Insurance Principles and Practice
This domain examines whether you can apply the founding doctrines of insurance - insurable interest, utmost good faith, indemnity, subrogation, contribution and proximate cause - to a Nigerian claim or policy dispute. Expect scenario stems, not definitions.
The doctrines that decide claims
- Insurable interest must exist at inception for life and marine, and at the time of loss for property. A creditor may insure a debtor's life only up to the debt.
- Utmost good faith obliges the proposer to disclose every material fact - one that would influence a prudent underwriter's decision or rating. The duty revives at each renewal.
- Indemnity restores the insured's financial position and never produces profit. Life, personal accident and valued policies are benefit policies, so indemnity does not apply.
- Subrogation lets the insurer pursue third parties after paying an indemnity. The insured must not release the tortfeasor or prejudice the right.
- Contribution operates only where two policies cover the same insured, the same interest, the same peril and the same period.
- Proximate cause is the dominant, effective cause, not the last event in the chain.
The Nigerian overlay
Section 50(1) of the Insurance Act 2003 makes receipt of premium a condition precedent: no premium, no cover. A policy issued on credit is unenforceable, and the risk of non-payment sits with the insured.
Worked example
Stock worth ₦10m is insured with Insurer A for ₦4m and Insurer B for ₦6m; fire causes ₦5m loss. Both policies are valid and neither carries an average condition. Contribution is pro rata by sum insured: A pays 4/10 × ₦5m = ₦2m, B pays 6/10 × ₦5m = ₦3m. The insured recovers ₦5m, not ₦5m from each insurer.
Traps that cost marks
Using market value where the policy is on reinstatement basis. Applying subrogation to a life policy. Ignoring the average condition and awarding the full loss. Treating contribution as apportioning a loss that one policy alone covers.