Knock For Knock Agreement, A New Wave in the Insurance Atmosphere?

Contributor: Toheeb Adeagbo, AICMC Esq.

INTRODUCTION

Insurance is a specie of business that specifically deals with risk management. It is concerned with appraising and controlling risk. It is an intricate legal, economic and social device for the handling of risks to life and property.[1] Legally speaking, insurance defines the agreement between two parties wherein a party provides security against pecuniary losses, that can arise on the happening of an unforeseen event in which the other may likely find himself. It has been described as a transaction in which the insurer (the insurance company) for a certain consideration (premium), promises to reimburse (indemnify) the insured or render services in the case of certain accidental losses suffered during the subsistence of the agreement. By the provision of Section 102 of the Insurance Act, 2003[2], insurance includes assurance.

Insurance is incapable of being specifically defined. No wonder in the case of Dept. of Trade and Industry v. St Christopher Motorist Association Ltd[3], Templeman J. opined that it was undesirable that there should be an all-embracing definition, because of the tendency to obscure and occasionally exclude that which ought to be included. However, it is unarguable that the primary function of insurance is to ensure security against future losses or risks. The entire fabric of insurance as we have it today, can be traced to the Lloyd’s Coffee House owned by Edward Lloyd in the year 1688, on Tower Street, in the City of London.[4] Lloyd’s legacy since the tail end of the 17th century has paved way for numerous insurance businesses and concepts, apart from general insurance and reinsurance.[5] One of such developments is the concept of knock for knock.

Quite apart from the mandate of reimbursement and indemnity in a time of loss, this has now obliged insurers to reduce potential liabilities that may be the consequence of losses/risks the insured has guided against. In this bid to reduce liabilities, insurers (insurance companies) enter into agreements to cater to their respective clients’ loss(es), these agreements are known as knock-for-knock agreements.

A knock-for-knock agreement is an agreement between two insurance companies whereby, when both companies’ policy-holders incur losses in the same insured event. Each insurer pays the losses sustained by its own policy-holder regardless of who was responsible.[6]

It is worthy to state that the class of insurance in which the knock for knock is most applicable is the Motor Vehicle Insurance. The increased vehicular and pedestrian traffic on the roads has significantly increased the nature and scope of risk to which motorists and pedestrians are exposed. In Nigeria, the most common type of insurance in this regard is Motor Vehicle Insurance. The Act Policy, Third Party Policy, Third Party and Theft Policy, and Comprehensive Insurance Policy are all part of it.

Normally, in case of accidents, when a vehicle gets damaged with no fault of the driver and/or the owner, ideally under Third-party insurance, the cost of repairs need to be borne by the driver or the person who is at fault. However, establishing who was at fault can become tricky. Also, to claim third-party insurance, one needs to institute a civil action of tort in Court and establish his claim(s) against such driver/person who is at fault. The Court trials can turn out to be time-consuming, tedious, and costly. Hence, not many people register claims under Third-party insurance plans.

Insurance companies know that the Third-party claim settlement process can be tedious and lengthy. Hence, insurers sign a Knock for Knock agreement. The Knock for Knock is a type of agreement between motor insurance companies, where they agree to bear the repair cost of their own customer’s car, instead of establishing blame on the other car driver. Here, the claim will be made against the Own Damage part of the policy, and not on the Third-party Liability component.

ANNOTATED EXAMPLES OF KNOCK FOR KNOCK

  1. Miss Edith was driving her car down the slope of Wuye junction and lost control of her vehicle. It hit Mr. John’s car at high-speed causing major 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. Due to this, the respective insurers settled the damage claims and compensated their customers, instead of taking the matter to Court and establishing blame on Mr. John.
  2. The driver of a Magic Island Truck had loaded his vehicle with fragile goods within the permissible weight. He got distracted and lost control of the truck, it toppled at a turn in Berger Junction and damaged a car. Even the truck suffered minor damages. The car driver was attempting to take a turn without indicating the trafficator light towards 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 of their insurers, if they have one, will come to their aid in this regard.

CONCLUSION

To reiterate, a Knock for Knock agreement is an agreement between insurers through which they agree to pay for the damages of their respective customers, once their insurance policies cover such. It is not a foliage concept in the insurance atmosphere, however, practically in Nigeria, it has not yet enjoyed famous practice and acceptance.

REFERENCE

  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 < https://www.britannica.com/topic/Lloyds > Accessed on 19/06/2022.
  5. Marcus, G.J., Heart of Oak: A Survey of British Sea Power in the Georgian Era, (OUP 1975) page 192.
  6. Irukwu J.O., Insurance Law and principles in Nigeria (Ibadan: Heinemann, 1991) page 77.

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