DOUBLE OR EXCESS RECOVERY IN INSURANCE CONTRACT: WHERE SUBROGATION COMES IN

Focus: It is prohibited to enjoy double or excess recovery from an insurance contract.

BACKGROUND:
Insurance is a sui generis contract. One would be absolutely right to call it a special kind of contract. A prominent element of insurance is that it is a contract uberrima fidei (utmost good faith). In sum, duty lies on a policy holder or prospective holder to act in good faith prior to executing the policy. This duty to act in good faith remains operative through the subsistence of the policy and even after the occurrence of the insured event.

A policy holder has the duty to:

1. Disclose all material facts that would enable the insurer to issue the Policy in good terms;

2. Reasonably protect the insured property to reduce the risk of occurrence of the insured event;

3. Pay premium timely;

4. Disclose new facts arising after obtaining the Policy;

5. Comply with other terms of the Policy;

6. Promptly report the occurrence of the insured event.
Failure to observe utmost good faith in an insurance contract may impede one's right of recovery under the policy upon occurrence of the insured event.

WHAT THEN IS SUBROGATION AND WHEN DOES IT ARISE?

Subrogation is an English word which means - to substitute.
Right of subrogation applies to not just insurance contracts.

Subrogation applies:

1. Where an extant law specifies it to apply;

2. Where parties agree to its application by the terms of their contract.

Subrogation is inherently applicable to insurance contracts. It is the right of an insurer (Insurance Company) upon occurrence of the insured event, to substitute other available remedies of the insured (policy holder) and enjoy those remedies after payment of the insured sum or after reinstituting the insured to the position he was prior to the occurrence of the insured event.
By way of illustration:
Mr. A insured his car against accident with XYZ insurance company. Mr. Siko Siko, a notorious reckless driver from Optununu village drove recklessly as usual and bashed Mr. A's car beyond repair. At this point, the insured event has occurred. Mr. A is entitled to promptly inform the insurer (XYZ insurance company) and recover his loss from the company. At this point also, Mr. A is entitled to proceed against Mr. Siko Siko to fix or replace his car. Mr. A can maintain this action under tort (negligence). However, insurance contract does not allow DOUBLE RECOVERY. May I repeat, it is prohibited to enjoy double or excess recovery in an insurance policy.

Reasons for abhorrence of double or excess recovery from an insurance policy:

1. Insurance is a contract of utmost good faith. It is not a gamble.

2. Insurance is not necessarily an investment.

3. Insurance companies are highly regulated financial institutions. Double or excess recovery does not favour its economy.

4. If double or excess recovery is allowed, it would be against public policy to the extent that people would orchestrate the occurrence of the insured event in order to enjoy excess recovery.

So, Mr. A's right to legal action against Mr. Siko Siko would be subrogated in favour of XYZ insurance company, so that the insurance company can sue Mr. Siko Siko and recover from his negligent conduct against Mr. A (damaging Mr. A's car). The proceeds of the recovery would go to the insurance company.

Note: XYZ insurance company can only enjoy this right of subrogation after it has fulfilled its obligation under the Policy. In essence, the insurer must have paid Mr. A under the Policy or reinstitute him to his prior position (maybe get him a new car or fix the damaged car).

Authorities:
Nigerian Insurance Reform Act, 2025, sections 215 and 60.
National Insurance Corporation of Nigeria V. Power and Industrial Engineering Co. Ltd (1986)1 NWLR (Pt. 14) 1.