Valley of Decisions: Biography and Essays in Honour of Hon. Justice Iorhemen Hwande

Chapter Thirteen - The Interplay of the Concept of Insurable Interest and the Principle of Indemnity in Insurance Contracts

Chapter Thirteen ~ The Interplay of the Concept of Insurable Interest and the Principle of Indemnity in Insurance Contracts V.A. ShimaEsq* Abstract The essence ofan insurance contract is to mitigate or ameliorate an otherwise catastrophic loss which mankind very often than not experiences due largely to the risky nature ofman's life on earth. An insurance business is essentially a contractual arrangement used to transfer, distribute and share these risks among the insured class under which all members contribute to pay the losses ofafew. However, there are basically two parties to a contract of insurance i.e., the insurer and the insured or assured. In practice, it is not always easy for the insured to be indemnified by the insurer upon the occurrence of the insured event. This is due largely to the interplay of the concept of insurable interest and the principle ofindemnity coupled with the ignorance ofthe insured on one hand, and the tendency of the insurer to playa fast one on the insured by taking undue advantage ofthe insured's ignorance ofthese principles on the • Lecturer, Dept of Commercial and Property Law. Benue State University 189 190 Valley ofDecisions other hand. This article highlights this and other problems encountered by the insured in pursuing his claims from the insurer and tries to enlighten the insured on how to avoid the pitfalls which appear to frustrate the insuredfrom claiming his proceeds. The articlefinally recommends that the insurance law should be strengthened to ensure that right from the inception ofan insurance contract, the minds ofthe parties are working ad idem on all the issues. Introduction The law of insurance requires that an insured must have insurable interest in the subject-matter of the insurance. In the case of Lawunion and Rock Insurance Ltd. v. Livinus Onuoha" the court defined insurable interest as the assured's pecuniary interest in the subject matter of insurance. This insurable interest mustbe a legally recognized relationship to what is insured whereby the insured will suffer some financial lossbythehappening ofthe eventinsured against. Theabsenceofinsurab1einterestmakesthecontractofinsurance a mere gamble and, therefore, unenforceable.> The principle ofindemnity on the otherhand, is to the effect thatin the event ofa loss emergingfrom an insured periL the insured shallbe returned to status quo ante. Inother words, the insured shallbe placed in the same position thathe was immediatelyprecedingthe happeningoftheevent.Theinsured is, however, not to recover more than the actual loss as this will be contrary to public policy. He is not to make a profit from the loss. In the case of Castellain v. Preston3 the court 1 (1998)6 NWLR (pt. 535)576. 2 See Section 60 (1) Insurance Act, 2004. 3 (1883)11 QBD250. The Interplay o/the Concept 0/Insurable Interest 191 held that the contract of insurance is a contract ofindemnity and the insured in the case of a loss againstwhich the policy has been made shall be fully indemnifiedbut shall never be more than fully indemnified. This principle ofinsurance law hasreceived statutoryrecognitionfrom theNigerianInsuranre Act, 2004. Section 62 ofthe Act places limitation on amount rereivable by a personwithinsurable interest. Such amount shallnotbe greater than that ofthe value ofthe interestofthe insured in the life insured or otherevent. The interplay ofthe concept of insurable interest and the principle ofindemnity plays a significant role notonly onthe chanres ofthe insured to recover proreeds from the insurer on the occurrenre ofthe insuredeventbutitalsodeterminesthequantumoftheproceeds to be recovered from the insurer. This article discusses this interplay and its effects on insurance contracts. However, before delving into detailed analyses ofthese concepts, it is proposed to explore the meaning and nature of insurance contracts generally. The Meaning and Nature ofInsurance Contract Itis difficultto define withexactitude a contractofinsuranre. Sir Robert Megarry, v.c. expressed doubt in the case of Medical Defence Union v. Dept. of Trade' whether a satisfactory definition ofa contract ofinsuranre will everbe evolved. This is due largely to the tendency to obscure and occasionallyexclude that whichoughttobe included."Bethat as it may, it is necessary to attempt a working definition of insurance contract for a better understanding ofthe subject and for enhanced appreciation and comprehension of the legalissues discussed inthis article. 4 (1980) 1 Ch. 82 at 89. S Templeman ,J in Dept of Trade & Industry Vs. St. Christopher Motorists Ass. Ltd (1974) I Lloyd's Reports 17 & 18. 192 Valley ofDecisions Agbakoba, J. defined a contract of insurance in the case of Chime v. United Nigeria Ins. Co. Ltti6 as: A contract whereby a person called the...