SCOPE OF THE DOCTRINE OF UBERRIMAE FIDEI

James VC highlighted the uniqueness of the doctrine of uberrimae fidei in Mackenzie v Coulson,Footnote ⁹ when he asserted that “there is no class of documents as to which the strictest good faith is more rigidly required in courts of law than policies of assurance”.Footnote ¹⁰ The doctrine prescribes a set of specific reciprocal duties for contracting parties in all forms of insurance, including marine, life and indemnity.Footnote ¹¹ It essentially forbids either party from concealing what he privately knows or from making any untrue representation in order to draw the other into the bargain from his ignorance of that fact and his believing the contrary.Footnote ¹² The rationale behind the doctrine, therefore, is the prevention of fraud and the encouragement of good faith between the contracting parties.Footnote ¹³ It is noteworthy, however, that, in practice, this duty weighs more heavily on the insured than on the insurer, in view of the general perception that the former occupies a better position in the bargaining process as regards knowledge of material circumstances about the subject matter of the insurance.Footnote ¹⁴ In the authoritative case of Carter v Boehm, the principle of utmost good faith in contracts of insurance was adroitly expressed by Lord Mansfield as follows:

In this case, the action was based on a 12 month policy of insurance, taken out for the benefit of the governor of Fort Marlborough, George Carter, against the loss of the fort to a foreign enemy. The insured event occurred, as the fort was taken during the policy period. The defendant underwriter, Boehm, denied liability to indemnify the insured on the ground of the concealment (non-disclosure) of circumstances that ought to have been disclosed, in particular the weakness of the fort and the probability of its being attacked by the French. The court, however, found that: the underwriter knew that the insurance was for the governor, the governor must be acquainted with the condition of the fort, the governor's duties prevented him from disclosing that condition, and, by taking out the insurance, the governor was aware of the possibility, at least, of an attack; and that the insurer underwrote the policy with this knowledge and without asking any questions. The court held that, in the circumstances, by underwriting, the underwriter assumed the knowledge of the condition of the fort and that the fact alleged to have been concealed was a matter as to which he might be informed in various ways and that it was not a matter within the privileged knowledge of the governor such that the governor was bound to disclose it. Thus, although the court in this case imputed the knowledge of the weakness of the fort and the likelihood of its being attacked to the insurer (as they were common knowledge that the insured was not therefore obliged to disclose), the underlining principle of the doctrine of utmost good faith, as expressed by Lord Mansfield, was established.

In general, therefore, before a contract is concluded, the insured is obliged to disclose all matters within his actual knowledge or that he could ascertain by reasonable inquiries, that he believes to be material to the insurer's appraisal of the risk, whether or not they have been specifically requested. The insured is also obliged not to make any material misstatement of any fact. In this regard, it would generally not suffice for him to perform the duty in good faith and to the best of his understanding.Footnote ¹⁶ Also, where the insurance contract has been negotiated by an agent on behalf of the insured, any fact within the agent's knowledge must be disclosed.Footnote ¹⁷

Moreover, when a fact is not disclosed by the insured when it ought to have been disclosed in answer to a question, there is a prima facie case of non-disclosure. On the other hand, an insured may have given honest answers to questions raised in the proposal form and yet not have acted in utmost good faith because of concealing a particular fact, or suppressio veri.Footnote ¹⁸ In Bufe v Turner,Footnote ¹⁹ the plaintiff had one of several warehouses next but one to a builder's shop that caught fire. On the evening after that fire had apparently been extinguished, he gave instructions, by an extraordinary conveyance, for insuring that warehouse, while leaving others uninsured, but did not appraise the insurers of the neighbouring fire. Although the terms of the insurance did not expressly require the communication, it was held that the concealment of that fact voided the policy. Similarly, in London General Omnibus v Holloway,Footnote ²⁰ the employer of a servant, when taking a bond that purported to make a surety responsible for the fidelity of the servant, did not disclose to the surety that he knew that the servant had previously been guilty of dishonesty in his employment. It was held that the employer could not enforce the bond against the surety in respect of the servant's subsequent dishonesty, although the employer's non-disclosure of the servant's previous dishonesty was not fraudulent. It is thus generally irrelevant whether the insured discloses what he thinks to be material and the insurer will not be on risk if he has been materially deceived as to the nature of the risk he is assuming.Footnote ²¹

Nevertheless, there is no need to disclose facts known to the insurers,Footnote ²² or within the constructive knowledge of the insurers,Footnote ²³ within common knowledge,Footnote ²⁴ relating to business practice or custom,Footnote ²⁵ or that lessen the risk agreed and understood to be run by the express terms of the policy.Footnote ²⁶ Also, where, from the facts communicated to him, the insurer would naturally infer the existence of other undisclosed facts, his omission to make further inquiry is deemed an implied waiver of a more explicit disclosure.Footnote ²⁷

On the other hand, when making statements as to the nature and effect of the risks for which the insured seeks cover or the recoverability of a claim under the policy, the insurer is obliged to ensure that such statements are accurate, for they are crucial factors that a prudent insured would ordinarily take into account in deciding whether or not to place the risk.Footnote ²⁸ It was thus noted in Re Bradley and Essex and Suffolk Accident Indemnity Society Footnote ²⁹ that, in observing the duty of utmost good faith, it is incumbent on insurance companies to make clear, in both their proposal forms and policies, the conditions precedent to their liability to pay. This is because those conditions have the same effect as forfeiture clauses and may inflict loss and injury on the assured and anyone claiming under him out of all proportion to any damage that could possibly accrue to the insurer from the non-observance or non-performance of the conditions. Also, where an underwriter conceals a fact that ought to have been made known to the insured (such as where the underwriter concealed that he insured a ship for a voyage when he privately knew that she had already arrivedFootnote ³⁰ or where the insurer effected a fire insurance policy on a house that the insurer knew had been demolished),Footnote ³¹ the insured could avoid the policy.

Furthermore, as noted in Manifest Shipping Co Ltd v Uni Polaris Shipping Co Ltd,Footnote ³² utmost good faith is a principle of fair dealing that does not end when the contract has been made, but continues for as long as the policy is valid. Thus, where facts emerge during the currency of the policy that are materially at variance with the information originally given at the conclusion of the insurance contract, those facts must be disclosed to the insurer.Footnote ³³ The insured is subject to the same duty when seeking renewal of the policy, since renewal generally constitutes the making of a new contract of insurance.Footnote ³⁴ However, where an alteration is only to be made to the original contract, the duty of disclosure arises only in relation to the part affected by the alteration.Footnote ³⁵

Utmost good faith is also required at the claims stage. As such, the insured is barred from making fraudulent claims or inflating items in his or her claim. In Goulstone v Royal Insurance Co, a fraudulent claim was described as one that is “wilfully false in any substantial respect”.Footnote ³⁶ In Britton v Royal Insurance Co,Footnote ³⁷ the insurer declined payment on a claim made by the insured in respect of a fire policy upon household furniture, trade fixtures and stock-in-trade, alleging both arson and fraud, as the assured had set fire to his house and presented a claim that was greater than it actually was. Willes J stated:

Similarly, in Galloway v Guardian Royal Exchange (UK) Ltd,Footnote ³⁹ it was held that the insured is under a duty to ensure that he or she does not make a claim for an amount greater than his or her actual loss, so that the insurer is not misled by his claim. The court further held that, since there is no such thing as “substantially fraudulent”, once it has been proved that a claim was made with the fraudulent intentions, the insurer is entitled to reject the whole claim.Footnote ⁴⁰

However, it is noteworthy that the doctrine of uberrimae fidei does not apply to a contract that merely resembles an insurance contract. Thus, in University of Nigeria Nsukka v Turner and Another,Footnote ⁴¹ the plaintiff had wanted to invest the sum of 25,830 Nigerian Pounds (NGP) a year for 50 years with the aim of receiving NGP 3 million from the defendant insurers at the end of that period. However, it mistakenly took a so-called “sinking fund” policy of assurance with the defendants. When the plaintiff later discovered that the insurance company's authorized capital was too meagre to meet the insurer's obligations, it repudiated the policy on the ground that the agent should have disclosed that fact. It was held that an investment contract had been created between the university and the defendant and, as such, the defendants were not bound to make any disclosure to the plaintiff as to their capital structure or as to their financial strength in general.

ISSUES ARISING FROM THE APPLICATION OF THE DOCTRINE AT COMMON LAW

It is noteworthy that it is material facts that are required to be disclosed or not to be misrepresented in the discharge of the contracting parties’ respective duties. A pertinent issue arising from the application of the doctrine at common law is, therefore, the determination of what constitutes a material fact. Under sections 18(2) and 20(2) of the Marine Insurance Act, 1906 (MIA 1906), the legal test of the materiality of a fact is stated to be “one which would influence the judgement of a prudent insurer in fixing the premium, or determining whether he will take the risk”.Footnote ⁴² In Akpata and Another v African Alliance Insurance Co Ltd,Footnote ⁴³ the Supreme Court also stated:

Also, in Mayne Nickless Ltd v Pegler, the court stated that, “[i]n determining the question whether a particular fact is one which ought to be disclosed, the test to be applied is not what the assured thinks, nor even what the insurers think, but whether a prudent and experienced insurer would be influenced in his judgement if he knew it”.Footnote ⁴⁵ However, in Container Transport International Inc and Reliance Group Inc v Oceanus Mutual Underwriting Association (Bermuda) Ltd Footnote ⁴⁶ it was held that a fact is material if a prudent insurer would like to have known it, although the evidence showed that the prudent insurer would, in fact, have accepted the proposal on standard terms. This decision was later affirmed by the House of Lords in Pan Atlantic Insurance v Pine Top Insurance,Footnote ⁴⁷ holding that the test of materiality of disclosure, for the purposes of both marine insurance under section 18 of the MIA 1906 and non-marine insurance, should be based on the natural and ordinary meaning of section 18. It was thus held that “material circumstance”, which would require disclosure under the act, constitutes a circumstance that would influence the judgment of a prudent insurer. It does not necessarily mean that an insurer must have acted differently if he had known the fact, but merely that the insurer would have wanted to know the fact when making his decision. The court further held that, in order for an insurer to be entitled to avoid a contract of insurance or re-insurance on the ground of non-disclosure, the insurer must show both that the undisclosed fact was material and that its non-disclosure induced the contract on the relevant terms, using “induced” in the sense in which it is used in the general law of contract.

Thus, matters such as previous insurance as in Akpata v African Alliance Insurance,Footnote ⁴⁸ previous refusal as in Container Transport and Reliance v Oceanus Mutual,Footnote ⁴⁹ London Assurance v Mansel Footnote ⁵⁰ and Northern Assurance v Idugboe,Footnote ⁵¹ previous convictions, especially those relating to fraud or dishonesty as in Roselodge v Castle,Footnote ⁵² and matters affecting the insurer's right to subrogation as in Tate v Hyslop Footnote ⁵³ have all been held to be material facts that the insured must disclose to the insurer. Furthermore, in life and personal accident policies, where specific questions are often asked about matters affecting people in general, all facts relating to age and occupation must be accurately stated by the assured, especially where the assured is engaged in any hazardous occupation. Thus, in Bamidele and Another v Nigeria General Insurance Co Ltd,Footnote ⁵⁴ the deceased assured had described himself to the insurer in respect of personal accident insurance as a horticulturist and greengrocer, whereas he was actually a labourer. It was held that the statement constituted non-disclosure that, if known, might have influenced the insurer in fixing the premium or in deciding whether or not to take the risk, and that the deceased's failure to state his occupation entitled the insurers to avoid the contract. Furthermore, the assured must disclose peculiar matters affecting him or her that are not likely to be known to the assurers and that, had they been known, would, no doubt, have been made the subject of specific enquiries.Footnote ⁵⁵ Similarly, in motor vehicle insurance, matters such as the age of the vehicle, its value and make, are material facts that must be disclosed.Footnote ⁵⁶

It is worth noting, however, that the insured is only required to disclose facts that he knows and of which the insurer does not know.Footnote ⁵⁷ As succinctly stated by Fletcher Moulton LJ in Joel v Law Union and Crown Insurance:

In this case, the assured had given a negative answer to the question as to whether she had suffered mental derangement, because she did not know that she had been mentally deranged. In an action brought by the assured's executrix following the assured's suicide, it was held, inter alia, that a person cannot conceal what he does not know. Also, in Century Insurance Co v Atuanya,Footnote ⁵⁹ the insured was unaware that an earlier policy of insurance on his car, issued to him by his previous insurer, had been cancelled. The insurer had turned down a claim made when the car was destroyed by fire on the ground that the insured had failed to disclose that material fact. It was held that the proposer is asked to state no more than what he believed, on reasonable grounds, to be the true situation and, since the plaintiff had no knowledge that his previous insurers had cancelled his policy, the defence of non-disclosure must fail. Similarly, in Akpata v African Alliance Insurance,Footnote ⁶⁰ the court held that there was no suppression of fact by the deceased assured who said he was in good health when he was, in fact, very ill, because the nature of his illness was not medically detectable at the time when he was obliged to supply the information in question.

Another pertinent issue in the application of the doctrine is the warranty of the accuracy of the information the insured gives in a proposal form.Footnote ⁶¹ The proposal form generally constitutes an offer by the proposer to the insurer. Once the insurer accepts the form, the terms contained in it are binding on the parties and it would make no difference that the insurer has not yet issued a policy to the insured.Footnote ⁶² Moreover, in practice, a basis of contract clause is usually inserted in the proposal form, under which the insured warrants the accuracy of the information supplied in the form as well as covenanting with the insurer that the declaration should form the basis of the contract between the parties. More often than not, the proposer gives the warranty without actually realizing its importance or legal implications. When the insurer eventually issues the policy, the basis of contract clause is usually incorporated into it, having the effect of enlarging the express terms of the contract between the parties. In this case, all information is ultimately considered as a material fact in determining the liability or otherwise of the insurer, irrespective of its relevance or materiality to the insured risk, or the integrity and honesty of purpose of the insured. It was held in Duckett v Williams Footnote ⁶³ that, once the truth of a statement had been made the basis of the contract, an insurer was entitled to avoid the contract if he could show that the statement was untrue or inaccurate, and that it was immaterial that the insured was unaware that the statement was not true.Footnote ⁶⁴ Similarly, in Royal Exchange Assurance Nigeria Ltd v Chukwura Footnote ⁶⁵ the Supreme Court stated that, where a proposal is made the basis of a contract of insurance, any misstatement in it is a ground on which insurers may avoid liability under the policy and it is also a good and valid defence to an action for indemnity by the policy holder. In general, the basis of contract clause has always been used as a sort of trap or a vicious device for the insured, as it performs little or no educative function.Footnote ⁶⁶ Thus, in Akpata v African Alliance Insurance,Footnote ⁶⁷ the plaintiffs, as administrators of the estate of the late Dr Akpata, claimed the sum of NGP 3,000 upon a life policy entered into by the deceased in 1965 with the defendant company. However, the defendant denied liability on the ground of non-disclosure, in that the deceased, in answer to one of the questions in the proposal form, had denied ever having previously entered into a contract of life assurance with another company, although he had a policy of life assurance under which a sum of NGP 2,000 was paid. A declaration was made in the proposal form that the statements should be made the basis of the contract of insurance. It was held that the plaintiffs could not claim on the policy. The court noted that:

In Dawson v Bonnin,Footnote ⁶⁹ the proposer, in respect of a fire insurance policy on a lorry, was required to state the full address at which the lorry would be garaged and, inadvertently, inserted the wrong address. Since the policy contained a basis of contract clause, the insurer was held to be entitled to repudiate liability on a claim made under the policy when the lorry was lost by fire, even though the assured's representation as to the place where the vehicle was garaged was immaterial. However, where there is no such basis of contract clause, an insurer seeking to avoid a policy on the grounds of non-disclosure or misrepresentation would have to prove either fraudulent intention or that the misstatement was related to a material fact.Footnote ⁷⁰

One other issue that could arise with the use of a proposal form is the effect of the insured leaving specific questions unanswered. In Lindenau v Desborough,Footnote ⁷¹ it was held that the non-answering of a specific question would amount to concealment if the person concerned knew the fact and was able to answer it. Similarly, it was held in Marcovitch v The Liverpool Victoria Friendly Society Footnote ⁷² and Roberts v Avon Insurance Co Ltd Footnote ⁷³ respectively that omitting to answer a question cannot be regarded as a mis-statement of fact, but that the omission will constitute a misstatement of fact if the obvious inference is that the applicant intended the blank space to represent a negative answer. However, the insurer's subsequent issue of a policy of insurance in such circumstances, without further inquiry, was held to amount to a waiver of information.Footnote ⁷⁴

Another pertinent issue in the application of the doctrine of uberrimae fidei is the status and authority of an insurance agent who assists a proposer to complete a proposal form. Insurance trade custom generally allows an intermediary to act as an agent of both the insurer and the insured simultaneously. However, where the agent has assisted a proposer to complete a proposal form, the agent is deemed the proposer's amanuensisFootnote ⁷⁵ and the agency rule of qui facit per alium facit per se [he who acts through another does the act himself] will be enforced. This is so, irrespective of the proposer's permanent or temporary incapacity, such as blindness or illiteracy. In Salako v Lombard Insurance Co Ltd,Footnote ⁷⁶ it was held, inter alia, that it is the proposer's responsibility to complete and sign the proposal form and if for any reason the proposer allows any other person to complete the form before he signs it, that person must be regarded as the proposer's agent. Indeed, as rightly noted in some quarters, both the underwriter and the insured might have been deceived by the agent's act or omission, but it is the insured who ultimately bears the brunt by way of a rejected claim.Footnote ⁷⁷ Thus, in Northern Assurance v Idugboe,Footnote ⁷⁸ the plaintiff insured was found not to have disclosed the fact that his motor vehicle had been insured under another policy against third party risk, which, however, refused to grant him comprehensive cover. The non-disclosure appeared to be the decision of the insurer's agent who assisted the illiterate insured to complete the proposal form, as the plaintiff alleged that he had disclosed the fact to the agent. Nevertheless, the court held that there was a material non-disclosure and that the insurers were entitled to avoid the contract.Footnote ⁷⁹ However, a different decision was reached in Bawden v London, Edinburgh and Glasgow Assurance Co,Footnote ⁸⁰ where Bawden's administratrix brought an action to recover the amount secured to the deceased by a policy of insurance against accidental injury granted to him by the defendant company. In this case, Bawden was an illiterate man, who was almost unable to read or write, but could write his name. The agent produced a printed proposal, completed the blanks as dictated by Bawden and Bawden then signed his name. The proposal contained a statement by the assured that he had no physical infirmity and that there were no circumstances that rendered him peculiarly liable to accident. It was agreed that the proposal should form the basis of the contract between him and the company. At the time Bawden signed the proposal, he had lost the sight of one eye, a fact of which the agent was aware, though he did not communicate it to the defendant. The assured, during the currency of the policy met with an accident that resulted in the complete loss of sight in his other eye, such that he became permanently blind. It was held, inter alia, that, under the circumstances, the knowledge of the defendant's agent was the knowledge of the defendant and that it was liable under the policy.Footnote ⁸¹

Generally, the onus of proving non-disclosure or misrepresentation is on the party alleging it and, more often than not, this rests upon the insurer.Footnote ⁸² In Drake Insurance Plc v Provident Insurance Plc Footnote ⁸³ it was held, inter alia, that an insurer seeking to rely on the insured's non-disclosure of material information was obliged to show that it would not have entered into the contract or would have charged a different premium. A successful plea vitiates the policy and renders it voidable from the outset at the instance of the aggrieved party.Footnote ⁸⁴ In this respect, the innocence, inadvertence, negligence or carelessness of the guilty party would be immaterial.Footnote ⁸⁵ However, where the alleged non-disclosure of a material fact cannot be substantiated by the insurer, the insured is entitled to recover the insured sum. Thus, in Audu Bida v Motor and General Insurance Co,Footnote ⁸⁶ the insurer had alleged that the insured car was old, not a new car as represented by the insured; it was held that the risk had attached on the issue of the cover note and that the subsequent loss suffered by the insured was recoverable from the insurers. Similarly, where there is an alleged misrepresentation of a material fact, the court would consider a given statement in its entirety in order to ascertain its veracity. A statement that is basically accurate will, therefore, not vitiate the policy on the ground of a trivial misstatement. Thus, in United Nigeria Insurance v Salawu Karimu,Footnote ⁸⁷ the insurers had alleged that there was a material misrepresentation when the defendants wrote the names of two persons as if they were one person, without disclosing this fact or informing the insurers that the parties were in partnership. It was held that the misrepresentation was not material and that, even if there had been a misrepresentation, it was clear that it would not have influenced the insurers one way or the other, in fixing the premium or determining whether or not to accept the risk. Generally, once a contract has been avoided, it has a retrospective effect as the parties are restored, as far as possible, into their original positions as if the contract of insurance has never been made. In Cornhill Insurance Co Ltd v Assenheim,Footnote ⁸⁸ the court stated that avoiding a policy results in its being set aside from the outset, leading to the repayment of any losses and the return of any premiums paid.Footnote ⁸⁹ Thus, if the insurer had already settled a claim by paying the insured sum, he is entitled to demand repayment of that sum on the ground of money paid under a mistake of fact. In the same vein, in the absence of fraud or fraudulent concealment of fact, avoidance of the policy by the insured entitles him to a repayment of any premium he has paid based on a quasi-contractual action for money paid against consideration that has totally failed.Footnote ⁹⁰

AN EXPOSÉ OF THE EPOCH-MAKING STATUTORY INTERVENTION IN NIGERIA

In respect of non-marine insurance contracts, the common law doctrine of uberrimae fidei has been modified by section 54 of the Nigerian Act, with the intention of curing the mischief of the old order.Footnote ⁹¹ The statutory intervention impacts the test of materiality of a fact, the status and authority of an insurance agent and the effect of the basis of contract clause. With regard to the proposal form, section 54(1) provides that, “[w]here an insurer requires an insured to complete a proposal form or other application form for insurance, the form shall be drawn up in such manner as to elicit such information as the insurer considers material in accepting the application for insurance of the risk and any information not specifically requested shall be deemed not to be material.” The use of the word “where” in this provision implies that the Nigerian Act has not changed the common law rule regarding non-marine insurance contracts concluded orally.Footnote ⁹² Thus, where the contract has not been initiated by the use of a proposal form, the common law requirement for disclosure measured by the test of a prudent insurer prevails. However, where the contract is initiated by the use of a proposal form, the insurer is required to ensure that the form is designed in such a comprehensive manner as to elicit from the insured all the information that the insurer considers to be material in accepting the application for insurance of the risk. Thus, the insurer cannot elect to treat unrequested facts as material or immaterial, as the use of the word “shall” in the section would be strictly construed by the court to deem unrequested information to be immaterial.

The provision is salutary, as it has generally removed the uncertainty as to what facts are material, which has hitherto served as a means for the insurer to exploit the insuring public. It has also taken cognizance of the social problem of Nigeria being a predominantly illiterate society.Footnote ⁹³ Moreover, the provision has recognized the fact that the insurer is in a better position to determine what information it considers material to the risk and should be demanded from the insured.Footnote ⁹⁴ In this way, the common law duty of “utmost” good faith has given way to “diligent” good faith on the part of the insurer. As such, the insurer can no longer repudiate an insurance contract on grounds of non-disclosure where the undisclosed information had not been specifically requested in the proposal form. It can, however, be safely presumed that, where the insured voluntarily discloses any information not requested, that disclosure must be done in good faith; otherwise, it would be incompetent of him to argue that the information had not been specifically requested by the insurer.

Nevertheless, deeming unsolicited information to be immaterial, as portrayed in this provision, could lead to the frequent suppression of facts by the insured. It is generally not practicable, under all circumstances, to elicit all the necessary material information from the assured by merely asking questions in the proposal form and it could be extremely difficult for the insurer to prove that the insured thought any unsolicited information to be material.Footnote ⁹⁵ As was rightly observed in Insurance Corporation of the Channel Islands v Royal Hotel, “the human propensity is not to disclose embarrassing or prejudicial material fact”Footnote ⁹⁶ and “there are limited occasions on which matters of moral hazard come to light and the fact that they commonly do so only during investigation of a claim tend to make moral hazards appear both rarer and more significant”.Footnote ⁹⁷ As such, it might be difficult for the insurer to prove that the insured's failure to provide the necessary information was due to inadvertence. There is, therefore, the need to strike a fair balance between the interests of the insured and of the insurer.

Also, the Nigerian Act is silent on what is required of both parties in the case of the renewal of insurance policies, since the insured is then not required to complete a proposal form or other application. There is also no provision regarding the respective positions of the parties in situations where the proposer fails or neglects to answer a particular question or where he gives an incomplete or irrelevant answer.

On the status of an insurance agent who assists a proposer to complete the insurance application or proposal form, section 54(2) provides: “[t]he proposal form or other application form for insurance shall be printed in easily readable letters and shall state, as a note in a conspicuous place on the front page, that: ‘An insurance agent who assists an applicant to complete an application or proposal form for insurance shall be deemed to have done so as the agent of the applicant.’” Although this provision changes the form of the common law rule, it has no effect on the substance, since the requirement that the proposal form should be “printed in easily-readable letters” is implied in any insurance contract. However, it has, to some extent, solved the problem of the small and almost illegible print that had been prevalent in Nigerian insurance policies.

Furthermore, this provision has not changed the law regarding the status of an insurance agent who assists the proposer in completing the proposal form. Nevertheless, the insurer is now explicitly required to warn the proposer of the implication of allowing an insurance agent to complete his proposal form. The warning required by this provision may, however, not be of any significance to an illiterate proposer. Section 54(3) provides that any information disclosed or represented by the insured to an insurer's agent, acting within the scope of his authority, is tantamount to a disclosure or representation of information to the insurer as the principal. However, there is still the problem of ascertaining when an agent can be said to be acting within the scope of his authority. Certainly, this is a question of fact that can only be substantiated after evidence has been adduced in court. Under section 54(4), an applicant for insurance would be regarded as an insured for the purpose of that section.

The severity of the effect of a basis of contract clause on the insured has also been lessened by the provisions of section 55 of the Nigerian Act. Under this provision, a breach of a term, whether called a warranty or a condition, will not avail an insurer of any right against the insured or of any defence to the insured under the contract, unless the term is material and relevant to the insured risk. Furthermore, where there has been a breach of a contractual term, the insurer is not allowed to repudiate the whole or any part of the contract or a claim brought on the grounds of the breach, unless the breach amounts to fraud or is a breach of a fundamental term of the contract.

REFORM OF THE DOCTRINE IN THE UNITED KINGDOM

Two major legislative interventions have had a significant impact on the common law rules on disclosure and representation in insurance contracts in the UK. These are the Consumer Insurance (Disclosure and Representations) Act 2012 (CIDRA)Footnote ⁹⁸ and the Insurance Act 2015 (UK Act). As the name implies, CIDRA applies to consumer insurance, defined in section 1 as a contract of insurance between an individual and an insurance company, wholly or mainly for purposes unconnected with the former's trade, business or profession. The UK Act, on the other hand, applies mainly to business-related insurance policies, referred to as non-consumer insurance contracts, although some of its provisions apply to both consumer and non-consumer policies.Footnote ⁹⁹ The reform measures in these laws have focused on the respective duties of the insured and the insurer, the test of materiality of a fact, the basis of contract clause and the remedies available to the insurer in case of a breach of the duties imposed on the insured under the acts. This article now examines the relevant provisions of these statutes.

Sections 2 through 5 of CIDRA specifically make provision for disclosure and representations before an insurance contract is consummated or varied. First, the onerous and absolute common law rule, that the insured must disclose all material facts within his actual knowledge or that he could ascertain by reasonable inquiries, has been replaced, under section 2(2) of CIDRA. Under that provision, the consumer is now only required to take reasonable care not to make a misrepresentation to the insurer. Also, the consumer is obliged to accede to any request from the insurer to confirm or amend particulars previously given, as failure could amount to misrepresentation for the purposes of the act.Footnote ¹⁰⁰ Furthermore, unlike the common law standard of the prudent insurer for determining the materiality of a fact, the standard of care required of the consumer is now objective, as it is generally determined on the basis of a reasonable consumer.Footnote ¹⁰¹ This is, however, subject to any knowledge that the insurer has, or ought to have, of any particular characteristics or circumstances of the actual consumer, as well as any misrepresentation dishonestly made.Footnote ¹⁰² Moreover, whether or not the consumer has complied with the duty to take care not to make a misrepresentation is to be determined in the light of all the relevant circumstances, including: the type of consumer insurance contract in question and its target market; any relevant explanatory material or publicity produced or authorized by the insurer; the clarity and specification of the insurer's questions; the clarity of the insurer's communication of the importance of answering questions (or the possible consequences of failing to do so) regarding the renewal or variation of an existing contract; and whether or not an agent was acting for the consumer.Footnote ¹⁰³

In any situation where the consumer is found to be in breach of the duty to take reasonable care not to make a misrepresentation, the insurer has a remedy against the consumer only in respect of what CIDRA describes as a “qualifying misrepresentation”, which could either be (a) deliberate or reckless or (b) careless.Footnote ¹⁰⁴ Thus, unlike the common law rule that allowed the insurer to avoid a contract in its entirety for breach of the duty of utmost good faith,Footnote ¹⁰⁵ the consumer's state of mind is a crucial factor in determining the remedy available to the insurer under the act and it is the insurer's duty to prove that an alleged misrepresentation has been made in a particular manner.Footnote ¹⁰⁶ However, unless the contrary is proved, there is a general presumption that the consumer possesses the knowledge of a reasonable consumer, as well as knowledge of the relevance to the insurer of a matter about which the insurer has asked a clear and specific question.

Where the misrepresentation is found to be deliberate or reckless and concerns a new contract, the insurer can avoid the contract, refuse all claims and keep any premiums paid, unless it would be unfair to the consumer for them to be retained.Footnote ¹⁰⁷ However, where the misrepresentation is found to have been made carelessly and a claim has been made upon the insurer, the insurer's remedy is generally dependent on what it would have done had the consumer complied with the duty to take reasonable care not to make a misrepresentation. If the insurer would not have assumed the risk on any terms, it can avoid the contract and refuse all claims. Any premium paid would, however, have to be returned.Footnote ¹⁰⁸ However, if the insurer would have assumed the risk on different terms, other than those relating to the premium, the contract is deemed to be concluded on those different terms, if the insurer so requires.Footnote ¹⁰⁹ Alternatively, if the insurer would have concluded the contract but would have charged a higher premium, any amount payable on a claim could be adjusted in proportion to the underpayment.Footnote ¹¹⁰ Where there is no outstanding claim, the insurer can give notice to the consumer of its intention to have the contract concluded on those different terms or higher premiums, or give reasonable notice to the consumer of its intention to terminate the contract, provided it is not wholly or mainly a policy of life insurance. The consumer is also entitled to terminate the contract by giving reasonable notice to the insurer if the revised terms proposed by the insurer are unacceptable to him. If either party terminates the contract under these circumstances, the consumer is entitled to a refund of the premiums paid for the terminated cover in respect of the balance of the contract term. Such termination would also be without prejudice to the treatment of any claim that arises in the meantime. The parties’ contractual right to terminate the contract remains intact irrespective of these provisions.Footnote ¹¹¹

In the case of a variation of a consumer insurance contract, if the subject matter of the variation can be severed from the rest of the contract, the provisions mentioned above relating to new contracts apply with any necessary modifications. Where, however, severance is impossible, these provisions apply with any necessary modifications as if the qualifying misrepresentation related to the whole contract rather than merely to the variation.Footnote ¹¹²

It is also noteworthy that section 6(2) of CIDRA has abolished the basis of contract clause. This provision has specifically precluded the insurer from using another provision or term of the contract to convert any representation made by the consumer in connection with a proposed insurance contract or a proposed contract variation into a warranty, or from declaring that such a representation formed the basis of the contract or otherwise.

On the other hand, section 3(1) of the UK Act imposes a new “duty of fair representation” on the insured in respect of non-consumer contracts,Footnote ¹¹³ requiring the insured to make to the insurer a fair representation of the risk. This contrasts with the common law duty required of the insured and CIDRA, which requires the consumer to take reasonable care not to make a misrepresentation to the insurer, as well as the Nigerian Act, which requires the insurer to elicit from the insured all information it considers material by asking relevant questions. The representation also need not be contained in a single document or oral representation.Footnote ¹¹⁴ Fair representation of the risk, which incorporates the law on non-disclosure and misrepresentation, refers to representations that either disclose every material circumstance that the insured knows or ought to know, or one that gives the insurer sufficient information to put a prudent insurer on notice that it needs to make further enquiries for the purpose of revealing those material circumstances.Footnote ¹¹⁵ It also includes a disclosure made “in a manner which would be reasonably clear and accessible to a prudent insurer [and representation] in which every material representation as to a matter of … expectation or belief is made in good faith”.Footnote ¹¹⁶ In the absence of enquiry, however, section 3(5) of the UK Act, like the common law rule,Footnote ¹¹⁷ absolves the insured from disclosing any circumstance that diminishes the risk, or of which the insurer has actual or presumed knowledge or ought to know, or regarding which the insurer waives information.

With regard to knowledge possessed by the respective parties, sections 4 and 5 of the UK Act define what knowledge the respective parties are taken to know or ought to know. Accordingly, in the case of an individual insured, knowledge refers to what is known to the individual and what is known to one or more individuals who assist in procuring the insured's insurance.Footnote ¹¹⁸ In the case of an organization, knowledge is taken to mean what is known to one or more of the individuals who are either part of the insured's senior management or responsible for the insured's insurance, such as employees of the insured's agent or broker.Footnote ¹¹⁹ Furthermore, unlike the common law rule that restricts knowledge to that acquired in the ordinary course of business,Footnote ¹²⁰ section 4(6) of the UK Act deems an insured to have knowledge of a material circumstance that should reasonably have been accessed by a reasonable search of information available to the insured, however conducted.Footnote ¹²¹ In this instance, information includes that held within the insured's organization or by any other person, including the insured's agent or person for whom cover is provided by the contract of insurance. However, an insured who has taken responsibility for an individual's or organization's insurance is deemed not to have confidential information known to an individual if the individual is, or is an employee of, the insured's agent and the information was acquired by the insured's agent or by an employee of that agent through a business relationship with a third party unconnected with the contract of insurance.Footnote ¹²²

On the other hand, under section 5(1) of the UK Act, an insurer is deemed to know something only if it is known to one or more individuals who participate on behalf of the insurer in deciding whether to underwrite the risk, and if so, on what terms. Also, by section 5(2), an insurer ought to know something that either its employee or agent knows and that ought reasonably to have been passed on to the individuals taking the decision on the underwriting of the risk, or is relevant information that the insurer itself held and is readily available to the individuals deciding the underwriting of the risk. Moreover, as a means of enhancing expertise and professionalism in the industry, the insurer is presumed to have knowledge of things that are common knowledge and things that an insurer underwriting the relevant class of business would reasonably be expected to know in the ordinary course of business.Footnote ¹²³

In general, reference to individual knowledge includes actual knowledge, as well as matters that the individual suspected and would have had knowledge of, but deliberately refrained from confirming or making necessary enquiries about.Footnote ¹²⁴ Section 6(2) of the UK Act also creates a general exception in respect of knowledge of fraud perpetrated, either on the insured or the insurer, by an individual responsible for the insured's insurance or, in the case of an organization, by those who participate on behalf of the insurer in taking a decision regarding the underwriting of the risk. Such knowledge is not to be attributed to the insured or the insurer.

Unlike section 3(3) of CIDRA and section 54(1) of the Nigerian Act, section 7(3) of the UK Act restates the common law rule on the test of materiality as any circumstance or representation that would influence the judgment of a prudent insurer in determining whether to take the risk and, if so, on what terms. This includes special or unusual facts relating to the risk, any particular concerns that led the insured to seek insurance cover for the risk and anything that insurers in that class of insurance, or field of activity in question, would consider as something to be dealt with in a fair representation of the risks of the type in question.Footnote ¹²⁵ Under section 7(5) of the UK Act, a material representation is deemed substantially correct if a prudent insurer would not give consideration to any difference between what is represented by the insured and what is actually correct.

In the event that the insured is in breach of the duty of fair representation, the insurer has a remedy only in respect of a “qualifying breach”, which could either have been deliberate or reckless, or neither deliberate nor reckless.Footnote ¹²⁶ As with CIDRA, this is a significant reform of the common law rule that gave the insurer the automatic right to avoid the contract. The onus of proving that a qualifying breach was deliberate or reckless is on the insurer. It is also incumbent upon the insurer to prove that, but for the breach, it would not have assumed the risk at all or would only have done so on different terms.Footnote ¹²⁷

Thus, in respect of new contracts, a deliberate or reckless breach entitles the insurer to avoid the contract and refuse all claims, as well as giving him the right to retain all premiums that have been paid.Footnote ¹²⁸ Where the breach was neither deliberate nor reckless, the remedies available to the insurer depend on a number of specified factors. First, if, but for the qualifying breach, the insurer would not have assumed the risk on any terms, the insurer can avoid the contract and refuse all claims, but must return the premiums paid on the policy to the insured.Footnote ¹²⁹ Secondly, if the insurer would have assumed the risk, but on different terms except for those pertaining to premiums, the contract is deemed to have been concluded on those different terms, if the insurer so requires.Footnote ¹³⁰ Thirdly, if the insurer would have assumed the risk, but by charging a higher premium, the insurer is entitled to reduce the amount payable on any claim proportionately to reflect the higher premium.Footnote ¹³¹ In cases where the insurer would have concluded the contract on the same terms, no remedy is available. In respect of the variation of existing contracts, the remedies available to the insurer are similar to those relating to new contracts with necessary modifications in respect of when the variation takes effect and the higher premiums attributable to the variation.Footnote ¹³² For instance, a deliberate or reckless qualifying breach entitles the insurer, by notice to the insured, to treat the contract as having been terminated from the time the variation was made, without any obligation to return premiums paid.Footnote ¹³³ The provisions of section 84 of the MIA 1906 on the return of premiums for failure of consideration are made subject to the foregoing provisions in relation to marine insurance contracts.Footnote ¹³⁴

Another significant reform of the doctrine concerns the basis of contract clause. As under CIDRA, section 9(2) of the UK Act precludes the insurer from converting any representation made by the insured into a warranty, by means of any provision of the proposed non-consumer insurance contract or of the terms of the variation or of any other contract, or by declaring that the representation forms the basis of the contract or otherwise.

SUGGESTIONS FOR FURTHER REFORM OF THE NIGERIAN LAW

In line with the policy of social engineering in the delivery of insurance services encapsulated in the statutory reforms of the common law doctrine of uberrimae fidei and in the light of the discussions on the statutory reforms of the doctrine in the UK, there is a need to revisit some issues that have not been adequately addressed in Nigerian law. Lessons can also be drawn from reform measures in some other common law jurisdictions.

First, in furtherance of the general tenor of the provisions of section 54(1) of the Nigerian Act, it is important that a duty be imposed on the insurer to inform the insured by a conspicuous notice in the proposal form, or in writing in the case of renewal, of the general nature and effect of the duty of disclosure and accurate representation of any fact before a contract of insurance is executed or renewed, as the case may be.Footnote ¹³⁵

Secondly, in any proceeding where the insurer is able to prove to the satisfaction of the court that a particular fact is material, even though it was not requested in the proposal form because the insurer could not be reasonably expected to ask for it in the circumstances, and a reasonable man in the circumstances of the applicant would consider it to be a material fact that ought to be disclosed to the insurer, having regard to the nature of the insurance cover, the insurer should be entitled to appropriate relief in the interest of justice.Footnote ¹³⁶ Nevertheless, while it is indisputable that some criminal convictions constitute moral hazards, disclosure of which would be necessitated by the nature of a particular insurance contract, the insured should be relieved of disclosing spent convictions and old allegations of dishonesty in the interest of proper rehabilitation and re-integration into society.Footnote ¹³⁷

Thirdly, in the event that the proposer fails or neglects to answer a particular question or gives an incomplete or irrelevant answer, and the insurer fails to pursue the matter further, the insurer should be deemed to have waived compliance with the duty of disclosure in respect of that matter.Footnote ¹³⁸

Fourthly, it is noteworthy that, in answering questions requiring an opinion, which are commonly contained in proposal forms, it is not only an illiterate proposer, but also a supposedly literate one, who may, on occasion, need the assistance of someone more knowledgeable in insurance matters.Footnote ¹³⁹ Thus, in any situation where the questions asked in the proposal form are found to be ambiguous or not specific and the insured is found to have acted reasonably in the circumstances to give what he believes to be the right answers to the questions as he understands them, the insured should be relieved from incurring any liability.Footnote ¹⁴⁰ In this respect, it is important that the National Insurance Commission gives due consideration to proposal forms submitted to it for the purposes of insurer registration, under section 6(1)(d) of the Nigerian Act, to ensure that questions requiring expert or value knowledge, beyond that which the proposer could reasonably be expected to possess or obtain, are expunged.

Fifthly, given the level of illiteracy in Nigeria, where it is established that an illiterate proposer disclosed to the agent a fact that is alleged to have been concealed and the non-disclosure is attributable to the default of the insurance agent, the illiterate proposer should be given the necessary protection by the law in the interests of justice. Indeed, as was aptly stated by Akufo-Addo J in the Ghanaian case of Muhammed Hyane v New Indian Assurance Co Ltd,Footnote ¹⁴¹ an insurance agent, in the regular employment of an insurer, must for all purposes be connected with the completion of a proposal form and must be held to be the agent of the insurer unless the evidence, express or implied from the conduct of the proposer, is otherwise. This judicial pronouncement was given statutory expression in section 210(1) of the Ghanaian Insurance Act, 2006, under which an insurance agent or sub-agent who completes an insurance form or similar document on behalf of a proposer is deemed to have done so as the agent of the insurer. The section further imputes any knowledge acquired by that insurance agent or a sub-agent in the course of completing such form or other document to the insurer and nothing contained in the contract of insurance will absolve the insurer from any liability in respect of knowledge so acquired by the insurance agent or sub-agent.Footnote ¹⁴² Furthermore, for the purposes of section 54(3) of the Nigerian Act, there is a need to specify the circumstances under which an agent can be said to be acting within the scope of his authority, as is available under the UK law.Footnote ¹⁴³

Nevertheless, as noted in Newsholme Brothers v Road Transport and General Insurance Co Ltd,Footnote ¹⁴⁴ where the agent knows that answers given by the proposer are untrue and the agent still completes the proposal form in purported conformity with the information supplied by the proposer, he is committing fraud and his knowledge should not be imputed to the insurer. Similarly, where the proposer is literate and has signed, without reading it, a proposal form that contains statements that are, in fact, untrue and has given a promise that they are true, he should not be allowed to escape from the consequences of his negligence by alleging that the person he asked to complete the proposal form was the agent of the insurance company.Footnote ¹⁴⁵

The provisions of section 55 of the Nigerian Act that have limited an insurer's right to avoid a policy on grounds of breach of a term of the contract (which might or might not have been described as a warranty) to instances where that term is material and relevant to the insured risk is, no doubt, salutary. Nevertheless, where the fact alleged to have been concealed by the insured or the alleged misrepresentation, though material, has not induced the insurer to issue the policy on the relevant terms, the insurer should not be allowed to avoid the policy.Footnote ¹⁴⁶ Furthermore, where the alleged non-disclosure or misrepresentation has not materially influenced the insurer's judgment in assessing the insurance premium and has no substantial effect on the terms and conditions of the policy of insurance, the insurers should not be allowed to avoid the entire policy on a mere technicality. In this situation, the insurer should be mandated to make necessary adjustments in the payment of the premium or the insured sum, as the case may be, in such a way that would put the insurer in the position in which he would have been if the insured had made the necessary disclosure or had not misrepresented the fact.Footnote ¹⁴⁷ With this type of reform, a misstatement of the assured's occupation for example, such as in Bamidele v Nigeria General Insurance,Footnote ¹⁴⁸ would have been adequately addressed.

Overall, it is imperative for insurance practitioners to embark on a massive enlightenment campaign to sensitize the public about the importance of utmost good faith. This, no doubt, would promote mutual confidence between the parties and make insurance more appealing to many more of the Nigerian populace.