- INTRODUCTION
Mandatory insurance
1.1 Motor insurance claims disputes still remain a major cause of litigation in the insurance industry today. One reason is the mandatory nature of motor insurance. Section 68(1) of the Insurance Act 2003 requires every motor user to have compulsory third party motor insurance but that section only refers to material damage. Section 68(3) declares that the provisions of the Motor Vehicle (Third Party) Insurance Act 1950 shall continue in operation.
Motor Vehicle (Third Party) Insurance Act
1.2 Section 68(3) is clear that liability under the Motor Vehicle (Third Party) Insurance Act for death or personal injury to third parties is not altered by the provisions of the Insurance Act. Section 6 of the Motor Vehicle (Third Party) Insurance Act states that the third party insurance covers the insured liability for death or bodily injury to any person (third party) caused by or arising out of the use of motor vehicle covered by the policy.
- LIMITS OF INDEMNITY
Section 68(2) of the Insurance Act imposes a lower limit of N1m for material damage liability and an insurer is at liberty to impose a maximum limit of liability for material damage. However, an insurer cannot place a maximum limit of liability for death or personal injury to third parties. Section 69(1)(b) of the Insurance Act 2003 is similar to section 10(1) of the Motor Vehicle (Third Party Insurance) Act 1950 and both sections impose a statutory duty (not a contractual liability) on an insurer to settle the amount of any judgment obtained by a third party claimant against an insured.
- CLAIMS: NOTIFICATION & INVESTIGATION
Notification
3.1 Generally insurance policies require that on the occurrence of any accident or loss prompt notice should be given to the insurer. The purpose of such notification is to allow the insurer take control of and manage the claims process. The manner of notification may be oral or written and it may be made by the insured or through a broker. In Leadway Assurance v Zeco (2014), the Supreme Court held that in the absence of an express requirement of a written notice, an oral notification of loss was valid. This was a marine insurance case but the principle is applicable to every policy.
3.2 Where the policy requires the insured to give notice of loss promptly or immediately, then notice given several weeks or months after the accident is a breach of condition which entitles the insurer to repudiate liability. The notification condition is important to the insurers to enable them take immediate steps to manage any claim. Prompt notice of an accident is a fundamental term within the meaning of section 55 of the Insurance Act and failure to notify the insurer of the accident goes to the root of the insurance contract. However, there is judicial authority that breach of the notification condition may not entitle the insurer to repudiate the claim because of the provisions of section 8 of the Motor Vehicle (Third Party) Insurance Act. See, Martins v National Employers Mutual (1969) and Sule v Norwich Fire Insurance (1974).
Investigation
3.3 Once an accident is reported and a claim is made, the insured must complete an Accident Report/Claims Form provided by the insurer. This is the basis of the investigation carried out by the insurer. Sometimes the information and estimate provided by the insured in the claims form is false or exaggerated and this will be discovered by the loss adjuster or an engineer appointed by the insurer. The question is whether or not the duty of disclosure applies to information provided in the claims form. The duty of disclosure applies at the commencement of the contract and continues during the currency of the policy but not after the loss. After the loss an insurer is entitled to repudiate a fraudulent claim if the information in the claims form is false or exaggerated.
Police report
3.4 Section 71(1) of the Insurance Act 2003 states that, in the event of a claim arising from a motor accident, it shall not be necessary to produce a police report to the insurer except in the case of death or serious bodily injury to any person. In the absence of death or serious bodily injury, a statement made by a single eyewitness involved in the accident will be sufficient proof of loss or damage. However, a police report is mandatory for claims arising from theft (stealing or robbery) of the vehicle. See section 71(3) of the Act. It must be noted that a police report can be ‘purchased’ and must not be taken at face value because often the police do not conduct any investigation to verify the allegations of the insured.
- CLAIMS REPUDIATION
Communication
4.1 Section 70(1)(c) of the Insurance Act states that where an insurer does not accept liability, it must deliver a statement in writing to the insured repudiating the claim and stating the reason or grounds not later than 90 days from the date on which the claim is made. Insurers also communicate their repudiation to the insured broker by email. It is important to note that the grounds for repudiation will form the basis of the defence of the insurer in litigation by the insured and the communication should therefore be carefully drafted with legal advice.
Statutory provisions
4.2 Section 55(1) of the Insurance Act states that, a breach of a warranty or a condition shall not give rise to any right by or afford a defence to the insured unless the term is material and relevant to the risk or loss insured. The word relevant means that the warranty or condition must be related to the risk and the word material means that the warranty or condition must be significant to the risk. Section 55(2) of the Insurance Act states that, where there is a breach of a warranty or condition of the contract, the insurer shall not be entitled to repudiate the whole or any part of the contract or any claim on the grounds of the breach unless; (a) the breach amounts to fraud; or (b) it is a breach of a fundamental term of the contract.
Grounds for repudiation
4.3 There are several grounds upon which a claim can be repudiated. Some of them include; (i) where there was no valid cover at the time of the loss; (ii) where premium had not been paid at the inception of the policy; (ii) where the loss was not covered by the policy; (iii) where there was breach of a warranty or condition; (iv) where the insured failed to disclose material facts; (v) where the entire claim was false or fabricated; (vi) where the amount of the claim was grossly exaggerated. Motor insurance policies rarely contain a warning against fraudulent claims and the effect of fraudulent claims.
- FRAUDULENT CLAIMS
Fraud & suspicion
5.1 What is fraud? The Insurance Act does not state the meaning of fraud but the Black’s Law Dictionary defines fraud as, the deliberate or intentional misrepresentation or concealment of the truth of a material fact to induce another to act to his detriment. However, fraud must be proved by facts and evidence and mere suspicion of a fraud is not sufficient. Usually a vehicle which is stolen shortly after it was insured raises a red flag but an insurer cannot prove a fraudulent claim on the basis of suspicion alone. This is why the investigative work of the loss adjuster is important.
Fraudulent claims rule
5.2 At common law an insurer reserved the right to repudiate fraudulent claims. See, Britton v Royal Insurance Co (1865). The settled law is that an insurer can repudiate a fraudulent claim where; (a) the entire claim was fabricated; or (b) there was a genuine claim but the amount of the claim was dishonestly exaggerated. In Versloot Dredging v HDI GerlingIndustrieVersicherung AG. (2016), the Supreme Court of England held that the fraudulent claims rule applies to a wholly fabricated claim or an exaggerated claim but does not apply to a justified claim supported by collateral lies.
Proof of ownership
5.2 In one case, the vehicle was allegedly stolen about 6 months after it was purchased. There were questions about the ownership of the vehicle and doubts about the robbery incident. The report of the investigator revealed that; (i) the police issued a report without any investigation about the robbery; (ii) the insured deliberately registered the vehicle with an incorrect chassis number (to enable the new buyer register the vehicle with the correct chassis number). We advised the insurer to repudiate the claim. This case shows that production of vehicle registration papers and a police report is not sufficient to confirm the ownership and loss of the vehicle. Therefore, it is advisable for insurers to insist on the shipping documents for newly registered vehicles and also confirm the chassis number of such vehicles.
Contradictory accounts
5.3 It is settled law that contradictory accounts of an incident affect the credibility of the person and the veracity of the story. Where the insured gives conflicting accounts of the robbery or incident in which the vehicle was stolen, this can be regarded as a fraudulent claim and sufficient ground to repudiate the claim. In one case, the account in the police report was that the robbers followed the insured to his house where the vehicle was snatched but the account of the insured in the claims report was that he was hit from behind by the robbers and when he came down the vehicle was snatched. We advised the insurer to repudiate the claim.
- BREACH OF WARRANTY OF CONDITION
Section 55 Insurance Act
6.1 An insurer cannot rely upon a breach of a warranty or condition to repudiate an insurance claim unless the term is material and relevant to the risk or loss. See section 55(1) of the Insurance Act. The word relevant means that the warranty or condition must be related to the risk and the word material means that the warranty or condition must be significant to the risk. Section 55(5) of the Insurance Act defines a fundamental term as any warranty or condition which an insurer will regard as material and relevant to underwrite a risk and fix the premium. The judicial authorities agree that a fundamental term is one that goes to the root of the insurance contract. See, Niger Insurance v Abed Brothers (1976).
Anti-theft device
6.2 A good working tracking or alarm device may prevent the theft of the vehicle or assist in the prompt recovery of the stolen vehicle. In the event of theft of the vehicle and where the insured was in breach of the warranty by failing to keep the device in good working order the insurer can repudiate the claim. Furthermore, there is a standard policy condition that the insured must take reasonable steps to protect the vehicle from loss or damage. Also, the insured will breach the duty of disclosure by failing to disclose that the device had broken down or stopped working.
- PROPER PARTIES TO LITIGATION
Joinder of insurers by 3rd parties
7.1 The provisions of section 68 of the Insurance Act 1997 (first enacted by the Insurance (Special Provisions) Act 1988) expressly gave a third party claimant the legal right to join an insurer directly in actions against an insured but those provisions can no longer be found in the Insurance Act 2003 and in effect they have been impliedly repealed. Therefore, there is no longer any statutory authority for the joinder of an insurer in an action by third party claimants against an insured. Section 69 of the Insurance Act 2003 does not give a third party claimant a legal right to join an insurer in claims against the insured.
Judicial authority
7.2 Judicial authority in Nigeria has rejected the joinder of an insurer as a co-defendant in action by a third party claimant against an insured. In New India Insurance v Odubanjo (1971), the Supreme Court held that the third party claimant did not have the right to join the insurer in an action against the insured because there was no privity of contract between the claimant and the insurer. See also, Mecury Assurance v Ajufo (1978), where the Supreme Court held that the defendant insured did not have the legal right to join the insurer as a co-defendant in an action brought by the third party claimant. See also, UBA v Achoru (1987).
Third party proceedings
7.3 Where the defendant insured seeks to join the insurer he can only do so by way of third party procedure. The Supreme Court said in both UBA v Achoru and New India Insurance v Odubanjo, that an insurer can be joined by way of third party proceedings (not as co-defendant) in an action against the insured on the grounds that the insurer has a statutory duty to indemnify the insured for the amount of the judgment.
- PROOF OF NEGLIGENCE
In many cases the third party will commence litigation to recover damages against the insured. In such cases the third party must prove that the negligence of the insured caused the accident. In Abubakar v Joseph, (2008), the Supreme Court (per Tobi JSC) said, “In cases of motor accidents the test to be applied in determining who was negligent is to look for the person whose negligence substantially caused the accident by determining whether or not that person could have avoided the collision by the exercise of reasonable care.” See also, Ngilari v Mothercat Ltd (1999). Where the insured was not negligent and did not cause the accident there can be no liability on the part of the insurer.
- PAYMENT, REPAIRS OR TOTAL LOSS
The indemnity options
9.1 In material damage claims the insured will either be paid the cost of the damage or the damage will be repaired by the insurer but if the repair is not economically viable the vehicle will be declared a total loss or write off and the sum insured will be paid less deductions. The standard policy provision states that, the insurer may at its own option; (i) pay in cash the amount of the loss or damage; or (ii) repair or reinstate the vehicle; or (iii) replace the motor vehicle. Insurers usually exercise the option to pay cash or repair the vehicle but rarely replace. Where there is underinsurance (the sum insured is less than the market value of the vehicle) the insurer will apply the pro rata condition of average to settle the claim. This is one area that confuses consumers of motor insurance who expect to be paid the full sum insured.
Reasonable time
9.2 The insurer must carry out the repairs within a reasonable time or may be liable for damages. In Niger Insurance v Abed Brothers (1976), the insured vehicle was involved in an accident and the insurer undertook the repairs. The repair of the tractor was completed 11 months after the accident but the trailer did not become roadworthy until 38 months after the accident. The Supreme Court held that the failure of an insurer to repair the vehicle within a reasonable time was a fundamental breach of contract which denied the insurer from relying on any clause in the policy limiting their liability.
Competent repairs
9.3 In Nicholas Brothers v Lion of Africa Insurance (1961), the insured was dissatisfied with the repairs carried out by the insurer on the damaged vehicle. The High Court held that the insured was entitled to recover the full pre-accident value of the vehicle as the insurer had failed to discharge their obligation to restore the vehicle to the pre-accident condition. Udo Udoma J said, “It is clear on the authorities cited above that when the defendants exercised their option to repair and reinstate the car in question, they understood to make good the damage done so as to leave the car so far as possible as though it had not been damaged.”
Proximate cause
9.4 In one case, the insured made a claim following an accident and the engineer assessed the damage but the insured rejected the offer and while the first claim was being processed the insured made a second claim which the insurer rejected. Litigation ensued and in our defence we invoked the doctrine of proximate cause and argued that the damage on the second claim was not caused by the accident. The insured also insisted on using his preferred expensive workshop rather than the authorised workshop of the insurer and we argued that the insured failed to mitigate the loss. The matter was settled out of court when the insured accepted the offer on the first claim and abandoned the second claim.
- LOSS OF USE
Consequential loss
10.1 The standard motor insurance policy does not cover consequential loss or loss of use. In Mercury Assurance v Anozie (1977), the Court of Appeal held that an insurer cannot be liable for the cost of car hire (consequential loss) after an accident unless it was expressly covered by the policy. Aseme JCA said, “Consequential loss or loss of use has been defined by Shawcross to refer to loss which the assured sustains as the user of the vehicle during the same time that it is out of action as a consequence of the damage covered by the policy which loss would not be covered unless the policy expressly extended to it.”
Mitigation of loss
10.2 In litigation, a claim for loss of use is an item of special damages which must be pleaded and strictly proved. In one case, the third party claimant did not agree with the repair estimate of the insurer and refused to submit the car to the authorized workshop of the insurer. We successfully challenged the claim for loss of use and argued that the claimant failed to mitigate the loss and it was unreasonable to abandon the vehicle in the premises of the insured for over three months and turn around to claim loss of use.
10.3 A person is expected to repair the damaged vehicle within reasonable time and mitigate the loss. In Obasuyi v Business Ventures (2000), Belgore JSC said, “It is incumbent to get such damaged vehicles repaired at the earliest opportunity. This is the requirement of the law all over the world. To allow a party that is a victim of negligence time almost in perpetuity to leave his damaged object unrepaired and expect damages to be calculated against years rather than a few days is giving a blank cheque to rake underserved compensation.”
- SATISFACTION OF JUDGMENT
Section 10(1) of the Motor Vehicle (Third Party) Insurance Act and section 69(1)(b) of the Insurance Act both impose a duty on an insurer to settle the judgment obtained by a third party against the insured. In Perera v Motor & General Insurance (1971), the court held that section 10(1) of the Act imposed a statutory duty and not a contractual liability on the insurer to settle the judgment obtained against the insured. See also, Oginni v Motor & General Insurance (1978). Furthermore, Section 10(1) of the Motor Vehicle (Third Party) Insurance Act and section 69(1)(b) of the Insurance Act both give a third party who has obtained judgment against the insured the direct right to enforce the judgment against the insurer even though the insurer was not a party to the original proceedings.
Jide Bodede LLM(Lond)
08035130694
