Formation of an Insurance Contract in Nigeria

You move your stock from one warehouse in Lagos to another. You write to your insurer to tell them. Nobody replies. Two weeks later a fire destroys the goods in the new warehouse, and you assume you are covered because you told the insurer. The Supreme Court says you are not. That is the story of Yadis (Nigeria) Ltd v Great Nigeria Insurance Co Ltd,¹ and it shows why formation is the most practical topic in insurance law: whether you have a contract, when it started and on what terms decides every claim that follows.

This article explains how an insurance contract comes into existence in Nigeria, what must be agreed, whether it must be in writing, when cover actually starts, and how the Nigerian Insurance Industry Reform Act 2025 (NIIRA) has changed the old case law. If you have not read it yet, start with Nature and Legal Meaning of Insurance in Nigeria.

1. Ordinary contract rules, with insurance twists

A contract of insurance is formed by the same ingredients as any other contract: capacity, offer, unconditional acceptance, consideration and an intention to create legal relations. A conditional acceptance is no acceptance, just as in the general law of contract. What sets insurance apart is what sits on top of those rules. The contract is one of the utmost good faith, conditions and warranties work differently, and legislation adds its own requirements on premium and on delivery of the policy.

Capacity matters most on the insurer’s side. Under section 5 of NIIRA, no one may carry on insurance business without a licence from the National Insurance Commission (NAICOM), and a licensed insurer must be a limited liability company incorporated under the Companies and Allied Matters Act, or a body established by another law.² That ends the world of Bank of the North Ltd v Poland, where an individual Lloyd’s underwriter could operate in Nigeria without registration.³ A policy “issued” by an unlicensed person or a sole trader is therefore not a policy of insurance in the sense this article describes.

2. Proposal, offer and acceptance

In practice the proposal is the offer. The person wanting cover completes a proposal form, or simply asks for insurance, and the courts readily assume that the applicant offers to take cover on the insurer’s usual standard terms. An advertisement or a quotation is only an invitation to treat. The contract arises when the insurer accepts the proposal unequivocally and without qualification.⁴

Yadis shows how strict this is. The insured held a fire policy on stock in a warehouse at Enuowa Street, Lagos. A clause required the insurer’s endorsement on the policy before the property was moved elsewhere. The insured relocated to Ikotun-Egbe and wrote to tell the insurer. The insurer did not reply, did not endorse, and a fire followed. The Supreme Court held that the letter was an offer to vary the contract, that an offer needs acceptance, and that silence is not acceptance. Cover had not been extended to the new address, and the insurer was right to refuse the claim.⁵ The rule that a prima facie contract comes into existence the moment a proposal in the normal form is accepted without qualification was applied again in Adogu and Ngillari v NICON.⁶

The lesson for anyone who runs a business is simple: never move insured property, or change any term, until the insurer has endorsed the policy in writing. The lesson for an examiner’s problem question is just as simple: look for the moment of acceptance, and ask whether the insurer’s conduct amounted to one.

There is a tension here that students should notice. In Adie & Sons v Insurance Corporation Ltd, an English decision applied in Nigerian courts, the insured wrote asking whether the insurer would take up a share of a fire risk on the same terms as another office. The insurer replied that it would, and the policy was later issued, but a fire destroyed the premises before then. The court held the insurer liable, because the correspondence amounted to proposal and acceptance, and the parties had not needed to settle every detail of the policy.⁷ In Yadis, the insurer never answered; in Adie, it did. The difference is the insurer’s conduct, not the generosity of the court. Whether the 2025 statutory objective of protecting policyholders will soften the position in cases like Yadis is untested.⁸

3. What must be agreed

Not every term needs to be agreed. The parties must agree the essentials: the risk to be covered, the duration of cover, the premium and how it is paid, and the sum payable if the risk occurs. Once those are settled, there is prima facie a binding contract, and the rest is filled in by the insurer’s standard terms. In Adie, it was immaterial that the parties had not discussed every individual term of the policy.⁹

The Supreme Court applied the same idea in Northern Assurance Co Ltd v Wuraola and Yorkshire Insurance Co v Haway, where the policies referred to in cover notes were held to be incorporated by reference, so the insured was bound by a clause requiring notice of impending liability proceedings even though he had never received the policy.¹⁰ In Salako v Lombard Insurance Co, an oral contract of insurance was held subject to the insurer’s usual standard form.¹¹ Keep that last point in mind, because NIIRA has cut across it, as the next section shows.

4. Form: does an insurance contract have to be in writing?

Not generally. There is no rule of common law that an insurance contract must be in any particular form or in writing at all. In Esewe v Asiemo, the court held that an oral contract of insurance is perfectly valid where the intention to contract is clear and the fundamental essentials are agreed.¹² Ngillari and Salako point the same way for non-marine insurance.¹³

There are exceptions. For marine insurance, a contract is deemed concluded when the proposal is accepted, whether or not a policy is issued, but it is not admissible in evidence unless it is embodied in a marine policy.¹⁴ Guarantee insurance is caught by the Statute of Frauds 1677, which requires a signed written memorandum.¹⁵ And whatever the type of insurance, a policy on a life, property or event must name the insured, the subject matter and the people for whose benefit it is made, although a class of unnamed beneficiaries is acceptable if the class is described clearly enough to identify them.¹⁶

5. The policy document: a major change from the older cases

NIIRA requires the insurer to deliver the policy document to the insured on or before the commencement of the policy, on pain of a penalty of up to 5 per cent of the premium. Delivery can be physical, by courier or by email, and where email is used the insurer must make sure it was actually received.¹⁷

Now compare this with Wuraola and Haway, where the insured was bound by terms in a policy he never saw.¹⁸ Section 17(3) of NIIRA turns that approach on its head. An insurer cannot rely on any term, condition or warranty in the policy to refuse a claim if the policy document was not delivered to the insured or his broker before the loss.¹⁹ A student who writes that an insured is bound by unseen standard terms because of Wuraola needs to explain how that survives section 17(3), and the honest answer is that for policies governed by NIIRA it largely does not.

One caution. The section makes an exception where the loss occurs “within the period specified in subsection (1)”, but subsection (1) specifies a deadline (on or before commencement) and not a period. The drafting is awkward, and a court will have to decide whether the exception covers a loss that happens in the first moments of cover. Expect this to be tested.

6. Premium: when does cover actually begin?

Under the older case law, an insurer was bound as soon as the essentials were agreed, even before the premium was paid, unless it made clear that no contract existed until payment or issue of the policy. Fadayomi v Mercury Assurance Co Ltd illustrates this.²⁰ Insurers who wanted payment first had to say so.

NIIRA says it for them, by law. Section 60(1) makes receipt of the premium a condition precedent to a valid contract and provides that there is no cover unless the premium is paid in advance.²¹ An insurer that grants cover in breach of this faces a penalty of up to twice the premium collected.²² The 2003 Act already said this in section 50, so a student quoting Fadayomi without mentioning the statute is giving only half the answer.

Three details matter in practice. First, the rule does not apply to policies issued for third parties under compulsory insurance, so a road accident victim is not defeated by the owner’s unpaid premium.²³ Second, a premium paid to a broker is deemed paid to the insurer, and the broker must pass it on within 20 working days or 30 calendar days, with a penalty of ₦500,000 or twice the commission earned, whichever is higher, if it does not.²⁴ This protects the policyholder whose broker disappears with the money. Third, the Act does not mention instalments, but the courts read the old section 50 strictly. In Adogu, an insured who paid part of the premium at inception and the balance only after her car was stolen had no cover, because the section does not contemplate payment by instalments and the balance came too late.²⁵ Section 60(1) repeats the wording of section 50(1), so expect the same reading. Compare Chime, where the insured lost his claim because the premium never reached the insurer, though he knew nothing of it.²⁶

7. Temporary cover

Insurers cannot always issue a policy immediately, so applicants for fire, motor, burglary and accident insurance usually get temporary cover through a cover note. It is a binding contract in its own right, subject to the insurer’s standard terms, and it protects the insured against the loss that so often happens before the policy arrives. The point arose in Esewe v Asiemo, Nasidi v Mercury Assurance and Ezeigbo v Lion of Africa.²⁷ It does not apply to life assurance.

Where the risk increases before the policy is issued, the insurer is not bound to cover the altered risk.²⁸ In motor insurance, the cover note and certificate are also what the law treats as proof that a vehicle is insured. That is why NIIRA makes it an offence to obtain a certificate by false statements, or to forge, alter or use a forged certificate, with a fine of up to ₦200,000 or imprisonment for a year or both.²⁹ The sticker on a commercial bus may be exactly such a forgery.

8. Who are the parties?

At common law the parties are the insurer and the insured (called the assured in life policies). The insured is the person whose interest is covered, and a person cannot sue on a policy that does not insure his own interest. In Re British and French Bank Ltd; Jia Enterprises Ltd v British Commonwealth Insurance Ltd, a bank that held the debtor’s property as security was named in the policy but was held to be neither an insured nor a competent party to sue on it.³⁰ Contrast Royal Exchange Assurance (Nig) Plc v Anumnu, where a mortgagor who had insured the mortgaged property, with the bank’s interest noted on the policy, was entitled to sue without the bank because the contract was between him and the insurer.³¹ The two cases are consistent: the contract belongs to whoever made it and whose interest it covers. NIIRA now softens that rule for non-life insurance. Section 205 gives a third-party beneficiary a right to recover from the insurer the loss he suffers, within the limit insured, even though he is not a party to the contract. He takes on the same obligations to the insurer as the insured would have had, and the insurer keeps every defence it would have had against the insured, including defences based on the insured’s conduct before or after the contract was made.³² So a person who is not the insured can now sue the insurer on his own account, but he stands in the insured’s shoes and inherits the insured’s problems. We deal with what counts as an interest in Insurable Interest in Nigerian Insurance Law.

9. Types of insurance contract

Contracts of insurance fall into indemnity contracts, which compensate the actual loss (fire, motor, marine, liability), and non-indemnity contracts, which pay an agreed sum on a specified event (most life, personal accident and critical illness policies). It is possible, though unusual, to take a valued policy on property that pays an agreed sum whatever the actual loss. NIIRA’s own classification is life and non-life, with four life classes and eight non-life classes.³³ The detail on indemnity is in Indemnity, Subrogation and Contribution in Nigerian Insurance, and the duty of disclosure at formation is in Non-Disclosure and Misrepresentation in Nigerian Insurance Contracts.

10. Common student mistakes

• Treating the insured’s letter, or the insurer’s silence, as acceptance. After Yadis, silence does not bind the insurer.
• Saying all insurance contracts must be in writing. Only marine insurance and guarantee insurance have special formalities.
• Quoting Fadayomi or section 50 of the 2003 Act on premium without saying that section 60 of NIIRA now governs.
• Forgetting section 60(4), the exception for compulsory third-party policies, and section 60(2) on premium paid to brokers.
• Binding the insured to policy terms he never received, without addressing section 17(3).
• Ignoring the cover note, which is itself a contract and often decides the claim.

11. Problem question approach

Work in this order. Identify the offer: was there a proposal, and on what terms? Find the acceptance, and check it was unqualified and communicated. Confirm the four essentials were agreed. Check the premium: was it paid in advance (section 60), and does an exception apply? Check delivery of the policy document (section 17) before relying on any term against the insured. If cover was only temporary, look at the cover note and ask whether the risk changed before the policy issued. Last, ask who the insured really is and whether their interest was covered.

12. Quick reference

Question	Answer	Authority
Who may be an insurer?	A licensed limited liability company or statutory body	NIIRA s 5
Is silence acceptance?	No. A later change needs the insurer’s acceptance	Yadis v Great Nigeria Insurance
What must be agreed?	Risk, duration, premium, sum payable	Adie v Insurance Corporation
Must a contract be written?	No, except marine insurance and guarantee insurance	Esewe v Asiemo; NIIRA s 141; Statute of Frauds 1677
When must the policy be delivered?	On or before commencement	NIIRA s 17(1)
What if it was not delivered before loss?	Insurer cannot rely on policy terms	NIIRA s 17(3)
When does cover start?	When premium is paid in advance	NIIRA s 60(1)
Exceptions to advance payment?	Compulsory third-party policies; premium paid to broker	NIIRA s 60(4), s 60(2)
Is a cover note a contract?	Yes, subject to standard terms	Esewe; Ezeigbo

13. Key cases

• Yadis (Nigeria) Ltd v Great Nigeria Insurance Co Ltd (2007) 14 NWLR (Pt 1055) 584: insurer’s silence is not acceptance of a change of address.
• Industrial and General Insurance Co Ltd v Adogu (2010) 1 NWLR (Pt 1175) 337: unqualified acceptance of a proposal creates the contract.
• Ngillari v NICON (1998) 8 NWLR (Pt 560) 1: a parol contract of non-marine insurance is enforceable.
• Adie & Sons v Insurance Corporation Ltd (1898) 14 TLR 544: essentials agreed means a binding contract before the policy issues.
• Northern Assurance Co Ltd v Wuraola (1969) 1 NMLR 1 and Yorkshire Insurance Co v Haway (1969) 1 All NLR 352: insured bound by standard terms through the cover note.
• Esewe v Asiemo (1976) 1 ALR (Comm) 388: oral contracts of insurance are valid.
• Ezeigbo v Lion of Africa (1972) ECSLR 180: insurer need not cover an increased risk before the policy is issued.
• Re British and French Bank Ltd; Jia Enterprises Ltd v British Commonwealth Insurance Ltd (1962) 1 All NLR 363: a bank holding security is not thereby an insured.

Footnotes

1. Yadis (Nigeria) Ltd v Great Nigeria Insurance Co Ltd (2007) 14 NWLR (Pt 1055) 584 (SC).
2. Nigerian Insurance Industry Reform Act 2025, s 5(1) and (3)(a).
3. Bank of the North Ltd v Poland (1969) NCLR 152.
4. Industrial and General Insurance Co Ltd v Adogu (2010) 1 NWLR (Pt 1175) 337.
5. Yadis (Nigeria) Ltd v Great Nigeria Insurance Co Ltd (n 1).
6. Industrial and General Insurance Co Ltd v Adogu (n 4); Ngillari v NICON (1998) 8 NWLR (Pt 560) 1.
7. Adie & Sons v Insurance Corporation Ltd (1898) 14 TLR 544.
8. Nigerian Insurance Industry Reform Act 2025, s 1(1)(b).
9. Adie & Sons v Insurance Corporation Ltd (n 7).
10. Northern Assurance Co Ltd v Wuraola (1969) 1 NMLR 1; Yorkshire Insurance Co v Haway (1969) 1 All NLR 352.
11. Salako v Lombard Insurance Co (1978) 10-12 CCHCJ 45.
12. Esewe v Asiemo (1976) 1 ALR (Comm) 388.
13. Ngillari v NICON (n 6); Salako v Lombard Insurance Co (n 11).
14. Nigerian Insurance Industry Reform Act 2025, ss 140 and 141(1).
15. Statute of Frauds 1677, s 4.
16. Nigerian Insurance Industry Reform Act 2025, s 67(1) and (2).
17. Nigerian Insurance Industry Reform Act 2025, s 17(1), (2), (4) and (5).
18. Northern Assurance Co Ltd v Wuraola (n 10).
19. Nigerian Insurance Industry Reform Act 2025, s 17(3).
20. Fadayomi v Mercury Assurance Co Ltd (1973) UILR (Pt IV) 424.
21. Nigerian Insurance Industry Reform Act 2025, s 60(1); Insurance Act, Cap I17, LFN 2004, s 50.
22. Nigerian Insurance Industry Reform Act 2025, s 60(3).
23. Nigerian Insurance Industry Reform Act 2025, s 60(4).
24. Nigerian Insurance Industry Reform Act 2025, ss 60(2) and 61(1) and (2).
25. Industrial and General Insurance Co Ltd v Adogu (n 4).
26. Charles Chime v United Nigeria Insurance Co (1972) 2 ENLR 808.
27. Esewe v Asiemo (n 12); Nasidi v Mercury Assurance Co (1971) 2 All NLR 156; Ezeigbo v Lion of Africa (1972) ECSLR 180.
28. Ezeigbo v Lion of Africa (n 27).
29. Nigerian Insurance Industry Reform Act 2025, s 98(1) and (2).
30. Re British and French Bank Ltd; Jia Enterprises Ltd v British Commonwealth Insurance Ltd (1962) 1 All NLR 363.
31. Royal Exchange Assurance (Nig) Plc v Anumnu (2003) 6 NWLR (Pt 815) 52.
32. Nigerian Insurance Industry Reform Act 2025, s 205(1) to (3).
33. Nigerian Insurance Industry Reform Act 2025, s 3.