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Wednesday, 16 September 2015
Extent of insurer liability to third parties in respect of insured risk
In Darego v AG Leventis Nigeria Limited the Lagos Court of Appeal reaffirmed an exception to the common law position that a third party cannot join an insurer in a suit against the insured in respect of an insured risk.(1) One of the major issues for determination was whether the lower court was right to dismiss the claim against Great Nigeria Insurance Co Limited (the third respondent in the suit) on the grounds that there was no privity of contract between it and the claimant Betty Darego.
Previously, an insurer could be joined as a party only through a separate third-party proceeding, as it was believed that there was no privity of contract between the third party and the insurer. However, the appeal court found that an exception to the common law position had been established in accordance with Section 11 of the Insurance (Special Provisions) Decree (40/1988).
In 2001 Darego's vehicle, a Mercedes Benz 230, was involved in an accident with a vehicle belonging to Mr Ogundiyan (the fourth respondent). Ogundiyan accepted liability and submitted a copy of his third-party insurance policy with Great Nigeria Insurance Co Limited to Darego with a view to getting her car repaired.
However, after taking possession of Darego's car for repairs, AG Leventis Nig Ltd and Leventis Motors (the first and second respondents in the suit, respectively) failed to repair or return the vehicle to Darego.
Darego filed a claim at the lower court against both the insured and the insurance company for:
the immediate return of her car; or
N7 million (the value of the car as of December 2002);
transport expenses of N2,500 per day from June 23 1999 until the date of full payment of damages; and
N10 million in general damages.
The lower court found that Darego's car had been illegally and unlawfully converted and entered judgment in her favour. However, it refused to award most of the damages sought by Darego. Darego appealed the lower court's refusal to award damages.(2)
One of the issues that the appeal resolved was whether the lower court was right in finding that there was no privity of contract between Darego and Great Nigeria Insurance Co Limited, which was not privy to the illegal conversion of the car and thus could not be held liable for the alleged loss suffered by Darego.
The appeal court stated that although under common law a third party cannot join an insurer, the position had since changed by virtue of Section 11 of the Insurance (Special Provisions) Decree. Section 11 provides that:
"Where a third party is entitled to claim against an insurer in respect of a risk insured against, he shall have a right to join the insurer of that risk in an action against the insured in respect of the claim; provided that before bringing an application to join the insurer, the third party shall have given to the insurer at least thirty days' notice of the pending action and of his intention to bring the application."
In arriving at its decision, the appeal court relied on an earlier decision in Unity Life and Fire Insurance Co v Ladega.(3) In this case, the court took into account the intention of the lawmakers at the time of promulgation of the decree. The court was of the view that Section 11 of the Insurance (Special Provisions) Decree allows the insurer to be joined only as an indemnifier for any judgment obtained against the insured in a claim against the insured. Therefore the third party's right to join the insurer is to enable the third party have direct access to the insurer instead of waiting for judgment to be given before asking the insurer to settle the claim.
This decision is a welcome development to Nigeria's insurance jurisprudence. A third party can now join an insurance company in a suit against the insured on fulfilling the preconditions in Section 11 of the Insurance (Special Provisions) Decree (ie, issuance of a mandatory 30 days' notice of intention to join the insurance company).