COMMERCIAL LAW: DR CHIBUZOR1/6/20

PREMIUM REFUND
A valid contract of insurance whether marine or general insurance must be
supported by exchange of consid that is premium. See sect 50 of insurance act
2003. Acc. to the act, no premium, no insurance. See also JESSICA TRADING COMP
V. BENDEL INSURANCE COMP LTD (1992) 2 N.L.R 15, see also ESE V. ASAIMO &
FACE-TO-FACE COMP LTD (1974) 4U.I.L.R PT 3, 355 AT 3572, 358 OR IN (1975)
N.C.L.R 433 AT 439. See also BENDEL INSURANCE COMP LTD V. EDOKPOLA (1989)
4 N.W.L.R PT 118 AT 727. This is in addition to all other factors necessary for the
formation of a valid insurance contract. Premium is the price or consid payable by
the insured to the insurer in exchange for the assumption of risk. See ELVIS V.
NORWICH UNION FIRE INSURANCE COMP. LTD (1916) A.C 509 AT 519. A court of
law is not competent to determine the adequacy or otherwise of premium. It
would mean deciding the terms for the parties. The parties decide what the
premium should be. See AFRICAN REINSURANCE COMP V. FANTAYE (1986)
1N.W.L.R PT 14 AT 113.
RETURN OR REFUND OF PREMIUM
The premium may be returned in part or in whole in accordance with the terms of
the policy esp. in partial or total failure of consid. Note that the premium is not
recoverable whether the consid has totally or partially failed if there is an express
stipulation in the contract preventing the return of the premium or where the
insured is guilty of fraud or where both parties are aware of the illegal nature of
the contract. The fund is also not limited to life insurance but can be for different
policies including health insurance and marine insurance. The most type of
premium refund occurs when the insurance is purchased for a specific time frame
but the policy holder cancels it before that time frame is up. If the insurance has
gone unused a refund is issued. Where an insurance comp has not been at risk at
all, they have not earned the premium and as such it can be returned. For
example, in BRADFORD V SYNDOMONSON (1881) 7Q.B.D 456. A ship was overdue
and the insurance range insured at a heavy premium. At the date of the
insurance, the ship had arrived safely but neither party knew of it. It was held that
the insurer was bound to pay the premium to the insurer. See also CRUSADER
INSURANCE COMP LTD V. ANUNIKE (1975) 5U.I.L.R PT 3, 300 AT 305, see EZIGBO
V. LION OF AFRICA ISURANCE COMP LTD (1966-67) 10E.N.R 180 AT 118-183 or
(1957) N.C.L.R 88 AT 92, BAMIDELE V. NIGERIAN GENERAL INSURANCE COMP LTD
(1973) 3U.I.L.R PT 4, 416, EIKO LTD V. DYKE (1977) 7C.C.H.C.J 1505 AT 1506 or in
L.C.L.R 402 AT 403-404, where it was held that since the policy was cancelled and
it subsequent nullification ab initio, the insured who has not acted fraudulently is
entitled as far as possible to be put back into his original position that is refund of
the premium paid and the return of the salvage removed by the insurer from the
scene of the accident. Where the insurers have commenced bearing the risk,
under a valid policy, the premium paid or payable for that risk is immediately
deemed to be earned by the insurers irrespective of the fact that the policy is
subsequently terminated and insurers are immediately afterward relieved of the
risk for the remaining unexpired term covered by the policy. See EIKO LTD V. DYKE
supra. If the insured fails to pay the installments due after the commencement of
the risk, the legal effect is that he forfeits the premium already paid under the
policy. See CRUSADER INSURANC COMP LTD V. ANUNIKE supra. Apart from the
above scenarios listed, premium paid may also be refunded where;
1. Consideration has failed totally and there has been no illegality on the
part of the insured or his agents. Example; if the assured insured goods
on the wrong ship by mistake. See MARTINS V. SITWELL (1691)
1S.H.U.W.A. 156.
2. Where the contract was entered into under the mistake of fact.
Examples are where the insurer lacks the capacity to enter into the
particular type of insurance contract or where the insurer was never at
risk because of the non-existence of the subject matter of the contract
at the time of the insurance which its facts was not known to the
parties. See PRISCHARD V. THE MERCHANTS AND TRADESMAN MUTUAL
LIFE INSURANCE LTD (1856) C.B.M.S 622, or where the insurance
contract is illegal and illegality was induced by the misrepresentation of
the insurance agent. See HYES V. PEARL LIFE INSURANCE COMP (1904)
1K.B 558, and the insured being aware of the illegality. See HYES V.
LIVERPOOL VICTORIA FRIENDLY SOCIETY.

COVER NOTE
A cover note is a temporary contract of insurance used in indemnity contracts
particularly motor vehicle insurance to hold the proposal in the interim period
between submission of the proposal and the final determination of it application
by the insurer. Sometimes, prior to the issuance of the policy, the insurer may
decide to issue a temporary cover note as an interim contract subject to the
terms contained in the contract policy. In NASSIDI V. MECURY ASSURANCE COMP
LTD (1971) 1N.C.L.R 387 AT 392, an accident occurred during the currency of
temporary cover note. It was held that the insured was entitled to be indemnified
by the insurer by virtue of the cover note because on the evidence it was not
issued fraudulently as the manager/agent was acting within the scope of his
apparent authority and the insurer could not heard to say that the issue was
unauthorized in fact. Also, in SALACO V. LUMBARD INSURANCE COMP LTD (1978)
10-12 C.C.H.C.J 45. The insured succeeded in recovering the loss of a car
comprehensively insured which was stolen after the cover note was issued prior
to the issuance of policy. Similarly, in FADECO INSURANCE LTD V. UNITED NIGERIA
INSURANCE COMP LTD (1992) 2N.L.R 128, a cover note was issued by the insurer
for goods in transit insurance subject to the terms contained in the standard
policy. The loss occurred during the validity of the cover note prior to the issuance
of the policy. It was held that the contract of insurance was made when the
plaintiff paid the premium and therefore any non-standard condition contained in
the policy will not be binding on the insured since the parties have already arrived
in substance to a complete agreement, a new term cannot be introduced by the
insurer in issuing a policy.
NB: this is in spite the principle of incorporation of the policy by reference
whereby the construction of the cover note could be linked as an integral part of
the policy. See NORTHERN ASSURANCE COMP LTD V. WURAOLA (1969) 1ALL N.L.R
14 or in (1969) 1 N.C.L.R 4. See also YORKSHIRE INSURANCE COMP LTD V.
HAYWAY (1969) 1ALL N.L.R 352 AT 360. It may be necessary for us to understand
what we mean here by incorporation of the policy reference. To understand the
principle of incorporation by reference, note that an important requirement for
the formation of a contract of insurance is that the parties must be agreed on
terms and conditions of the contract. Agreement must be reached on certain
essential matters like the amount of premium, nature of risk and the duration of
the risk. See ESEWE V. ESEIMO (1974) 4U.I.L.R PT 3 AT 356. It follows that the
consensus must similarly be reached by the parties on these essential
requirements before there can be a binding contract of insurance constituted by a
cover note. Most cover notes however, are silent on the conditions governing the
contracts constituted by them but would refer however remotely to the existence
of a policy that they haven’t even seen. Quite commonly, it is provided in the
cover note that the risk is covered on terms of the insurers usual form of policy.
The most common motor vehicle cover notes used in Nigeria such as those
present in SALACO V. NASSIDI and then MECURY INSURANCE COMP LTD will read
thus; “the under mentioned having proposed for insurance in respect of the
motor vehicle in the schedule below and having paid the premium indicated in
the risk is hereby held covered in the terms of the comps usual form of policy as
described hereunder for a period of 30 days”. It is shown earlier that in
NORTHERN ASSURANCE COMP LTD V. WURUOLA and YORKSHIRE INSURANCE
COMP LTD V. HAYWAY, the s.c held that the presence of such statements in a
cover note had the effect of incorporating the terms and conditions of the
insurance standard policy into the cover note, so that the insured became bound
by the policy conditions not expressed in the cover note and though he had no
copy of the policy.
It appears that by the position of sect 55 of the insurance act 2003 the above
decision may no longer reflect the position of the law. That sect provides that in a
contract of insurance of breach of a term whether core the warranty or condition
shall not give rise to any right or afford a defence to the insurer against the
insured unless the term is material or relevant to the risk or loss insured against.
See sect 55(2(3)) of the insurance act which states that the circumstances under
which an insurer may have may have the right to repudiate the contract or the
particular liability. Even thought the status of cover note is that of a complete and
enforceable contract there is a requirement or implied term that the risk must not
materially change prior to the issuance of the policy. See EZIGBO V. LION OF
AFRICA ISURANCE COMP LTD supra. In spite of the fact that it is an interim
contract distinct from the one comprised in the policy. See also ESEWE V. ESEIMO
supra. From the above, it is clear that cover notes gives temporary but full cover
to the insured usually for a fixed period. See ORAMAIKE V. EZEOKE (1977)
A.N.S.L.R 31 AT 32. A fixed period of 30 days and if a loss occurs within the period
prior to the issuance of the policy, the insurer is bound to indemnify the insured.
See FADECO INSURANCE LTD V. UNITED NIGERIA INSURANCE COMP LTD supra.
Because practically, the peril insured against has occurred. In marine insurance, a
slip is used in place of cover note and it has the same validity. See NICON V. PECO
LTD (1986) 1S.C, 1 AT 60-61. Once cover note has expired, in absence of renewal,
alteration by amendment or by way of extension of issuance of former policy,
there is no obligation on the part of the insurer to indemnify the insured. See
EZIGBO V. LION OF AFRICA ISURANCE COMP LTD supra where it was held that the
insured cannot recover for damages which occurred after the expiration of
provisional cover not. See also a contrary opinion in IFETA V. MILVERTON
INSURANCE COMP LTD (1975) 6C.C.H.C.J 349, where it was held that the
insurance contract starts on the date agreed and cannot be repudiated by the
expiration of cover note issued for only 30 days after the premium has been paid.
It was said there that the cover note is only a protection until the policy is issued
retrospectively. Note that possession of the current cover note for a vehicle on
the expiration of the provisional insurance cover is a question of fact. The onus is
on the person alleging to prove. See MANAGEMENT ENTERPRISES LTD V.
AUTSANYA (1987) 4S.C.N.J 110 AT 119. See also EZIGBO V. LION OF AFRICA
INSURANCE COMP LTD supra.