Knock For Knock agreement: a new wave in the world of insurance?

By Oyetola Muyiwa Atoyebi, SAN, FCIArb. (UK).

“The entire fabric of insurance as we know it today can be traced back to Lloyd’s Coffee House owned by Edward Lloyd in 1688 on Tower Street in the City of London. Lloyd’s legacy since the end of the 17e century paved the way for many insurance professions and concepts, apart from general insurance and reinsurance. One such development is the blow-for-blow concept.

Insurance is a kind of business that deals specifically with risk management. It is about assessing and controlling risks. It is a complex legal, economic and social system for managing risks to life and property.[1] Legally speaking, insurance defines the agreement between two parties in which one party provides a guarantee against pecuniary losses that may arise upon the occurrence of an unforeseen event in which the other may find itself. It has been described as an operation in which the insurer (the insurance company) for a certain consideration (prime), undertakes to reimburse (compensate) the insured or render services in the event of certain accidental claims suffered during the term of the contract. By making available Section 102 of the Insurance Act, 2003[2]insurance includes insurance.

Insurance is unable to be specifically defined. No wonder in the case of Department of Trade and Industry c. St Christopher Motorist Association Ltd[3], Judge Templeman felt that it was undesirable for there to be an all-encompassing definition, because of the tendency to obscure and sometimes exclude what should be included. However, it is indisputable that the primary function of insurance is to provide security against future loss or risk. The entire fabric of insurance as we have it today can be traced back to Lloyd’s Coffee House owned by Edward Lloyd in 1688 on Tower Street in the City of London.[4] Lloyd’s legacy since the end of the 17e century paved the way for many insurance businesses and concepts, apart from general insurance and reinsurance.[5] One of these developments is the concept of knock for knock.

Independently of the reimbursement and compensation mandate in the event of a claim, this now obliges insurers to reduce the potential liabilities which may be the consequence of the losses/risks against which the insured has protected himself. In this attempt to reduce liabilities, insurers (insurance companies) enter into agreements to meet the losses of their respective customers, these agreements are known as blow-for-blow agreements.

A blow-for-blow deal is an agreement between two insurance companies whereby when the policyholders of both companies suffer losses in the same insured event. Each insurer pays for losses suffered by its own insured, regardless of who is responsible.[6]

It should be specified that the class of insurance in which knock for knock is the most applicable is car insurance. The increase in vehicular and pedestrian traffic on the roads has greatly increased the nature and extent of the risks to which motorists and pedestrians are exposed. In Nigeria, the most common type of insurance in this regard is car insurance. Deed Policy, Third Party Policy, Third Party and Theft Policy and Comprehensive Insurance Policy are all part of it.

Normally, in the event of an accident, when a vehicle is damaged through no fault of the driver and/or owner, ideally under civil liability insurance, the repair costs are borne by the driver or the person at fault. However, establishing who was at fault can get tricky. In addition, to claim liability insurance, one must file a civil tort action in court and establish his claim(s) against the driver/person who is at fault. Trials before the Court can be long, tedious and expensive. Consequently, few people register claims under third-party insurance schemes.

Insurance companies know that the third-party claims process can be tedious and time-consuming. Thus, insurers sign a Knock for Knock agreement. Knock for Knock is a type of agreement between car insurance companies, where they agree to bear the cost of repairing their own customer’s car, instead of laying blame on the other car driver. Here, the claim will be made against the Personal Damage portion of the policy, not the Liability component.

ANNOTATED EXAMPLES OF TOC FOR TOC

  1. Miss Edith was driving her car down the slope at Wuye Junction and lost control of her vehicle. He hit Mr. John’s car at high speed causing extensive damage to Miss Edith’s car. Here, Mr. John’s car was also damaged due to the heavy impact. Both Miss Edith and Mr John had comprehensive car insurance plans and their insurers had signed the Knock for Knock agreement. For this reason, the respective insurers settled the damage claims and compensated their customers, instead of taking the matter to court and placing blame on Mr John.
  2. The driver of a Magic Island Truck had loaded his vehicle with fragile goods within the authorized weight limits. He got distracted and lost control of the truck, rolled over on a bend in Berger Junction and damaged a car. Even the truck suffered minor damage. The driver of the car was attempting to turn without indicating the traffic light in the direction he intended to turn, and was suddenly hit by the loaded Magic Island truck. Both drivers were at fault in this situation. The Knock for Knock agreement from their insurers, if they have one, will help them in this regard.

CONCLUSION

Restart, a Knock for Knock accord is an agreement between insurers by which they undertake to pay the damages of their respective clients, once their insurance policies cover it. It is not a foliage concept in the world of insurance, however, practically in Nigeria, it has yet to enjoy a famous practice and acceptance.

AUTHOR: Oyetola Muyiwa Atoyebi, SAN, FCIArb. (UK).

Mr. Oyetola Muyiwa Atoyebi, SAN is the Managing Partner of OM Atoyebi, SAN & Partners (OMAPLEX Law Firm) where he is also the Team Leader of Emerging Areas of Legal Practice.

Mr. Atoyebi has expertise in corporate and commercial law, which has enabled him to advise and represent his vast clientele in a myriad of high profile transactions. He holds the honor of being the youngest lawyer in the history of Nigeria to be awarded the rank of Senior Advocate of Nigeria.

He can be contacted at [email protected]

DONOR: Toheeb Adeagbo, AICMC.

Toheeb is a member of the dispute resolution team at OMAPLEX law firm. He also has remarkable legal expertise in insurance law.

He can be contacted at [email protected]

[1] Colinvaux, Law of Insurance (London: Sweet & Maxwell 2010) page 13

[2] Cap. I17 Laws of the Federation of Nigeria, 2010.

[3] (1974) AII ER 395

[4] Britannica Online Dictionary Accessed 06/19/2022.

[5] Marcus, GJ, Heart of Oak: An Inquiry into British Sea Power in the Georgian Era(OUP 1975) page 192.

[6] Irukwu JO, Insurance Law and Principles in Nigeria (Ibadan: Heinemann, 1991) page 77.

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