The Court of Appeal (Lagos Division) has ruled in a dispute between Prestige Assurance Plc and Sara Product Limited that issuing post-dated cheques does not amount to advance payment of an insurance premium where the cheques have not fully matured or been cleared before an insured event occurs.

The case arose after Prestige Assurance issued a fire insurance policy to Sara Product Limited covering its business premises for the period of 1 September 2008 to 1 September 2009, with a premium of ₦5.78 million agreed to be paid through eight monthly post-dated cheques.

Before all the cheques were due, a fire broke out at the insured premises in January 2009, leading Sara Product Limited to file a claim for indemnity.The insurer rejected the claim, arguing that the policy was not valid because the full premium had not been paid in advance as required by law.

The insurer also alleged breach of policy warranties, including failure to maintain fire safety equipment and improper record protection, and further claimed the loss was exaggerated.At trial, the court sided with the insured company and ordered indemnity.However, on appeal, the Court of Appeal overturned the decision.

The appellate court held that payment of premium is a condition precedent for a valid insurance contract, meaning the premium must be fully paid before the risk occurs.

The court explained that while instalment payments or post-dated cheques are allowed, they only satisfy legal requirements if all payments are completed before the insured event happens.Since four cheques were still not due at the time of the fire, the court concluded that the premium had not been fully paid.Therefore, no enforceable insurance contract existed at the time of the loss, and the insurer was not liable to indemnify the insured.The appeal was resolved in favour of Prestige Assurance Plc.