CRUSADER INSURANCE (NIG.) LTD (APPELLANT)

v.

EPHRAIN OKOYE ANUNIKE (RESPONDENT)

(1975) All N.L.R. 94

Division: Supreme Court

Date of Judgment: 21st March, 1975

Case Number:

Before: Coker, Fatayi-Williams and Irikefe, JJ.S.C.

APPEAL from the High Court, Onitsha.

The plaintiff/respondent sued the defendant/appellant in Onitsha High Court, claiming inter alia a declaration that the condition in a life policy which he had taken with defendant/company, and which provided for non-payment of surrender value by the insurers under certain circumstances is null and void; and also that he was entitled to the surrender value of the policy. Plaintiff had paid premiums for three years before the outbreak of the civil war, at the end of which the defendant/company informed him that his policy would continue to be in force if he paid all outstanding arrears of premium within three months. He however failed to pay the arrears and so was informed that the policy had lapsed.

The learned trial Judge inter alia ordered the defendant/company to pay back to the plaintiff/assured the sum of £149.6s.8d being the two years' premium paid by him. On appeal to the Supreme Court.

HELD:

Allowing the appeal, (1) that the contractual relationship between the parties is governed solely by the terms of the Life Policy;

(2)     that condition 2 in the said policy provides that if any premium which is due remains unpaid within the days of grace, and if the balance of the surrender value, after deducting any amounts due to the insurers, is less than the overdue premium, the policy will remain in force until the balance is exhausted;

(3)     that it is also provided in Condition 6 thereof that the policy shall be free of all restrictions as to war;

(4)     that as the insurers have rightly invoked Condition 2 of the policy in their defence to the claim, the question of frustration due to the civil war was irrelevant; and

(5)     that the plaintiff/assured, did not plead frustration, hence the learned judge should not have based his judgment on it.

Appeal allowed

Cases referred to:

British Moveitonews Ltd. v. London and District Cinemas Ltd. [1952] A. C. 166 at 185

Anderson v. Fitzgerald (1853) 4 H.L.C. 484 at 508

Stone v. Marine Insurance [1876] 1 Ex. Div. 81

Constantine's case [1942] A.C. 154 at 186

Hirji Mulji v. Cheong Yue Steamship Co. Ltd. [1926] A.C. 497 at 510

Bank Line Ltd. v. Arthur Capel & Co. [1919] A.C. 435 at 455

APPEAL from the High Court, Onitsha.

Suit No. S.C. 83/1974

Chief F.R.A. Williams for Defendant/Appellant.

Respondent absent, not represented.

FATAYI-WILLIAMS, J.S.C. (Delivering the Judgment of the court)-The plaintiff, a trader, took out a Life Policy (Ex. 2) with the defendant, an insurance company, on 1st June, 1964. The Policy was to mature in 1994 for the assured sum of £2,000 (N4,000) with participation in profits. The agreed premium payable by the plaintiff to the defendant was £74.13.4 annually. The plaintiff paid the premiums due for three years, that is from 1st June, 1964 to 1st June, 1967. Under Condition 6 of the said Policy, it is provided, as a condition precedent, that the Policy shall be-

"Free from all restrictions as to war, foreign residence, occupation or travel, including aviation, except as provided in these conditions, the special provisions as to the Schedule and any endorsement hereon."

Some time after the 30th May, 1967, the Military Governor of the former Eastern Nigeria announced that the former Eastern Nigeria had seceded from the Federation of Nigeria. Consequently and in order to preserve the corporate existence of the Federation, war broke out on or about the 6the day of July, 1967, between the Government of the Federation of Nigeria and the secessionist regime of Eastern Nigeria.

At the end of the civil war on 12th January, 1970, the plaintiff wrote two letters to the defendant, the first on 14th November, 1970 (Ex. 8) and the other on 7th January, 1971 (Ex. 4), asking to know the amount due and payable to him as the surrender value of the Policy. To these letters the defendant replied on 20th January, 1971 in their letter (Ex. 5) as follows.:-

"Dear Sir,

Life Policy No. N/117798

Further to our letter to you of 11th December, 1970 we regret to advise you that your policy lapsed on the 1st of February, 1970. Our lapse notice confirming this will be forwarded to you in due course.

When a policy has been in force for two years, it acquires a surrender value against which unpaid premiums are advanced in accordance with the non-forfeiture regulations of your policy, Condition 2. When the surrender value is exhausted the policy automatically lapses.

Payments made on any date during the period starting on 31st May, 1967, and ending on 12th January, 1970, have not been taken into account in view of the provisions of the Banking Obligations (Eastern States) Decree No. 56 of 1970.

In view of the above, we are sorry that we will be unable to consider your request for the surrender value of your policy.

Yours faithfully,

(Sgd.) R. J. Eagle, Manager

The provisions of Condition 2 referred to in the letter (Ex. 5) read-

"2.     NON-FORFEITURE REGULATIONS: When the Policy has a surrender value, if any premium shall not be paid within the days of grace, the amount thereof shall be advanced at compound interest upon security of the Policy, provided the balance of the surrender value, after deducting any amount due to the company, is not less than the amount of the overdue premium, but, should it be less, the Policy will remain in force for a proportionate period until the balance is exhausted."

On the receipt of the letter (Ex.5), the plaintiff commenced proceedings against the defendant company in which he claimed-

"(a) a declaration that the application of Condition 2 of Policy No. N/117798 by the defendant company against the plaintiff/assured is void to the extent that it applies to the plaintiff; that it is harsh, unconscionable and/or inequitable and contrary to the public interest; and

(b)     A declaration that the plaintiff/assured is entitled to the surrender value acquired under the Policy No. N/117798 as per Condition 4 of the Policy-the defendant/company to give full account to the plaintiff/assured of the surrender value so far acquired under the Policy and to pay to the plaintiff/assured the full amount so accounted for."

The plaintiff further explained the basis for his claim (which he repeated in paragraph 13 of his statement of claim) in paragraphs 11 and 12 of the said statement of claim as follows:-

"11. The plaintiff says that of all the insurance companies operating in the Federal Republic of Nigeria it is only the defendant/company which has refused to pay their assured the surrender value under the Policy, seeking to take shelter under Condition 2 of the Policy aforementioned, regardless of the circumstances of the war.

12.     The plaintiff further says that Condition 2 aforesaid is quite in contradistinction to Article 7 of the African Alliance Insurance Company's Life Policy, which policy will be founded upon at the trial and evidence led to prove conclusively that the application of Condition 2 of the defendant/company's Life Policy in so far a it affects the plaintiff/assured is void and contrary to public interest."

To these averments, the defendant replied in paragraphs 6 to 9 of its statement of defence as follows:-

"6.     In answer to paragraphs 11 and 12 of the statement of claim the defendant says that the averments therein contained are completely irrelevant. The defendant will contend that the contract of insurance between the plaintiff and the defendant is contained in the Policy. The defendant will rely on the documents mentioned above.

7.      In further answer to paragraphs 11 and 12 the defendant says that the contract constituted by the said Policy of Assurance is binding on both parties according to its terms, that according to the terms of the contract it has lapsed and that the plaintiff is not entitled to the relief claimed or at all.

8.      The defendant also states that in a letter dated 11th December, 1970, and addressed to the plaintiff the defendant offered a relaxation of the strict terms of the Policy but the plaintiff declined to take advantage of the liberal concession.

9.      In answer to paragraph 13 of the statement of claim the defendant avers that the claim is inadequately drawn and does not disclose any cause of action. The defendant also states that contracts of Life Assurance are uberrima fides, that the contract was entered into willingly by both sides with full disclosure on the part of the defendant and that the defendant is entitled to rely on the terms of the contract."

The letter dated 11th December, 1970 (Ex. 3) and referred to above in paragraph 8 of the statement of defence, for ease of reference, is reproduced hereunder. It reads-

"Dear Sir,

Life Policy No. N/117798

Thank you for your letter dated 14th November, 1970.

We are pleased to see that you have survived the war.

We have traced from our records that the last premium paid on your policy was that due 1st June, 1966 which covered up the end of May, 1967.

However, should you wish to continue with your policy, the outstanding arrears to the end of December, 1970 amount to £298.13.4d. This amount is purely premium arrears and no interest has been charged for late payments. We have re-opened our Branch Office at 41 Ogui Road, Enugu should you wish to pay your premium there.

To assist all our policy holders who have been affected by the war, and whose stoppage of premiums was due to hardship of the war, the company has as mentioned above agreed as a concession that no interest should be charged for late payment on unpaid premiums, provided the arrears are paid within three months from the date of this letter. If the arrears are not paid within this period, any outstanding balance of arrears at the end of the three months will commence to attract interest from that date. Evidence of health which would normally be required by Condition 3 of the Policy is also being waived.

We trust that these concessions will be appreciated and we look forward to receiving your remittance.

Yours faithfully,

(Sgd.) Manager."

At the hearing, the plaintiff testified in support of his claim and produced the correspondence and other documents to which we have referred earlier. He admitted under cross-examination that the next premium after the payment of the last one in June, 1966, was due on 1st June, 1967, that he did not pay it and had, in fact, not paid any premium since. The plaintiff also admitted that he did not at any time protest to the defendant about Condition 2 in the Policy (Ex. 2).

Mr Frank Buckle who was the only witness called by the defence stated that the plaintiff did not at any time apply to surrender the Policy (Ex. 2).

In a reserved judgment, the learned trial Judge, after reviewing the evidence adduced before him, came to the conclusion that the contract between the plaintiff and the defendant was frustrated on 31st May, 1967. He then observed as follows:-

"In my view it is just and equitable and in accord with the evidence led and a fair and just construction of Condition 4 of Exhibit 2 allow the defendant company to retain the first year's premium of £74.13.4d and pay back to the plaintiff the sum of £149.6.8d representing his two years' premium which, if I am allowed to borrow the expression used by Lord Wright in the Fibrosa case, will now be regarded as 'money had and received'. In the circumstances I do not think it is necessary to order an account."

Following that observation, the learned trial Judge finally found as follows:-

"In the final result I uphold the plaintiff's claim that in the peculiar circumstances of this case it will be harsh, unconscionable and inequitable to apply Condition 2 of the Policy (Ex. 2) to him and I hereby declare that Condition (Ex. 2) shall not apply to the plaintiff.

With regard to the second arm of the plaintiff's claim I hold that no useful purpose would be served by ordering an account. For all the reasons given in the body of the judgment I order that the defendant company do pay back to the plaintiff the sum of £149.6.8d being money had and received on a frustrated contract."

The short point canvassed before us in the appeal against this decision by Chief Wiliams, learned Counsel for the defendant company, is that the question of whether the contract was frustrated or not did not come into the matter at all. It was neither pleaded nor canvassed by the plaintiff in his claim before the court. The first time frustration was mentioned was in the final address of learned Counsel for the plaintiff. The learned trial Judge was therefore in error in basing his judgment on it. Under the Policy, the defendant company assumed a risk of the plaintiff dying and promising to pay his Executors, Administrators or Assigns the sum of £2,000 or if he lived and did not die by 1st June, 1994, he would be paid the same amount. In either case, that contract was binding on both parties. The restrictions which a war could bring about were not applicable. In support of this submission, Chief Williams referred first to the contents of the Policy (Ex. 2), then to MacGillivray on Insurance Law, Vol. II, 4th Edition, paragraph 2143 at page 1034, and Halsbury's Laws of England 3rd Edition, Volume 22 paragraph 455, and finally to the observations of Viscount Simon in British Movietonews Ltd. v. London and District Cinemas Ltd. [1925] A.C. 166 at page 185.

The plaintiff was neither present at the hearing of the appeal nor was he represented.

Undoubtedly, the contractual relationship between the parties is governed solely by their terms of the Policy (Ex. 2). In that Policy the life of the plaintiff was insured by the defendant company for the sum of "two thousand pounds with participation in profits." This sum became payable on the death of the plaintiff or on his survival until the 1st of June, 1994. It is also manifest that if he died, this sum would be paid to his Executors, or Administrators or Assigns as the case may be. The premium of £74.13.4d was payable from the 1st of June in each year starting from 1st June, 1964, and ending on 1st June, 1993, inclusive. Various conditions attached to the Policy-Condition 4 provided that a surrender value would be allowed after two full years' premiums had been paid while Condition 6 stated, in clear and unmistakable terms, that the policy should be free from all restrictions as to war. The crucial condition for the purpose of this appeal, however, is Condition 2 which reads:-

"When the Policy has a surrender value, if any premium shall not be paid within the days of grace, the amount thereof shall be advanced at compound interest upon security of the Policy, provided the balance of the surrender value, after deducting any amounts due to the company, is not less than the amount of the overdue premium, but, should it be less, the Policy will remain in force for the proportionate period until the balance is exhausted."

In our view, it is this condition which the defendant company, with justification if we may say so, has invoked in the case in hand, and we are therefore unable to see how the question of frustration due to the civil war ever came into it. In any case, the plaintiff did not plead frustration and it is, therefore, not open to the learned trial Judge to countenance it, let alone consider it. However, as he has based his judgment on it we will consider its applicability to the facts of this case. Condition 6, if we may recall, has made the Policy free from all restrictions brought about by war. For this reason, we are not in any doubt that the learned trial Judge was in error when he held that the contract had become frustrated on 31st May, 1967. He was also in error in ordering, as a consequence, the refund of part of the premiums already paid by the plaintiff under the Policy.

In this connection, we wish to refer to Mac-Gillivray's book on Insurance Law, 5th Edition Vol. II. The learned author, in paragraph 2143 at page 1034 of the book, considered the rule governing the return of premium and stated rightly in our view, as follows:-

"No risk no premium. The general rule applicable to claims for the return of premium is that if the insurers have never been on the risk they have not earned the premium, and ought to return it. Thus, if a contract of insurance is set aside on the ground of misrepresentation or mistake, or for some other reason the policy is held to have been void ab initio, or to have been avoided before the risk began to run, the insured is, in the absence of any express condition to the contrary, entitled to claim repayment of any premiums which he may have paid. "Equity" said Lord Mansfield, "implies a condition that the insurer shall not receive the price of running a risk if he runs none."

The learned author then went on to point out, again rightly in our view, that once the risk has commenced to run under a valid policy. the whole of the premium for that risk is immediately deemed to be earned, and even though the insurer should shortly afterwards be relieved of the risk for the remainder of the term, the insured is not entitled to a return of any part of the premium (see Anderson v. Fitzgerald (1855) 4 H.L.C. 484 at page 508 and Stone v. Marine Insurance [1876] 1 Ex. Div. 81). Thus, if the day after a risk has attached there is a breach of warranty or the interest of the insured ceases, the whole premium is earned, and there can be no return. That is precisely what has happened in the present case. The risk had started to run as soon as the plaintiff paid the first premium on 1st June, 1964, and if he had died in the civil war which broke out three years later, the defendant would have been liable on the Policy. As no premiums were paid after the one paid on 1st June, 1967, the defendant committed a breach of the provisions of Condition 6.

As we had stated earlier, Condition 6 of the Policy states, in clear terms, that war will not affect the contractual relationship of the parties. War was certainly in the contemplation of the contracting parties and it is therefore wrong for the learned trial Judge to agree with the plaintiff, as he did, that-

"His failure to pay up his premiums was due to circumstances which were beyond his control and which were not in the contemplation of the contracting parties to Ex. 2"

While on this point, we wish to refer to the observation of Viscount Simon at pages 185-186 of his judgment in the British Movietonews case (supra) which we consider particularly apposite and which appears to support the stand we have taken in this appeal. It reads-