Indemnity, Subrogation and Contribution in Nigerian Insurance

A Lagos trader’s goods are on a lorry when it overturns. Her insurer pays her the cost of the goods. The carrier’s driver was negligent, so she also has a claim against the carrier. Can she now sue the carrier and keep the money as well? Can her insurer sue the carrier? And if she had two insurers for the same goods, which of them pays? The three principles in this article answer those questions, and they all rest on one idea: insurance should put you back where you were and never leave you better off.

In Weide & Co Ltd v Hashim, a lorry carrying goods overturned and the owner claimed on its insurance, then sued the carrier for the benefit of the insurer.¹ The court allowed it. Behind that result sit indemnity, subrogation and contribution, and this article explains each in turn. It follows Conditions and Warranties in Nigerian Insurance Law and uses the Nigerian Insurance Industry Reform Act 2025 (NIIRA) as the baseline.

1. Indemnity

Apart from life and other fixed-sum policies, insurance contracts are contracts of indemnity. The insurer undertakes to make good the insured’s actual loss, so the insured is restored to the financial position he held before the loss, and not enriched by it. In Castellain v Preston, Brett LJ called this the foundation of every rule of insurance law: the insured must be fully indemnified, but never more than fully indemnified, and any proposition that would produce either result must be wrong.²

Three practical consequences follow. If there is no loss, there is nothing to indemnify. If the loss is partial, the insured recovers only the loss, which is why Royal Exchange Assurance (Nig) Plc v Anumnu says the insured receives the whole sum assured on total loss but only a fraction on partial loss.³ And the measure of loss is usually the market value at the time and place of the loss, not the cost of a replacement. In Esewe v Asiemo, Ataka J said a motor policy is meant to indemnify the owner, not enrich him, so the amount payable depended on the market value of the car at the time and place of the accident.⁴

The indemnity principle can be varied by agreement. In a valued policy, the parties agree in advance what the subject matter is worth and the insurer pays that sum on total loss whatever the real value, as Irving v Manning accepted.⁵ This is common in Lagos port cargo cover, where goods are valued by agreement. NIIRA draws the line for marine insurance: in a valued policy the measure of indemnity on total loss is the sum fixed by the policy, and in an unvalued policy it is the insurable value.⁶

Where the insured has under-insured, the usual rule is that he recovers his loss up to the sum insured, but many property policies are “subject to average.” That means that if the sum insured is less than the value at the time of loss, the insured bears the shortfall himself. Suppose a warehouse worth ₦80 million is insured for ₦40 million under an average clause, and a fire causes ₦20 million damage. The insurer pays only half, or ₦10 million, since the insured is treated as his own insurer for the other half. NIIRA states the same rule for marine insurance: an insured who is covered for less than the insurable value is deemed his own insurer for the uninsured balance.⁷ In motor and liability policies, an excess clause makes the insured bear the first slice of every loss.

Reinstatement

An insurer may sometimes choose to repair or replace the property instead of paying money. The reinstatement clause gives the insurer an option, and once exercised it replaces the money claim. In Nicholas Bros Ltd v Lion of Africa Insurance Co, the court held that an insurer who elects to reinstate a car must make good the damage so far as possible as though the car had not been damaged.⁸ As Lord Esher explained in Anderson v Commercial Union Assurance Co, the option is either to replace destroyed goods with equivalents or to repair damaged ones.⁹

For buildings damaged by fire, NIIRA adds a statutory twist. Where there is no reasonable ground to suspect the insured of fraud or of setting the fire, the insurer may, on the request of a person interested in the building, apply the claim money to rebuilding, reinstating or repairing it, unless the claimants give security within 60 days that the money will be so spent or the money is distributed among the parties with court approval.¹⁰ But section 79(3) says that, notwithstanding that power, the insured may elect between having the building reinstated and being paid for the loss, up to the sum insured.¹¹ The two rules point in opposite directions. At common law the option to reinstate belongs to the insurer, and section 79(3) gives it to the insured for fire damage to buildings. For anything else, the common law option remains with the insurer.

2. Subrogation

Subrogation supports indemnity. Once the insurer has paid the insured for a loss, it steps into his shoes and may use any right he has against a third party responsible for the loss, whether in contract, in tort or under statute, so that the insured cannot be paid twice.¹² The insured cannot recover from his insurer and from the wrongdoer and pocket both.

A few points matter in practice.

When the right arises. The Supreme Court held in British India General Insurance Co v Alhaji Kalla that subrogation does not arise until the insurer has admitted liability and paid.¹³ In Scottish Union and National Insurance Co v Davis, the insurer was not entitled to a sum the insured recovered from a third party, because the insurer had not yet indemnified him.¹⁴

Total and partial loss. Many student notes say subrogation arises only on a total loss. Section 215 of NIIRA says otherwise. On a total loss, the insurer takes over the insured’s interest in what remains of the subject matter and is subrogated to his rights and remedies from the time of the casualty. On a partial loss, the insurer acquires no title to the remains but is subrogated to the insured’s rights to the extent of the partial loss.¹⁵ So the statute gives subrogation on both, and the one on total loss carries ownership of the salvage as well.

There is a drafting wrinkle. Section 215(2) speaks of the insured being indemnified “according to this Part”, which reads as if copied from the marine provisions, though section 215 sits in the general part of the Act. It is safest to treat section 215 as applying to all indemnity insurance, but a court may have to say so.

Whose name? The insurer sues in the insured’s name, not its own, unless there is a formal assignment. In Lion of Africa Insurance Co v Scanship (Nigeria) Ltd, the insurer’s action against the shipowner’s agents failed because it was brought in the insurer’s name.¹⁶ That answers the Lagos importer’s question: when her insurer sues the carrier, it uses her name, and the carrier cannot answer that the insured has already been paid. In H Cousins & Co Ltd v D & C Carriers Ltd, the insurer who had indemnified the owner could sue the wrongdoer in the owner’s name and recover the loss and interest, and it did not matter to the wrongdoer that the owner had been paid.¹⁷

Who keeps what. The insurer takes recoveries up to what it paid. Any excess belongs to the insured, so he is never worse off than if the insurer had not paid.

There is also a modern motor point. Section 87 of NIIRA now requires third-party policies to cover property damage up to ₦3 million.¹⁸ A comprehensive insurer that pays its insured for a damaged car can therefore pursue the negligent driver, and that driver is now more likely to have a policy behind him than under the old rule limited to death and bodily injury. This is an inference from the statute and has yet to be tested.

3. Contribution

Contribution deals with double insurance. Suppose the same person insures the same property against the same risk with two insurers. The insured can only recover his actual loss once, but he may choose which insurer to claim from. The insurer who pays can then recover a fair share from the other, so that the cost is spread. The rule is equitable: Lord Mansfield said that if the insured is to receive only one satisfaction, natural justice says all the insurers should contribute to it.¹⁹

Two meanings of “contribution” appear in the cases, and exam questions often mix them. The first is a policy term requiring the insured to bear part of the loss himself, which Nigerian courts enforce, as in Audu Bida v Motor and General Insurance Co.²⁰ The second is the right between insurers, which this section describes.

The conditions for a claim

The right between insurers arises only if the policies cover the same subject matter, the same peril, and the same insured and interest, and both policies were valid and in force at the time of the loss.²¹ So there is no contribution if one policy had lapsed or was unenforceable, as in Wendell v Road Transport and General Insurance Co, or if it was not a legal contract of insurance.²² The right does not arise if one policy excludes contribution, as with certain “other insurance” clauses.²³ It accrues only after the claiming insurer has paid, as Williams v North China Insurance Co shows, and then the insurer may sue in its own name, unlike the subrogated insurer.²⁴

There is no contribution where separate persons with separate interests each insure the same property to protect themselves: bailor and bailee, landlord and tenant, mortgagor and mortgagee.²⁵ Nor does contribution apply to life or personal accident insurance, which are not indemnity contracts.

How the loss is shared

Once the court finds a contribution claim, it must decide on the method. Where both policies are for the same amount, the shares are equal. Where the amounts differ, courts have used the “maximum liability” approach, in proportion to the sums each insurer would pay if the other did not exist, or the “independent liability” approach, in proportion to what each would pay under his own policy alone.

NIIRA adds clarity for marine insurance. Where the insured is over-insured by double insurance, each insurer must contribute rateably in proportion to the amount for which he is liable under his contract, and an insurer who pays more than his share has the remedies of a surety against the others.²⁶ The insured may claim from the insurers in any order but cannot recover more than the indemnity, and if he receives any excess he holds it in trust for the insurers.²⁷

Here is a significant point that student notes miss. Section 190(3) says that a clause in one policy that excludes or limits the insurer’s right to contribute rateably is void.²⁸ At common law such “other insurance” clauses were enforced, which is why one of the conditions for contribution is that neither policy excludes it. For marine policies that requirement has gone, but for non-marine policies the old rule continues because section 116(2) preserves the existing law. A student answering a question on fire insurance should still mention the exclusion rule, while one answering a marine question should cite section 190(3).

4. How the three principles fit together

Indemnity says the insured recovers only his loss. Subrogation stops him recovering twice from the wrongdoer and the insurer. Contribution stops him recovering twice from two insurers. Each protects the same social purpose, which is that nobody should profit from misfortune, since a person who could make a profit might be tempted to cause the loss.

5. Common student mistakes

• Applying indemnity, subrogation or contribution to life insurance. They apply only to indemnity contracts.
• Saying subrogation applies only to total loss. Section 215 of NIIRA covers partial loss as well.
• Letting the insurer sue in its own name for subrogation. It must use the insured’s name unless there is an assignment.
• Confusing the two meanings of contribution.
• Missing that there is no contribution between separate interests, such as landlord and tenant.
• Forgetting that the right between insurers accrues only after payment.
• Treating a valued policy as a breach of the indemnity principle. It is an agreed exception.
• Citing section 66 of the 2003 Act for fire reinstatement. The current provision is section 79 of NIIRA.

6. Problem question approach

Begin by asking whether the policy is one of indemnity. Work out the loss and the measure: market value, valued policy sum, average clause or excess. Check for any reinstatement option or the statutory right under section 79. If a third party caused the loss, ask whether the insurer has paid and admitted liability, whether it sues in the insured’s name, and what recoveries must be returned to the insured. If more than one policy covers the loss, check the five conditions for contribution, choose the method of apportionment and test any “other insurance” clause.

7. Quick reference

Question	Answer	Authority
What is the core of indemnity?	Full indemnity, never more	Castellain v Preston
Measure in a motor claim?	Market value at time and place of loss	Esewe v Asiemo
Marine measure of indemnity?	Policy sum if valued; insurable value if unvalued	NIIRA s 179
Under-insured marine insured?	Own insurer for the balance	NIIRA s 191
Fire damage to buildings?	Insured may elect reinstatement or payment	NIIRA s 79(3)
When does subrogation arise?	After insurer pays	British India v Kalla; NIIRA s 215
Partial loss?	Subrogated to extent of loss, no title to remains	NIIRA s 215(2)
Whose name does the insurer sue in?	The insured’s	Lion of Africa v Scanship
Contribution requires?	Same subject, peril, insured; valid policies	North British v London, Liverpool and Globe
Marine double insurance?	Rateable contribution; excluding clause void	NIIRA ss 146, 190
Does contribution apply to life?	No	Godin v London Assurance

8. Key cases

• Castellain v Preston (1883) 11 QBD 380: insurance is a contract of indemnity and only indemnity.
• Royal Exchange Assurance (Nig) Plc v Anumnu (2003) 6 NWLR (Pt 815) 52: whole sum on total loss, a fraction on partial loss.
• Esewe v Asiemo (1974) 4 UILR (Pt 3) 355: market value at the time and place of loss.
• Nicholas Bros Ltd v Lion of Africa Insurance Co Ltd (1961) LLR 86: reinstatement means restoring the property as it was.
• British India General Insurance Co v Alhaji Kalla (1965) 1 All NLR 240: subrogation only after the insurer pays.
• Weide & Co Ltd v Hashim (1968) NCLR 330: insurer subrogated to the owner’s claim against the carrier.
• Lion of Africa Insurance Co Ltd v Scanship (Nig) Ltd (1969) NCLR 317: subrogated action must be in the insured’s name.
• H Cousins & Co Ltd v D & C Carriers Ltd [1971] 2 QB 230: insurer may sue in the insured’s name and recover interest.
• North British and Mercantile Insurance Co v London, Liverpool and Globe Insurance Co (1877) 5 Ch D 569: separate interests give no contribution.
• Austin v Zurich General Accident and Liability Insurance Co Ltd [1945] KB 250: contribution is the insurer’s own claim, brought in its own name.

Footnotes

1. Weide & Co Ltd v Hashim (1968) NCLR 330.
2. Castellain v Preston (1883) 11 QBD 380.
3. Royal Exchange Assurance (Nig) Plc v Anumnu (2003) 6 NWLR (Pt 815) 52.
4. Esewe v Asiemo (1974) 4 UILR (Pt 3) 355.
5. Irving v Manning (1848) 6 CB 391, 136 ER 1302.
6. Nigerian Insurance Industry Reform Act 2025, ss 178 and 179.
7. Nigerian Insurance Industry Reform Act 2025, s 191.
8. Nicholas Bros Ltd v Lion of Africa Insurance Co Ltd (1961) LLR 86, 92.
9. Anderson v Commercial Union Assurance Co (1885) 55 LJQB 146.
10. Nigerian Insurance Industry Reform Act 2025, s 79(1) to (3).
11. Nigerian Insurance Industry Reform Act 2025, s 79(1) to (3).
12. Castellain v Preston (n 2).
13. British India General Insurance Co Ltd v Alhaji Kalla (1965) 1 All NLR 240.
14. Scottish Union and National Insurance Co v Davis [1970] 1 Lloyd’s Rep 1.
15. Nigerian Insurance Industry Reform Act 2025, s 215(1) and (2).
16. Lion of Africa Insurance Co Ltd v Scanship (Nig) Ltd (1969) NCLR 317.
17. H Cousins & Co Ltd v D & C Carriers Ltd [1971] 2 QB 230.
18. Nigerian Insurance Industry Reform Act 2025, s 87(1).
19. Godin v London Assurance Co (1758) 1 Burr 489, 492.
20. Audu Bida v Motor and General Insurance Co of Nigeria Ltd (1972) NCLR 270.
21. North British and Mercantile Insurance Co v London, Liverpool and Globe Insurance Co (1877) 5 Ch D 569.
22. Wendell v Road Transport and General Insurance Co Ltd [1932] 2 KB 563; Woods v Co-operative Insurance Society 1924 SC 692.
23. Niger Co Ltd v Guardian Assurance Co Ltd (1922) 13 Ll L Rep 75 (HL).
24. Williams v North China Insurance Co (1876) 1 CPD 757; Austin v Zurich General Accident and Liability Insurance Co Ltd [1945] KB 250.
25. North British and Mercantile Insurance Co v London, Liverpool and Globe Insurance Co (1877) 5 Ch D 569.
26. Nigerian Insurance Industry Reform Act 2025, s 190(1) to (3).
27. Nigerian Insurance Industry Reform Act 2025, s 146(2).
28. Nigerian Insurance Industry Reform Act 2025, s 190(1) to (3).