditions of the company. He paid the premium and was given a cover note by the appellant, which stated that the risk was covered in the terms of their usual form of policy for a period of thirty days. Subsequently, they sent a certificate of insurance in respect of a policy but did not deliver the said policy to him. It was a term of the insurer's standard policy that the due observance of the conditions, in so far as they relate to anything to be done by the insured, should be a condition precedent to any liability of the insurer to make any payment under the policy. Another term of the standard policy required the insured to give notice to the insurer of any impending prosecution in respect of an occurrence which might give rise to a claim. The insured vehicle was involved in an accident and an action was brought against the insured of which he failed to notify the insurer. The appellant refused to indemnify the respondent on the ground that there had been a breach of condition precedent to their liability under the policy. The contention of the insured that he could not be bound by a condition of which he was unaware since the policy was never delivered to him was rejected by the Supreme Court which held that the pertinent question to be determined, which was answered in the affirmative, was whether the insured was bound by the terms and conditions of the policy and certainly not whether or not he had a copy of that policy. The insured's failure to comply with the condition precedent to liability, even though unknown to him, was held fatal to his claim. Similarly, in Yorkshire Insurance Co Ltd v Haway, ²⁹ the plaintiffs had issued a policy in their usual form but the defendant never received it. During the currency of the cover note, the insured vehicle was involved in an accident in which a third party was injured. The plaintiffs who were not notified of the accident as required by the policy paid a third party as mandated under the Motor Vehicle (Third Party Insurance) Act. The plaintiffs thereafter instituted proceedings to recover the amount from the defendant. The contention of the defendant that he was not bound by the conditions in the policy since it was never received was also rejected by the Supreme Court which restated its decision in Northern Assurance Co Ltd v Wuraola. ³⁰ It was further held that, where an insurer indemnifies a policy holder by making a payment under compulsion of law even though the policyholder is in breach of a condition of the policy, the insurer is not estopped from denying his liability to indemnify the policyholder or from any entitlement to be reimbursed by the policyholder. The decisions of the Supreme Court in Northern Assurance Co. Ltd v Wuraola ³¹ and Yorkshire Insurance Co Ltd v Haway ³² thus established the principle of ‘incorporation by reference’ in the Nigerian Insurance law. ³³

Condition precedent relating to claims could also be in respect of arbitration, such as where a condition of the policy, commonly referred to as the Scott v Avery clause, ³⁴ provides for reference of any dispute arising from the contract to arbitration and compliance with that is made a condition precedent to the institution of legal proceedings in court of law. Such policy condition is statutorily recognised under the Arbitration and Conciliation Act, 1988 ³⁵ and is enforceable as a condition precedent to the liability of the insurer. ³⁶

In some cases, however, depending on the construction given to the wording of the policy, the insurers have been held liable to pay the claims of the insureds even though they were in breach of the stipulated conditions of the policies. In Weir v Northern Counties of England Insurance Co, ³⁷ for example, a condition in a fire policy which required that, on the happening of any loss, the insured should within fifteen days deliver to the insurers an account of the property destroyed and that, in default, no claim should be given was held not to be a condition precedent to the right of the insured to recover but only a requirement to be satisfied before a liability to pay arose, and that the insured on delivering an account before action, though more than fifteen days after the loss, could recover. Also, in Stoneham v The Ocean, Railway and General Accident Insurance Co, ³⁸ an insurance policy covering death caused by accident happening within the United Kingdom was made subject to a condition that, in case of fatal accident, notice thereof must be given to the insurers within seven days. The insured was accidentally drowned in Jersey and notice was not and, under the circumstances of the case, could not have been given to the insurer as required. It was held that the clause in the policy requiring notice was not stated to be a condition precedent to the right to recover and that the insurers were liable.

In general, therefore, when contracting parties have chosen in express terms to declare that a certain condition of the policy should be a condition precedent, that stipulation will be given effect unless such condition appears either to be so capricious and unreasonable that a court of law ought not to enforce it, or to be sua natura incapable of being made a condition precedent. ³⁹

Policy warranties

In insurance law, warranties, by their nature, are the most important term of the insurance contract in view of the effect of their breach thereon. Unlike in the general contract law where warranties are merely regarded as collateral terms breach of which would give rise to damages, a breach of a warranty in insurance, at common law, automatically and irremediably discharged the insurer from its liability under the contract without any recourse to the rules relating to remedies for misrepresentation of facts in contractual matters. ⁴⁰ In assessing the impact of a breach in an insurance contract, the common law courts gave preferential weight to warranties over conditions of the policy in a manner nearly amounting to a reversal of the legal effects of those concepts under the law of contract, except that the decisions concerning conditions precedent to the insurer's liability clearly demonstrate that it is inaccurate to equate a warranty to a condition.

Warranties in an insurance policy are usually the written terms of the contract wherein the insured warrants that either that certain statements of facts are accurate, or that they are not only accurate but will also remain accurate, or that he will undertake the due performance of an obligation specified in the insurance policy. In Dawsons Limited v Bonnin & Ors, ⁴¹ Viscount Finlay had asserted that:

The expression ‘warranty’ imports that a particular state of facts in the present or in the future is a term of the contract, and, further, that if the warranty is not made good, the contract of insurance is void. It is not necessary that the term ‘warranty’ should be used, as any form of words expressing the existence of a particular state of facts as a condition of the contract is enough to constitute a warranty. ⁴²

Most warranties are created expressly by the parties in any form they desire as the use of the word ‘warranty’ has been said to be indicative, but by no means decisive of parties’ intention to that effect. ⁴³ In HIH Casualty and general Insurance Ltd v New Hampshire Insurance Co, ⁴⁴ it is stated that:

This is a question of construction, and the presence or absence of the word ‘‘warranty’’ or ‘‘warranted’’ is not conclusive. One test is whether it is a term which goes to the root of the transaction; a second, whether it is descriptive or bears materially on the risk of loss; a third, whether damages would be an unsatisfactory or inadequate remedy.

Section 33 of the Marine Insurance Act (MIA) 1906 defines warranty as a promissory warranty ‘… by which the assured undertakes that some particular thing shall or shall not be done, or that some condition shall be fulfilled, or whereby he affirms or negatives the existence of a particular state of facts.’ A warranty could be express or implied. ⁴⁵ In marine insurance policy, for example, express warranties could cover neutrality of an insurable property, the place of loading and unloading as well as time of sailing, while implied warranty relate to seaworthiness of ship ⁴⁶ and legality. ⁴⁷ Unlike an express warranty, which is expressly provided for by the parties in the policy, an implied warranty is considered as vital to the contract of insurance that it is taken to apply by operation of law. By section 35(3) of the MIA 1906, an implied warranty does not exclude an express warranty unless it is inconsistent therewith. Warranties could also relate to past ⁴⁸ or existing fact ⁴⁹ and it could be a promissory warranty. ⁵⁰ Existing or present warranty consists of statements of facts made by the insured at the inception of the contract and provide the means by which the risk to be run by the insurers is defined. Thus, if the statements are untrue, the risk would not attach. A promissory or continuing warranty, on the other hand, consists of promises by the insured that something will or will not be done during the currency of the policy, breach of which automatically terminates the contract of insurance. In HIH Casualty and General Insurance Ltd v AXA Corporate Solutions & Anor, ⁵¹ the subject matter of the insurance was the risk of default in the repayment of a loan that the assured took to finance six made-for TV films that were to be made. It was held that an undertaking to produce the specified number of films in the case of each primary insurance contract, as well as each reinsurance contract, is a promissory warranty, even though the word warranty was not used in the policy.

Warranties are, generally, found in the proposal form, which is usually incorporated into the policy, as well as the main policy documents. The significance of the proposal form in this respect is the declaration clause, generally referred to as the ‘Basis of Contract Clause’, that is usually inserted therein and which has the effect of converting all the answers given by the proposer into a warranty. The proposal, in this instance, is taken to be the initiation and foundation of the contractual relation and the insurer proceeds on the faith of such statements to enter into the contract. ⁵²

Implications of non-compliance with policy terms

Generally, the burden of proof of breach of a term of the policy rests on the party alleging a breach. ⁵³ As a rule, a breach of an ordinary condition will not have any adverse effect on the policy but the aggrieved party, usually the insurer, could claim damages if such can be proved. ⁵⁴ In this circumstance, the aggrieved party is usually put into election either to treat the contract as repudiated, especially if it is a term that goes to the root of the contract, or affirm and ask for damages. ⁵⁵ Unlike condition precedent which requires strict compliance, substantial performance of a condition expressed in general terms suffices. However, where an ordinary condition as in Mokwe v Royal Exchange Assurance (Nig.) Ltd ⁵⁶ or a condition precedent as in Fadayomi v Mercury Assurance Co Ltd ⁵⁷ stipulates that the policy of insurance shall cease to have any effect on the breach of the condition, such a stipulation will be valid and binding on the parties. Also, the insured's breach of a condition precedent, which requires the insured to give timely notice of a loss or to forward document concerning a third party's claim or prosecution, is usually a condition precedent only to the insurers’ liability in respect of the loss in question; the assured's breach will not avoid the policy as future claims are potentially payable. ⁵⁸ In Kasmar Villa Holidays Plc v Trustees of Syndicate 1243, ⁵⁹ for example, wherein the insured was alleged to have been in breach of a condition precedent to ‘… immediately after the occurrence of any injury or damage give notice in writing with full particulars to insurers’, it was held that the condition, which related to ‘non-performance of obligations relating to the procedure for making claims,’ did not amount to a promissory warranty affecting the cover as a whole. ⁶⁰

In all, whether a condition would be regarded as a condition precedent to the liability of the insurer, breach of which would entitle the insurer to repudiate, or a mere collateral term, breach of which could only lead to damages in favour of the insurer, is a question of construction of the policy under consideration. As noted by Cave, J in Stoneham v The Ocean, Railway and General Accident Insurance Co: ⁶¹

The conditions indorsed on policy are of all sorts, and vary much in their language. Some of them contain provisions that in case of non-compliance the policy shall be void; others do not. It seems to me that the rational conclusion is that all these conditions mean what they say, and that where there is a provision that the condition shall be a condition precedent it is so, but where there is no such provision, it is not. ⁶²

Nevertheless, the insurer could waive a condition and not treat a breach thereof as a repudiation of the contract. ⁶³ Thus, a clear and unequivocal representation by the insurer that it does not intend to stand on its right to treat the cover as having been discharged is required before the plea of waiver can be sustained. ⁶⁴ In some circumstances, however, an insurer may be deemed to have waived a condition where, for example, it issues a policy with the knowledge that a condition against double insurance had been broken thereby leading the assured to alter his position; or where it accepts premium ⁶⁵ or proceeds to arbitration in order to give impression to the validity of the policy. ⁶⁶ Furthermore, where, by the term of the policy, the insured is required to give notice of a loss, and the insurer receives an informal or insufficient notice, it is the duty of the insurer to inform the insured before the time for giving such notice could expire to remedy the defect. If the insurer remains silent, and, a fortiori, if he acts on the notice without requiring the defect to be remedied such that the insured is induced to act in a particular way in reliance on the insurer's silence, there is a waiver of the full requirements of the term as to notice and the insurer would be deemed to have elected to accept the claim. ⁶⁷

On the other hand, at common law, a false warranty of past or existing fact would entitle the insurer to avoid the policy from inception since it relates to pre-contractual matters and the contract was concluded based on their accuracy. ⁶⁸ In this instance, compliance with a warranty was, generally, regarded as a condition precedent to the attaching of the risk. ⁶⁹ Non-fulfilment of a promissory warranty, however, automatically discharged the cover and entitled the insurer to avoid the policy from the date of the breach without having to prove that the loss was occasioned by the breach. ⁷⁰ Nevertheless, a loss occurring before the breach was covered and the insurer was liable thereby. In this circumstance, the fulfilment of the warranties was classified as ‘contingent conditions precedent’ to the liability of the insurer. ⁷¹ In Roberts v Anglo-Saxon Insurance Association Ltd ⁷² wherein a car was said to be ‘warranted for commercial travelling’, but suffered a loss through fire while being used for another purpose; the insurer was held not liable to pay the claim as it was immaterial whether or not the fact that the car was being used in this way was or was not a contributory cause of the fire or the actual cause or loss of the motor vehicle by the fire.

Usually, warranties were strictly construed by the courts based on the fact that:

{T}he insurer only accepts the risk provided that the warranty is fulfilled. This is entirely understandable; and it follows that the immediate effect of a breach of warranty is to discharge the insurer from liability as from the date of the breach. ⁷³

Thus, the fact that the breach was remedied and the warranty complied with before the loss was immaterial as the risk could not be reinstated. ⁷⁴ In De Hahn v Hartley ⁷⁵ the insured warranted that the ship would sail from Liverpool with a minimum of 50 crew members. However, when the ship left Liverpool, it had only 46 crew members, though it picked up six more hands in the course of voyage and had 52 hands at the time of the loss. The court held that the insurers’ liability terminated when the ship left Liverpool and that the insurer was not liable for any losses that arose after that date, however caused. The only instances where a breach of warranty was excused were when, by reason of a change of circumstances, the warranty ceased to be applicable to the circumstances of the contract, or when compliance with the warranty was rendered unlawful by any subsequent law, or where a breach of warranty was expressly waived by the insurer. ⁷⁶ It is noteworthy, however, that, although the MIA 1906 did not provide for how an insurer may be taken to have waived a breach of a warranty by the insured, it was held in HIH Casualty and General Insurance Ltd v AXA Corporate Solutions ⁷⁷ that, where there was a breach of warranty, the only type of waiver that could avail was waiver by estoppel and that there was no scope for traditional waiver by election or affirmation because the insurer was automatically discharged from liability upon breach and therefore had no choice to make. ⁷⁸

In the light of the foregoing, therefore, where a contract had been freely entered into and the words used in the policy were clear, the courts usually would uphold the sanctity of the contract and give effect to the manifest intention of the parties irrespective of the harshness of such decisions on the insured. In Unipac (Scotland) Ltd v Aegon Insurance ⁷⁹ the company answered two questions on the proposal form inaccurately. First, that they had been carrying on business for a year, while they had been incorporated for less than a year and, secondly, that they were the sole occupier of the premises, when they were not. Following a fire, the insurers refused to pay the claim. The policyholders brought an action arguing that they had not warranted the accuracy of the answers, only that they were true to the best of their knowledge and belief and that in the absence of a specific warranty, the insurer could avoid liability on the basis of a misrepresentation only if it was material. These arguments were rejected by the court which held that the words used were clear and the basis of contract clause which converted all the statements in the proposal form into warranties availed the insurer. Nevertheless, where there are ambiguities in the language used in the policy, the courts would usually apply the contra proferentum rule to construe such words against the drafter of the policy. In Simmonds v Cockell, ⁸⁰ the court stated that, if the language of a clause drawn by a party himself for his own protection is ambiguous, it must be construed against him; and if the words of a warranty in a policy are ambiguous, they must be construed against the underwriter who has inserted the warranty in it for his own protection. It has, however, been held in Crowden v QBE Insurance (Europe) Ltd ⁸¹ that the contra proferentum principle should not apply ‘ … to the interpretation of insurance exclusions, because insurance exclusions are designed to define the scope of cover which the insurance policy is intended to afford.’

Furthermore, on a number of occasions, the courts have sought to mitigate the harshness of the law in order to give protection to the insured through purposive construction of terms alleged to be warranties by holding, for example, that the clause in issue, which would otherwise have been treated as a continuing warranty, is merely descriptive of the risk. In Kler Knitwear Ltd v Lombard General Insurance Co, ⁸² wherein the insured's policy was subject to a sprinkler installation warranty which required that within 30 days of renewal, the system would be inspected by an engineer and repaired, if necessary; the breach of the warranty was stated as relieving the insurer of any liability whether or not it was material, or whether or not it increased the risk. The inspection was, however, about 60 days late and showed that the system was working. The factory later suffered storm damage after five months, an incident which was wholly unconnected with the sprinklers, and the insurers sought to avoid liability. The insurers were held liable as the particular clause was held not to be a warranty but ‘a suspensive condition’ limiting the risk. This means that had a loss occurred before the insured had carried out the policy requirements, such loss would not have been paid. In the view of the court, it was absurd and against business common sense to reject the claim because the inspection requirement was late. Similarly, in Farr v Motor Traders Mutual Insurance, ⁸³ the statement of the insured that taxis were to be driven for only one shift a day was merely descriptive of the risk such that cover was suspended while the taxi was used for two shifts a day, and once the owner resumed one shift, the insurer became liable again. In some other cases, warranties have been construed as applicable only to past and present facts, and not to the future. In Hussein v Brown, ⁸⁴ for example, the insured had made a statement in the proposal form, which was said to be the basis of the contract, that their premises were fitted with an intruder alarm. The statement which was true at the time the contract was made ceased to be true upon the suspension of the alarm service for failure to pay charges. It was held that the statement related only to present facts and did not make any promises about the future. According to the court, any continuing warranty would be a ‘draconian term’ and ‘if underwriters want such protection, then it is up to them to stipulate for it in clear terms.’ ⁸⁵ Yet, in some cases, the courts have construed the alleged breach of warranty as not being applicable to the facts in issue as in Provincial Insurance Co v Morgan ⁸⁶ where it was held that on ‘a strict but reasonable construction,’ the declaration and the clause only meant that transporting coal was to be the normal use and that transporting other goods would not terminate liability under the policy.

In general, it has been held in Virk v Gan Life Holdings Plc ⁸⁷ that where the policy either made no mention of what clauses were to be regarded as conditions precedent or where some clauses were so labelled and others were nor, then the court could apply its own construction to the policy. It would be a different matter if the court was convinced that care and logic had been used by the insurer in its choice of terms. Nevertheless, a purposive construction of policy terms is still, generally, dependent on policy wording as well as the disposition of the court adjudicating on the matter towards mitigating the effect of a breach of warranty. ⁸⁸

Statutory intervention in policy terms in Nigeria

The interest of the insuring public in Nigeria is being protected through a number of legislative interventions in the contractual terms of the parties to the insurance contract. One of such notable statutory interventions in policy terms was made in 1988 when the Insurance (Miscellaneous Provisions) Decree was promulgated. ¹¹⁵ The Decree has since been repealed and the relevant provisions on conditions and warranties have been re-enacted as section 55 of the Insurance Act 2003. ¹¹⁶ By section 55(1) of the Act, a breach of term, whether called a warranty or a condition, would no longer give rise to any right by or afford a defence to an insurer against an insured unless the term is both material and relevant to the risk or loss insured against. Thus, the hitherto unqualified legal privilege which the insurer possessed to avoid a legitimate and duly executed contract of insurance has been curtailed as avoidance is now premised on the twin preconditions of ‘materiality’ and ‘relevance’ of any alleged breach of the term by the insured to the insured risk, notwithstanding the conventional catchphrases of ‘warranty’ and ‘condition’ of the insurance contract in question. Essentially, the distinction that was usually made between a condition and a warranty has been removed such that the breach of any term, howsoever it may be described, will not avail an insurer of any right against an insured or of any defence to the claim of the insured under the contract unless such a term is material and relevant to the insured risk. Although the Act has not defined the term ‘material’ nor ‘relevant’, it can safely be presumed that ‘material’ has the general meaning attributed to it at common law, that is, a term or an undertaking relating to a matter which would influence a prudent insurer in deciding whether to accept the risk and at what premium and on what term. ¹¹⁷ ‘Relevant’, on the other hand, presupposes a causal connexion between the breach of the particular term and the resultant loss. ¹¹⁸

Furthermore, by section 55(2) of the Act, regardless of whatever any other written law may contain, ¹¹⁹ an insurer will have no right to repudiate an insurance contract or an insurance claim, either entirely or partially, on account of any breach of a term of an insurance contract unless such a breach amounts to fraud ¹²⁰ or is a breach of a fundamental term of the contract. ¹²¹ In this instance, a term described as warranty, ‘condition precedent’, or ‘basis of contract clause’, for example, would, generally, be of no effect unless it is one, the breach of which amounts to a fraud or has the effect of destroying the very basis of the contract. Thus, irrespective of the materiality or relevance of a term of insurance contract as required in section 55(1), the insurer's right to repudiate on account of an alleged breach of term can be exercised if it can be further established that the breach amounts to either of these two completely untenable misconduct on the part of the insured.

Moreover, by section 55(3) of the Act, ‘[W]here there is a breach of a material term of a contract of insurance and the insured makes a claim against the insurer and the insurer is not entitled to repudiate the whole or any part of the contract, the insurer shall be liable to indemnify the insured only to the extent of the loss which would have been suffered if there was no breach of the term.’ In essence, if the insured, at any time after a breach of a material term has been committed, submits an insurance claim to the insurer, but the latter has no right to repudiate the contract either entirely or partly because that breach does not amount to a fraud or a breach of a fundamental term of the insurance contract, the insurer shall only be liable to indemnify the insured only for the proximate loss exclusive of the remote loss which has been occasioned by the breach of the term.

Nevertheless, by section 55(4) of the Act, the insurer is, at all times, entitled to avoid a contract of insurance on account of an actionable breach by the insured ‘before the occurrence of the risk or loss insured against.’ This right may be exercised notwithstanding the afore-mentioned prerequisites for a valid repudiation of the insurance contract. This legal remedy afforded the insurer is not just an ordinary remedy, but one that is targeted at balancing the interests of the parties as it has afforded the insurer an opportunity of its possible resolve to discontinue the contract of insurance once there has been a breach of a term thereof. The Act, has, however, not made any provision for situations where the alleged breach has been remedied by the insured before the insured peril occurs.

The Motor Vehicle (Third Party Insurance) Act, ¹²² which makes provision against the risks of death or bodily injury to third parties arising out of the use of motor vehicle is another significant statutory intervention in policy terms in Nigeria. First, by section 8 of the Act, any condition in the policy issued pursuant to the provisions thereof, which purports to limit or exempt the insurer from any liability in the event of some specified thing being done or omitted to be done after the happening of the event giving rise to a claim under the policy is rendered of no effect. Thus, conditions which are not related to the insured risk but which merely requires the insured to give notice of loss or proceedings as in Martins v National Employers’ Mutual General Insurance Association Ltd ¹²³ would be of no effect as against a third party claiming from the insured. In the instant case, the plaintiff brought an action against the defendant insurers for a declaration that they were liable to pay the damages and costs awarded against the insured in a judgement obtained by the plaintiff in a civil action. The plaintiff was injured by the negligent driving of a person insured by the defendants for statutory cover in respect of third party risks. It was a condition of the policy that the insured or his legal personal representatives should give the defendants notice of any proceedings. Five days after the judgement, the defendants received from the plaintiff's solicitor, a copy of a letter addressed by him to the insured demanding damages to which no reply was given by the defendants. The contention of the insurer was that no notice was given of any proceedings. It was held that, for the purpose of relieving an insurer of liability under a policy of motor vehicle insurance, a condition in the policy requiring that notice of proceedings should be given to the insurer by the insured comes within the provisions of section 8 of the Motor Vehicle (Third Party Insurance) Act such that to show that notice was not given as required by the condition is no defence to a claim by a third party for a declaration that the insurer is liable to satisfy a judgement obtained against the insured in respect of a liability required to be covered by compulsory third party insurance. The insurer was thus held liable to satisfy the judgement obtained against the insured in respect of liability covered. It was further held that the insurer is, nevertheless, entitled to repayment from the insured, any sum which he may have become liable to pay under the policy or which has been so applied to the satisfaction of the claims of such third parties. ¹²⁴ Also, by virtue of this provision, a permitted driver could successfully sue his employer's insurer for an indemnity in respect of damages awarded against him for injuring a third party despite a breach of the condition to give notice to the insurer as stipulated in the policy. Thus, in Sule v Norwich Union Fire Insurance Society, ¹²⁵ it was held, inter alia, that in case of motor vehicle insurance against third party risks under a policy which complied with the requirements of the Motor Vehicle (Third Party Insurance)Act, a permitted driver, though not a party to the policy, derives benefits from the terms of the policy and has the right to claim directly against the insurer, indemnity in respect of any liability which the policy purports to cover in respect of a permitted driver; and where the policy purports to cover liability to any person, this includes liability to the owner of the insured vehicle notwithstanding that he is the policy holder.

Furthermore, by section 9 of the Act, reliance on restriction clauses by the insurer to avoid liability has been curtailed. Thus, where a certificate of insurance has been delivered to the insured, insurers cannot decline liability on the ground that some restrictions imposed on the scope of the policies covering such third party risks have not been complied with. In this regard, so much of the policy that purports to restrict the insurance in respect of such matters as the age, or physical or mental condition of persons driving the motor vehicle; the condition of the motor vehicle; the number of persons that the motor vehicle carries; the weight or physical characteristics of the goods that the motor vehicle carries; the times at which or the areas within which the motor vehicle is used; the horsepower or value of the motor vehicle; or the carrying on the motor vehicle of any particular means of identification other than any means of identification required to be carried under the Road Traffic Laws, is to be of no effect as far as the claim of third parties is concerned. Again, the proviso to the section gives the insurer the right to recover from the insured any sum that is paid in or towards the discharge of the liability of the insured pursuant to the provisions of that section.

Nevertheless, section 10(2)(a) of the Act has made it a condition precedent to the liability of the insurer to satisfy third party judgements on compulsorily insured liabilities that notice must be given to the insurer before or within seven days of the commencement of proceedings in which such judgement was given. ¹²⁶ The courts have, however, consistently held that failure to comply with such notification conditions does not absolve the insurers of liability. As it has been rightly observed:

They are not inserted for the purposes of enabling an insurer to escape liability but, rather, to give them a reasonable opportunity of investigating the claim under the most favourable circumstances, and thereby of detecting and rejecting fraudulent or exaggerated demands. The condition ought to be construed fairly to give effect to this object, but at the same time so as to protect the assured against being trapped by obscure or ambiguous phraseology. ¹²⁷

The foregoing provisions, no doubt, are geared towards the protection of the rights of third parties to liability insurance contracts irrespective of whatever agreement might have been reached by the contracting parties. The contractual right of the insurer has also been preserved by the proviso to section 8, which permits the insertion of provisions in the policies that would enable it recover from the insured any sum it would not have been liable to pay by reason of non-compliance with the conditions of the policy by the insured but for the law, as well as section 9, which gives automatic statutory right to recover from the insured.

Statutory intervention in policy terms in the United Kingdom

In the United Kingdom, the Consumer Insurance (Disclosure and Representations)Act (CIDRA) 2012, which is enacted to make provision about disclosure and representations in connexion with consumer insurance contracts; ¹²⁸ the Insurance Act (UKIA) 2015, which has made provisions that significantly impacted on the common law rules on warranties and other policy terms in consumer and non-consumer insurance contracts, ¹²⁹ and the Consumer Rights Act (CRA) 2015 contain significant provisions towards addressing the problems associated with policy terms at common law. ¹³⁰

CIDRA, in section 6 thereof, has abolished the use of the basis of contract clauses and its draconian effects in contracts of insurance by prohibiting insurers from converting into a warranty, any representation made by a consumer in connection with a proposed consumer insurance contract or a proposed variation thereto, either by means of any provision of such consumer insurance contract or of the terms of the variation or of any other contract, and whether by declaring the representation to form the basis of the contract or otherwise. Section 11 of CIDRA has also abolished the rule of law contained in section 20 of the MIA 1906 with respect to material representations made by the assured or his agent to the insurer pending negotiation of a marine insurance contract, or before contract is concluded, which, if found to be untrue, gives the insurer the right to avoid the contract if it is a consumer insurance contract within the meaning of CIDRA 2012. ¹³¹ Furthermore, section 15 of CIDRA forbids contracting out whereby a contract term would put the assured in a worse position than he would have been under the Act.

Similarly, the UKIA, in section 9 thereof, has, in the same manner as section 6 of CIDRA, effectively abolished the basis of contract clause by prohibiting the conversion of any representation made by the insured in connection with a proposed non-consumer insurance contract or a proposed variation thereto into a warranty either by means of any provision of such contract or of any other contract, and whether by declaring the representation to form the basis of the contract or otherwise. The importance of this provision is also underscored by the provisions of section 16(1) of the Act, which renders ineffective, any term in non-consumer policies which would put the insured in a worse position with regard to any representation to which section 9 applies than the insured would be in virtue of that section. Thus, while an insurer may contract out of the other provisions of the Act, it cannot, by any term of the policy contract out of the provisions of section 9 as it concerns basis of contract clauses. In essence, where the insurer wants the insured to warrant a particular statement, such must be contained in the policy document itself by appropriate term as opposed to the proposal forms that were hitherto commonly used. Section 20 of the MIA 1906 has also been repealed by the provisions of section 21(2) of the Act.

Furthermore, under section 10 of the UKIA, any rule of law which has the effect of discharging the insurer of its liability under a contract of insurance on account of a breach of express or implied warranty in such contract is abolished. ¹³² In essence, while it is still required that a warranty be exactly complied with whether it is material to the risk or not, a breach of a present or continuing warranty, express or implied, by the insured will no longer result in automatic discharge of liability of the insurer. ¹³³ Also, the liability of the insurer will not be affected in respect of losses occurring, or attributable to something happening before the breach of warranty or, if the breach can be remedied, after it has been remedied. ¹³⁴ A breach is taken to have been remedied if the risk to which the warranty relates later becomes essentially the same as that originally contemplated by the parties in a case where the insured complies with the warranty which requires that by an ascertainable time, something is to be done (or not done), or a condition is to be fulfilled, or something is (or is not) to be the case, and in any other case, where the insured ceases to be in breach of the warranty. ¹³⁵ This provision has, therefore cured the mischief of the common law rule which relieved the insurer of its obligation under the contract of insurance even where the alleged breach has been remedied by giving statutory recognition to the suspensory solution applied in such cases as Kler Knitwear Ltd v Lombard General Insurance Co ¹³⁶ and Farr v Motor Traders Mutual Insurance ¹³⁷ whereby the obligation of the insurer is suspended during the period of the breach. An insurer is, however, relieved of any liability, subject to section 11, in respect of any loss occurring or attributable to something happening, after an express or implied warranty has been breached but before the breach has been remedied. ¹³⁸ Also, in like manner as it was under section 34(1) of the MIA 1906, the insurer is relieved from liability under section 10(3) if, because of a change of circumstances, the warranty ceases to be applicable to the circumstances of the contract; or where compliance with the warranty is rendered unlawful by any subsequent law; or where the insurer itself waives the breach of warranty.

In addition, under section 11 of the UKIA, in respect of an express or implied term of an insurance contract other than a term defining the risk as a whole, the insurer will not be able to evade liability if compliance with such term would tend to reduce the risk of one or more of three kinds of losses, namely, loss of a particular kind, or loss at a particular location or loss at a particular time. Furthermore, the insurer may not avail himself of the benefit of those risk delimiting clauses in the event of a loss to exclude, limit or discharge its liability under the contract if the insured can show that the non-compliance with the term could not have increased the risk of loss which actually occurred in the circumstances in which it occurred. ¹³⁹ The application of this section is, however, limited to specific risk terms as opposed to ‘a term defining the risk as a whole’, which definition has not been provided by the Act. Thus, where the term in issue is one that defines the risk as a whole, the effect of the breach thereof will be determined by the common law rule or as provided under section 10 of the Act or by the contractual terms. ¹⁴⁰ Moreover, terms, in this context, presumably, include warranties as well as conditions precedent to liability for a claim which have bearing on the insured risk. However, conditions precedent relating to claims procedure would appear not to be covered since they are not risk-related and the insured peril would have occurred before they can be effective.

Generally, the application of the UK IA to consumer insurance contracts in respect of its provisions on warranties and other terms cannot be contracted out. ¹⁴¹ For non-consumer insurance contracts, contracting out is only possible in respect of terms to which section 9 has no application. In respect of other terms which may be considered a ‘disadvantageous term’ and from which it is possible to contract out, ¹⁴² an insurer is required, under section 17 of the Act, to take sufficient steps to bring such term to the insured's attention before the contract is concluded and such term must be clear and unambiguous as to its effect. In this regard, the characteristics of insured persons of the kind in question and the circumstances of the transaction are to be taken into consideration in determining whether the insurer has actually complied with these requirements. Nevertheless, where it is found that the insurer has failed to take sufficient steps, the term may still be binding on the insured if the insured or its agent, such as a broker, had actual knowledge of the disadvantageous term when the contract was entered into. In this instance, actual knowledge, and not constructive knowledge is required for the contract to be binding on the insured

Moreover, the statutory protection given to the insured is further accentuated under the CRA 2015 which regulates consumer contracts between a trader and a consumer. ¹⁴³ The CRA, in Part 2 thereof, specifically regulates unfair terms in consumer contracts with specific provisions on consumer contracts and consumer notices to the extent that such notices have some bearing on the rights and obligations of the parties or purports to exclude or restrict a trader's liability to a customer. ¹⁴⁴ In general, under section 62 of the CRA, the consumer is relieved from any obligation arising from any unfair term of a contract or of unfair notice. A term or a notice, such as an exclusion clause, for example, is considered unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations to the detriment of the consumer. ¹⁴⁵ In this regard, fairness is to be determined by taking into account the nature of the subject matter of the contract or of the notice. In the case of a term, reference is to be made to all the circumstances existing when the term was agreed upon as well as to all the other terms of the contract, or any other contract on which it depends and, in the case of a notice, by reference to all the circumstances existing when the rights or obligations to which it relates arose and to the terms of any contract on which it depends. ¹⁴⁶ Any term, which satisfies the requirement of transparency and prominence is, however, excluded from consideration of fairness under section 64 of the CRA. A term is transparent if it is expressed in plain and intelligible language (in the case of a written term) and is legible, whilst it is considered prominent if it is brought to the consumer's attention in a manner that an average consumer would be aware of the term. ¹⁴⁷ In the same vein, a notice is transparent if it is expressed in plain and intelligible language and it is legible. ¹⁴⁸ In any situation that a contractual term is adjudged unfair, such term is not binding on the consumer but the contract continues, so far as practicable, to have effect in every other respect. ¹⁴⁹ The common law doctrine of contra proferentem is also given statutory expression under section 69 of the CRA such that where a term has different meaning, the meaning that is most favourable to the consumer is to prevail. ¹⁵⁰ The court is also statutorily empowered to, suo motu, consider the fairness of a contractual term even if none of the parties to the proceedings has raised the issue, or indicated that it intends to raise it, once it is satisfied that it has before it sufficient legal and factual material to enable it consider the fairness of the term. ¹⁵¹

Statutory intervention in policy terms in Australia

The Australian Insurance Contracts Act (ICA) 1984, ¹⁵² has significantly impacted pre-contractual statements made by the insured as well as the liability of the insurer in respect of breach of contractual terms after the conclusion of the contract in a profound way. Unlike section 11 of the CIDRA, section 24 of the ICA does not make express provision to repeal section 20 of the MIA, but has effectively abolished the basis of contract clauses by rendering any pre-contractual statement made by the insured to the insurer as to the existence of a state of affairs of no effect as a warranty. Such statement is to be treated as mere representation and not treated as having been converted into a warranty. Furthermore, unlike the UK IA which restricts the application thereof to warranties and risk specific terms, section 54 of the ICA applies to all policy terms including continuing warranties, terms relating to conduct obligations and claims procedure as well as those which exclude or limit the liability of the insurer. In addition, unlike what obtained at common law, section 54 of the ICA, like section 55(1) of the Nigerian Insurance Act, requires a causal connexion between an alleged breach of a policy term and a loss. ¹⁵³ Also, by adopting the proportionality and causation tests, section 54 has, in general, sought to balance the interests of the contracting parties and ensure fairness in claims settlement. Thus, the insurer's right to repudiate a claim, under section 54(1) of the ICA, is now dependent on the extent to which it has been prejudiced in consequence of any act done by the insured or of some other person after the contract has been concluded, which would have entitled the insurer to repudiate the claim either in whole or in part and its liability in respect of the claim is also reduced by the amount that fairly represents the extent to which its interest has been so prejudiced by the act complained of. ¹⁵⁴ Nevertheless, where the act complained of can reasonably be regarded as being the cause or a contributory factor to the insured risk, the insurer could refuse to settle the claim. ¹⁵⁵ In certain specified circumstances, however, the insurer would still be liable to pay either the whole or the part of the claim depending on the available evidence at the disposal of the court. Thus, by the adoption of the causation test, the insured is protected if he is able to prove that no part of the loss that gave rise to the claim was caused by the act, ¹⁵⁶ and where he successfully proves that some part of the loss that gave rise to the claim was not caused by the act, the insurer is disentitled from refusing to pay the claim as far as that part of the loss is concerned. ¹⁵⁷ Furthermore, in situations where the act complained of was done in order to protect the safety of a person or to preserve property; ¹⁵⁸ or where it was not reasonably possible for the insured or other person not to do the act, the insurer may not refuse to pay the claim by reason only of the act. ¹⁵⁹ The interest of the insured is given further protection under section 37 of the ICA wherein it is provided that the insurer is barred from relying on any unusual provision in the contract of insurance, unless it notifies the insured in writing, and before the contract is concluded, of the effect of such unusual provision.