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July, 2002

Land Use Charge Law No. 11 Of 2001 Of Lagos State

 

Introduction

The Land Use Charge Law, No. 11 of 2001 applicable to real/landed properties in Lagos State was passed into Law by the Lagos State Government with a commencement date of June 22, 2001 (“LUCL”). The main objective of this Law, as has been proffered repeatedly by the Lagos State Government, is to generate additional revenue needed to develop the state whose population is growing at an alarming rate without any corresponding increase and or improvement in its physical and social infrastructure.

The Land Use Charge Law is intended to be a SINGLE PROPERTY CHARGE which replaces all other State and Local Governments taxes on real property including taxes like tenement rates, ground rents and neighbourhood improvement charges. By the LUCL, once the Land Use Charge is imposed upon a property, the rates and charges, which were, hitherto payable under the old legislations, will no longer be applicable and due on the same property.

Operation of the Law

The Land Use Charge (“LUC”) is a charge imposed on the owner of the property. However, where the owner is not in possession of the property, the LUCL authorises the collecting authority to appoint the occupier, who is usually the tenant, to be assessed with and pay for the tax; the tenant is in turn authorised by the LUCL to offset such a payment, made under this Law, from monies that may be due from the tenant to the owner of the property. There is thus an indemnity in favour of the tenant/occupier against the owner. How this procedure would work in practice, especially in the light of the temperament of the Lagos landowner, is awaited.

The LUCL does not apply to all properties in Lagos State . Properties that are exempted from the operation of this law are government owed properties, and other properties used for public, religious and charitable activities. Note however that this exemption will only be granted where an application for exemption is made to the Commissioner for Finance, Lagos State .

Based on the controversy and the resistance that have followed the rates/percentages of assessment, the Lagos State Government have further reduced the rates payable under this Law as follows:

  1. Commercial Property used for residential purposes – 0.5% per annum of the assessed property value.
  2. Commercial property used for business purposes – 1.25% per annum of the assessed property value.
  3. Industrial premises used for manufacturing concerns – 0.5% per annum of the assessed property value.
  4. Owner-occupier residential property – 0.15% per annum of the assessed property value.
  5. Owner-occupier pensioner's property – exempted from Land Use Charge assessments but liable to whichever is applicable between tenement rate, ground rent or neighbourhood improvement charge.
  6. Family compounds – exempted from LUCL but liable to tenement rate at the last assessed amount with an increase of 25% of that amount.

A Chargee of a LUC is entitled to some rights under the LUCL, although these so-called rights have also been critised by some legal analysts. They include:

  1. The Chargee, on receipt of an assessment, can in writing make a formal complaint to the Commissioner for Finance that the assessment is too high and should be reduced or that the categorisation of the property under the LUCL is wrong.
  2. An Chargee also has the right to file an appeal against the assessment to the Assessment Appeal Tribunal on the precondition that the Chargee pays 50% of the amount assessed and the fees that would prescribed by the Appeal Tribunal for the filing of the appeal.

Also, there are various penalties for default under the LUCL. They include:

  1. Payment increases of up to 25%, 50% and 100% respectively where the Chargee delays payment for up to 75, 105 and 135 days from the date of it/his receipt of the assessment.
  2. Liability to incurring the appointment of a receiver over the property until all outstanding taxes, penalties and administrative charges are paid where payment is not received after 135 days after service of the assessment.
  3. Application to a superior Court by the Commissioner for Finance to recover the sum assessed and payable under the Law. Pending the determination of the suit, the Court can attach the earnings accruing from the property.
  4. Penalties of up to =N=100,000 (One Hundred Thousand Naira) or three months imprisonment for non-compliance with the LUCL, obstruction of authorised officials, damages to property identification plaques or incitement to other persons to refuse to pay the tax.

Collection of Charges

The Local Government Authority in the jurisdiction/locality where the property is located is the authorised collecting authority. In order for there to be compliance with the constitutional requirements on the division of powers between the State and the Local Governments, the Land Use Charge Law is predicated on the principle of mutual delegation of authority between the Lagos State Government and each of the Local Governments in the state. Whether a Local Government

Authority can delegate its constitutional power to State Government is a matter of various litigations in Lagos State presently. However, in the case of Knight, Frank & Rutley v. A.G of Kano State [1990] 4 NWLR (Pt 143) 210 the Nigerian Court of Appeal had expressed the view that it was not constitutional for a tier of government to delegate its constitutional powers to another tier. The Supreme Court affirmed this decision in [1998] 7 NWLR (Pt. 556) 1; [1998] 4 S.C. 251 .

Also, the question of whether payments made under this Law are tax deductible or not under the Companies Income Tax Act (“CITA”) and Personal Income Tax (“PIA”) remains a matter of much difference amongst practitioners.

Advantages and disadvantages of LUCL

Some of the advantages of the tax, according to its proponents, include:

  1. Prevention of multiplicity of taxes between the State and Local Governments in Lagos State.
  2. Reduction and or prevention of property tax evasion by ensuring that its administration, including its assessment and collection, are much easier.

Some of the LUCL disadvantages, according to its opponents include:

  1. The high rate of the tax would discourage property development and investment.
  2. With no new investment in the property sector, the housing requirements of the citizens residing in Lagos State and the rentals payable per annum are expected to worsen.
  3. The tax would further discourage mortgages and perfection of property/land titles. Presently, a purchaser of land in Lagos State has to contend with the following fees: (a) the total cost of the land; (b) 20% of the total cost of the land as legal and agency fees for securing the land; (c) 15% to 30% as consent fees; (d) stamp duties of about 3%; (e) capital gains tax of 10%; (f) registration fee of 1%; (g) legal fees for processing the consent or certificate of occupancy usually in the region of over 10%. The total of these percentages, which are percentages of the sum used to purchase the land, are over 60% of the total cost already paid by the purchaser to the vendor of the land.

Conclusion

An Auditor is a professional who provides customer related services. His main stock in trade is the trust and goodwill of his client which ought to protect at all times otherwise he will go out of business. Also, with the advent of democracy in Nigeria and globalisation world-wide, professionals, including Auditors, should exercise more care and diligence in the performance of their statutorily responsibility in order to avoid loss of trade or incur civil and criminal liability as a result of a breach of statutory duty.

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Overview of the Corrupt Practices & Other Related


Offences Act, 2002

Introduction

Cultural and institutionalised corruption remains the bane and a clog in the economic development of most third world countries including Nigeria . To combat this practice, the National Assembly enacted the Corrupt Practices and Other Related Offences Act, No. 5 of 2000 (“the Act”). The Act, in the main, prohibits bribery and corruption and prescribes punishment for those who fall foul to its provisions with either terms of imprisonment or monetary fines, or both imprisonment and fines.

Salient Provisions of the Act

The Act seeks to prohibit and prescribe punishments for corrupt practices and other related offences throughout the federation of Nigeria . The Act establishes the Independent Corrupt Practices and Other Related Offences Commission (“the Commission”). Also, the Act makes provision for the protection of anybody who gives information to the Commission in respect of any offence committed or likely to be committed by any person.

The Act makes it an offence for any person to ask for, receive or obtain any kind of property or benefit, or to give, confer or procure any anything, either for himself or for any other person, as an inducement or reward for doing, forbearing to do or having to do anything outside the ordinary cause. A majority of these offences carry terms of imprisonment of either seven (7) or five (5) years imprisonment.

Also, the failure to report any act of corruption or bribery is an offence under the Act, which carries a term of imprisonment of two (2) years or a fine or both.

A.G Of Ondo State V. A.G Of Fgn & 35 Ors (2002) 6 S.C (Pt. 1) Page 1

In this case, the government of Ondo State challenged the constitutionality of the Anti-Corruption Act on the ground that the National Assembly did not have the constitutional power to legislate on matters of bribery and corruption such that the Law will be applicable to citizens in Ondo State .

The Supreme Court held that with the exception of some sections of the Act, the Act was constitutional as the National Assembly was empowered by the 1999 constitution to make laws for the peace, order and good government of every person subject to the jurisdiction of Nigeria including the establishment by the Act, of the Independent Corrupt Practices and Other Related Offences Commission. Section 4 (2) and items 60 (a) and 67 of the exclusive legislative list of the 1999 constitution is the authority for this.

The Supreme Court further held that: the Act was applicable to both public and private individuals and corporations; that Section 26 (3) of the Act which requires the prosecution of an offence and delivery of judgement within ninety (90) working days was unconstitutional as it constituted a usurpation of the powers of the judiciary; that Section 35 of the Act, which empowers the Commission to arrest and detain suspects indefinitely, is unconstitutional as it violates the fundamental human rights provisions of the Constitution on personal liberty.

Mention must be made that the Plaintiff in this matter has further filed an application to the Supreme Court seeking for a review of this decision. While we await the outcome of this decision, we must say that it will be an uphill task, as the Supreme Court usually does not overturn its own decision unless special circumstances are shown and established.

Conclusion

Most unfortunately, this will not be the first legislation that has been made to discourage and combat corruption. The Military regime of General Gowon promulgated the Public Officers (Investigation of Assets) Decree, 1966; that of General Murtala Mohammed promulgated the Corrupt Practices Decree, 1975; under the civilian government of Shehu Shagari, there was the Code of Conduct Tribunal established under the 1979 constitution; that of General Babangida was the Corrupt Practices & Economic Crimes Decree; that of General Abacha was Indiscipline, Corrupt Practices and Economic Crimes (Prohibition) Decree, 1994; and now the above Act.

Since independence, there have been no reported decision(s) of a superior court of record in Nigeria where either a private or public officer have been arraigned and convicted of either bribery or of corruption. The above Act was enacted as an Act of the National Assembly in the year 2000 but the efficacy of the Act and the Commission established under it have not been felt as sufficient funds have not been provided to the Commission by the government for the Commission to function effectively.

However and in spite of the above discouraging observations, corporate organisations must in the spirit of good corporate governance and business sense, embrace anti-corruption and anti-bribery behaviours as with the perpetuate downturn in the economy, the politicians will be too pleased to turn this issue into an election issue and use some big corporations as an example. Recent corporate developments in the United States of America involving Enron, WorldCom, etc should also serve as a guide in the consideration of bribery and corruption issues.

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September, 2002

Property Acqusition: Working Checklist

 

Introduction

Economic development in Nigeria and the need to acquire landed property, have also given rise to an increase in disputes and litigation arsing from such acquisitions. Most of the time and rather unfortunately, professional advice is only solicited after “ .. the door of the stable had been closed and the horse had bolted”. This situation also occurs in some exceptional cases where professional advice was obtained. Further, not much assistance has been received from the government as the communal land tenure systems, where the land is cheaper, remains unorganised, prone to intrigues and in some cases, fraud.

Underneath is a checklist of steps that can be taken to prevent these disputes.

Checklist:

  1. On taking the decision to acquire land, consult a qualified and experienced Legal Practitioner. There is always one either in your company, family, church, mosque, neighbourhood, etc.
  2. Find out the name of the present Owner of the land or the name of the family that owns the land? It is critical that you establish physical contact with the Owner as soon as possible and before any payment is made for the property. This contact will also enable you to have a “feel” of the Owner and assist you in taking a decision as to whether or not, to continue with the transaction.

    The current practice of estate agents preventing an interested purchaser from meeting the Owner early in the negotiation, because of genuine concerns that they will not receive their commission, should be discouraged because when a dispute arises, the estate agent would neither assist to recompense the purchaser neither would he/she assume any form of responsibility or liability. The prospective purchaser should therefore establish some levels of guarantee that will assure the estate agent of his commission.
  3. Investigate the kind of title that the Owner of the land has; did the Owner acquire the land as a gift, by government allocation, by customary inheritance, by purchase, etc?
  4. How long has the Owner been in possession of the land and what structures are on the land to show that he had always been in possession? Has possession been disturbed or interrupted at any time by another interested party?
  5. Instruct a Legal Practitioner to conduct a land search on the property, if it is registered, with the State Lands Registry? If it is not registered with the Lands Registry and it is a community or family land, go to the head of the family and inquire if the land is available? Some traditional families now have family offices on the land that they are selling. Note that a Land Search may not be conclusive as there is a reported incident of a “switch” in the original title document at the Lands Registry when the initial land search was conducted (although this incident is still under investigation). This is why a physical search, which is also mentioned underneath, should be undertaken.
  6. The above land search should also establish whether the land is free from any form of government acquisition, registered mortgage(s), caveats, etc. Further, the issue of all outstanding fees and charges relating to the land should be established at this stage.
  7. Critical that you, with at least one Legal Practitioner, should undertake a physical and independent search on the property. Usually, there would be found pillars or beacons demarcating the plots from each other. We have discovered that mid Sunday afternoons are best suited for this exercise. Inquire from people inhabiting the adjourning properties who the owners of the land are; neighbours are always too willing to give this information.
  8. Explore if there are any litigation or court decisions relating to the land. Some states like Lagos State now have a Lands Division at the High Court. This should enhance a search for any litigation. Although this kind of search can be tasking as a result of the non-computerisation of the records in the Court Registries, and may also be inconclusive, it is a worthwhile exercise.
  9. Investigate from the local Town Planning authority in the area where the land is situated, what kind of physical development that is permitted on the land? For example, is it residential, commercial or both residential and commercial? Further, the Town Planning Authority issues to applicants, building approvals, which will also indicate whether the land is within government excision or free from any other encumbrance. Where there is an already prepared survey plan, an investigation of this plan at the Town Planning office will also assist in indicating the position of the property.
  10. Ensure that before actual payment is made for the land, as much documentation that would be required to change the ownership to the new one, are obtained from the original Owner. This would prevent further expenses having to be incurred in the form of a “signature fee” which may be demanded subsequently.

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October, 2002

Legal Security for Credit and Investment in Small and Medium Scale Industries in Nigeria

Introduction

There is an acknowledgement, worldwide, that the development of any economy is dependent on small and medium scale industries (“SMES”). The advantages of strong SMES include job creation from the grass roots to the urban areas, entrepreneurship with resulting increase in Gross National Product (“GNP”), even distribution of wealth among the populace with resulting economic and physical security in the country, increase in foreign exchange with the exportation of qualitative and competitive products and repatriation of the profits to Nigeria, etc.

In developing countries, the advancement of SMES have been greatly constrained by the non advancement of the economies in these countries and the inability of their Banking sector(s) to extend medium and long term credit facilities to the SMES. This inability and or reluctance by the Banks to extend credit to the SMES have been due largely to the unavailability of credit for long-term investments in these economies and more importantly, for our purpose, the lack of adequate credit collateral/security by the SMES.

The efforts of the Central Bank of Nigeria (“CBN”) and the banking institutions in Nigeria under their umbrella association called the Bankers Committee, to fulfil their statutory and social responsibilities and to also assist in the development of the SMES is commendable. The only concern(s) that have been expressed especially by the SMES through their umbrella association, the National Association of Small and Medium Enterprises (“NASME”) is whether the conditions under which the banking institutions will extend credit facilities to the SMES are favourable and practicable to all the stakeholders concerned?

There is also to this writer the legal question of whether the conditions presently put in place by the Banks and the Bankers Committee to assist the SMES with credit is sufficiently covered by the Law? An attempt will also be made to proffer some suggestions, both legal and practical, on the way forward.

Conditions for the Banks to Participate in the SMES

Some of the conditions under which a majority of the Banks in Nigeria will extend credit facilities to the SMES include:

  1. The SMES must be a registered limited liability company that have complied with all corporate and tax laws in Nigeria.
  2. The SME must have a minimum staff strength of 10 (ten) employees and a maximum of 300 (three hundred) employees.
  3. The SME must be an enterprise with a minimum and in some cases, a maximum asset base of, excluding land and working capital, =N=200Million (Two Hundred Million Naira) which is the equivalent of over $1.5Million (One Million Five Hundred Thousand Dollars).
  4. The ownership structure of the SME will be diluted to the extent of the Bank's investment in the SME with the Bank also having the power to appoint at least one person to an executive director position. There are reports of some Banks owning over fifty percent (50%) equity in some of the SMES.

The Bank is expected, from the guidelines, to exit from the SME investment after three (3) years.

Incentives for Investing in SMES

There is an agreement that all Banks in Nigeria should set aside Ten percent (10%) of their Profit Before Tax for equity investments in the SMES. In return and as incentives for this investment, the following tax reforms and incentives have been proposed:

  1. The corporate tax for the SMES under the Companies Income Tax (“CITA”) is reduced to 10% (Ten Percent).
  2. The Bank's contribution to the SME to enjoy 100% (One Hundred Percent) investment allowance.
  3. Exemption of divested funds under the SMES from the Capital Gains Tax.
  4. Five (5) years tax holiday to the SMES.

The Law Regulating a Bank's Investment in an SMES

The Banks and Other Financial Institutions Decrees (“BOFID”), now Acts under the 1999 Constitution, provides in Section 21 that a Bank may acquire shares in small and medium scale industries, agricultural enterprises and venture capital companies

provided that the shareholding by the Bank in any such enterprise or any other business shall not be more than Ten Percent (10%) of the Bank's shareholders fund unimpaired by losses and shall not exceed Forty Percent (40%) of the paid up share capital of the company whose shares are to be acquired.

Section 21(d) of BOFID goes further to provide that the aggregate value of the equity participation of the Bank in an SME should not exceed, in the case of a Commercial Bank, Twenty Percent (20%) of its shareholders fund unimpaired by losses or, in the case of a Merchant Bank, not more than Fifty Percent (50%) of its shareholders fund unimpaired by losses. Of equal interest is Section 21(3) of BOFID, which requires any Bank investing in an SME to notify the Central Bank of Nigeria (“CBN”) within twenty-one days of such an investment. The penalty for a default in not reporting the investment to the CBN is =N=100,000 (One Hundred Thousand Naira) for each day during which the default subsist. See Section 6 of the BOFID (Amendment) Act, 1999.

In protecting their investments in the SMES, the Banks' are requesting for a minimum minority equity participation in the SMES. Unfortunately, this is not a sufficient legal cover because in practice, the enforcement of the rights of a minority shareholder as contained in Part X of the Companies and Allied Matters Act, 1990 (“CAMA”) are slow in execution due to our judicial system of administration. Of interest also will be Section 300 of CAMA, which empowers any aggrieved shareholder to apply for an order from the Federal High Court in the form of an injunction restraining his company from:

  1. Entering into any transaction which is illegal or ultra vires the objects with which the company was incorporated.
  2. Restraining the taking of actions which requires a special resolution to be passed by the company.
  3. Committing fraud on either the company or its minority shareholders.
  4. Restraining the company or another shareholder or director where the director or shareholder is likely to be deprived of profit or benefit, or to have profited or benefited from their negligence or breach of duty.

CAMA has made some other effort aimed at protecting the investors in a company. Some of these protections include:

  1. Restrictions on the alteration of the Memorandum and Articles of Association of a company. See Section 44(1) of CAMA.
  2. Restrictions against insider trading. See Section 614(1) & (2) of CAMA.
  3. Prohibition of untrue statements in the prospectus of a company. See Section 548(1), 562(1) and 571 of CAMA.
  4. Statutory requirement for the publication of most information about a company.

The locus classiscus on the above is the decision in Pender v. Lushington [1877] 6 CH.D 70.

Successes of the SMES & Recommendations

From available reports, the SMES are adversed to the conditions for the investments by the Banks. As a result, they have not encouraged or allowed equity participation by the Banks in the SMES. The CBN in turn has discovered that the Banks, to take advantage of the incentives offered by the scheme and as a result of the refusal of the SMES to allow them to invest under the above conditions, have established their own SMES, which are nothing but indirect subsidiaries of the Banks. To protect all the stakeholders, it is suggested that the scheme be reviewed and the following alternatives be considered:

  1. The Banks should through the Bankers Committee, forward to the National Assembly, private Bill(s), in addition to the one already forwarded to the National Assembly by the President which is on the powers of the CBN, ensuring that the incentives offered to the Banks and the SMES especially under the BOIF, the Companies Income Tax Act, the Capital Gains Tax Act, etc are harmonised and properly protected as the Law, as it presently stands, does not authorise these incentives in their current form.
  2. The requirement or qualification that the SME must have a minimum (or maximum?) share capital and or asset base of =N=200Million excluding land and working capital needs an urgent review. This is because a serious enterprise with this kind of asset base in present day Nigeria or in most developed economies should not qualify for categorisation as an SME.
  3. To increase participation by the SMES in the scheme, the Banks are counselled to encourage the SMES to form and register communal-like co-operative societies under Part C of CAMA. The Trustees to these co-operative societies must be people of credible financial reputation and banking record who in addition to entering into contracts with a Bank for the disbursement of the credit facilities must also give their personal guarantees securing the facilities.
  4. Another form of practical collateral is the provision by the SME of a fixed and floating charge over all the assets of the SME, to the granting Bank. However, the Banks should exercise more due diligence when executing this and other charges, as there have been reported cases of multiple charges on the same property by some SMES with the suspected connivance of the officials of some Banks.

    It is thus suggested that to discourage this terrible practice of multiple charges over the same assets of a company, the Banks should through the Bankers Committee, establish a sort of data bank where these kinds of charges can also be registered in addition to the ones, which should be registered with the Corporate Affairs Commission, Abuja as provided for by Law. (Interestingly, some financial institutions only obtain from the Lender a deposit of title deed without executing and registering a deed). Banks, who are members of the Bankers Committee, can on the Internet, using their security codes and in the spirit of healthy competition, assess this data bank and share confidential information concerning it.
  5. The current practice of equity participation by the Banks should be more closely reviewed, as the first rule in any enterprise is that an investor should not invest in a venture that he is not proficient in. There is also the problem of well trained man power specialised in investment Banking to supervise the investment of the Banks in the SMES as experience has shown that a business in Nigeria transcends the keeping or monitoring of accounts. After all, the joke is that businessmen worldwide always have multiple accounts for multiple purposes.
  6. The exit period of three (3) years by the Banks after which they should disinvest from the venture may not be practicable and should be reviewed as it takes a longer period of time, in a volatile environment such as ours, for a venture to make a commercial return on investment. This exit period is a further disincentive by the Banks to provide long-term credit facilities.

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January, 2003

Insurance: Current Issues In Nigerian Law And Practice

Introduction

It is a New Year. We again wish you a Happy and Prosperous New Year.

We have established Associateship relationship with two Law Firms in Benin City , Edo State and Jos, Plateau State to attend to the legal needs of our clients in these two jurisdictions.

For January 2003, our newsletter is on the vexed issue of Nigerian Insurance companies (“Insurance Companies”), practices, Law and the phobia that Insurance companies never settle claims.

However, with the advent of younger and more innovative insurance companies and an insuring Clientele, and particularly the Insurance Act of 1997 , the perception of the Insurance companies have improved. Unfortunately, the average per capital income of the populace have being on the decline and this has affected the advancement, in real financial terms, of every business sector including the Insurance industry.

This newsletter would, summarily, deal with some of the already known principles of Insurance in the hope that when you elect to take an insurance policy and subsequently need to make a claim, the transaction would be more bearing for you, as you would engage in it from a position of KNOWLEDGE.

Premium Payment

By the Insurance Act of 1997 (“the Insurance Act”), for there to be a valid contract of Insurance, the Client (“Insured”) must show that he/it has fully paid his premium. This is at variance with the old practice, which is the reverse to the provisions of the Insurance Act. The rule is the same when there is a need to renew the Insurance Policy.

A commendable innovation under the Insurance Act is the fact that the liability of the Insurance Company attaches immediately a premium is paid whether or not an Insurance Policy is issued or delivered to the insured Client.

There is also the requirement under this Law that an advance unstamped copy of the Policy must be delivered to the Insured within thirty (30) days of the payment of the first premium. A stamped copy of the Policy must be delivered within ninety (90) days after the payment of the first premium.

Riders, Warranties, Etc

Unlike in the past when Insurance Companies were alleged to have refuted liability on the ground of a breach of a rider or warranty clause, which were usually printed in very small letters at the back of the Insurance Policy, the Insurance Act forbids such riders, warranties, or other variation which usually sought to attach fresh conditions, alter or amend the Insurance Policy without the knowledge and consent of the Insured. Failure to adhere to this requirement makes such a rider or condition illegal, null and void and also exposes the Insurance Company to a fine of =N=25,000 on contravention.

Disclosures & Good Faith

The underlying fundamental principle that governs most contracts especially a contract of insurance is the principle of utmost good faith on the part of both the Insured and the Insurer. This requires that all material facts and information relevant to the proposed insurance policy must be disclosed.

In the past, there were a lot of conflicts between Insurance Companies and the Insured parties as to what constituted “material facts relevant” to an Insurance Policy. The Insurance Act has graciously delimited these to mean such information that the Insurer itself requested for, from the Insured, which the Insurance Company considered to be reasonably prudent in accepting the risk and fixing the premium for taking the risk. The words of the Insurance Act are “ … any information not specifically requested for shall be deemed not to be material”. Section 58 (1) of the Insurance Act.

Naturally arising from the above paragraph is the fact that only a breach of a material and relevant term would invalidate a contract of insurance. Usually also, such a breach must amount to a fraud for it to be held to be material.

Insurable Interest & Indemnity

Another area of dispute is that of insurable interest . For a claimant to make a claim under a policy of insurance, he must have an insurable interest in the subject matter of the insurance policy. An insurable interest is a special relationship by the Insured to the subject matter of an Insurance policy, which entitles the Insured/claimant to either, make a claim under the policy or to sue where the insurance company refuses to settle a claim.

Related to insurable interest is the fundamental principle of indemnity which is simply that in the event of a loss or injury, the Insurer is required to place the Insured back to the same position, as much as possible, as the Insured had occupied before the occurrence of the insured peril.

Of necessity and as a matter of public policy, the Law does not allow an insured person to recover more than what he may have lost as a result of the occurrence of an insured peril; no matter what he may have paid as a premium. This is because Insurance consists of various pools of resources from whence any loss can be made good.

The Insured and Third Party Claims

In the past, a person who is not a party to an insurance policy (“an outside third party”) could not bring an action against an Insurance Company because there was no legal contract between them. This led to a lot of injustice.

Now, under the Insurance Act, an outside third party can commence a legal action against both the Insured and the Insurance Company. This procedure is however slightly technical as the outside third party is required to serve on the Insurance Company a prior notice of its intention to commence the legal action; also, the action must be in the form of a third party notice for indemnity. This means that the liability of the insurance company is subject to the Court first determining that the Insured was liable to the outside third party; it is upon a determination of the Insured primary liability that the Insurer's secondary liability then arises to take the place of the Insured.

Conclusion

For there to be advancement in the Insurance industry, which would be of further benefit to the business community, there is a need for an improvement in the following areas.

  1. Continuing education of the insuring public on the importance and relevance of insurance especially in a developing economy. This is more so when the illiteracy rate in Nigeria remains high.
  2. Payment of correct premiums by the insuring Clients. Stories abound of big corporate organisations not paying full or correct premiums because they want to save or cut costs.
  3. Greater regulations of Insurance Brokers who continue to contravene the provisions of Section 41 (1) of the Insurance Act which requires that all Insurance Brokers must not later than thirty (30) days of the receipt of an insurance premium, remit such premium to the Insurance Company. Related to this is an urgent need by the Insurance Companies to collectively become alive to their corporate responsibility by reporting erring brokers to the Nigerian Insurance Commission without fear or favour of the Brokers.
  4. There are also concerns about rate cutting amongst the Insurance Companies. Whilst to the insuring public, this practice of charging the “minimum rate” may appear to be bargains, they undermine the financial base of the Insurance Companies who as a result may not have the ability to settle a claim when an insured peril occurs, even where they have the intention to. Insurance companies must engage in healthy competition applying good corporate governance behaviour which abhors corruption and other related unethical practices.

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