By Amaka Ezeno, MCLArb
An insurance contract is a contract where one party called the insured or assured, pays a specified amount of money called a premium to another party, the insurer, who in turn agrees to compensate the insured for specific future losses. The essential elements of insurance transactions are risk coverage and indemnity.
You can insure your property or life against future losses. It could be against fire, personal accident, marine insurance or life policy. The indemnity could be in form of cash, or repair, reinstatement, and replacement.
The duty to disclose material facts is an indispensable feature of insurance contracts. It is known as the principle of utmost faith or uberime fidei in Latin. This means that the parties must disclose all material facts of the contract which he knows or ought to know would influence the judgement of the insurer in determining whether or not to insure the risk, or to insist on a higher premium for accepting to bear the risk.
The insurer also has a duty not to conceal material facts relating to the insurance policy. Section 54(1) of the Insurance Act has stipulated that insurance companies must draw up a proposal form containing every information they deem material in accepting the application for insurance of the risk, and which is completed by the intending insured.
Any information not specifically requested for in the form is deemed immaterial. This principle has received judicial blessing in the case of Irukwu . T.M.I.B., where the court held that a contract of insurance should be one of utmost good faith. In United Nigeria Insurance Col. Ltd v. Universal Commercial and Industrial Co. Ltd, it was held that it is the duty of the assured not only to be always honest and straightforward but to make a full disclosure of all material facts.
The failure to disclose material facts could be in the form of concealment, fraud or misrepresentation. In Bamidele & Anor v. Nigeria General Insurance Co, the insured, in a personal accident insurance, stated that he was an employed horticulturist whereas he was a labourer. Similarly, in Demetriades & Co. v. Northern Assurance Co. Ltd, the insured stated that the ship was owned by a Briton when, in fact, it was owned by a Greek national. The court held that this amounted to failure to disclose a material fact and was therefore fatal to his claim.
On the other hand, innocent misrepresentation may not amount to failure to disclose. For example, in life insurance, an insured may not know, until a medical test, that he has a latent medical condition. In this case, if he presents himself before such test, to be fit and healthy, it may be treated as innocent misrepresentation, and therefore, not liable.
In Century Insurance Co. v. Obi Atuanya, where a motor vehicle was insured. The car was destroyed by fire and claim was made; the insurance company turned down the claim on the ground that the respondent failed to disclose the material fact that his policy with his previous insurer had been cancelled. It was held that the defence of non-disclosure must fail because the respondent had no knowledge of the cancellation of the policy by his previous insurer.
For a successful defence of non-disclosure, the insurer repudiating liability must show that:
- The alleged circumstance did exist at the time of making or completing the contract.
- That the insured knows or ought to have known of the existence of the fact committed, hidden, falsified, or presented in a wrong manner.
- The fact in question is material.
- The fact was not disclosed to the insurer.