Imara Steel Mills Ltd v Heritage Insurance Co. Kenya Ltd,Sila Nzioka & 37 others [2016] KEHC 2555 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT KAJIADO

CIVIL SUIT  NO. 8 OF 2015

IMARA STEEL MILLS LTD…...……….…....................................PLAINTIFF

VERSUS

HERITAGE INSURANCE CO. KENYA LTD…...……......….…..DEFENDANT

AND

SILA NZIOKA & 37 OTHERS……………….……INTERESTED PARTIES

JUDGEMENT

SUMMARY: Issuance of notification of an accident and interpretation of an exception clause in a policy of insurance.

Background:

It is the case for the plaintiff that they entered into a contract of insurance with the defendant company by taking a policy cover under the Workmen Insurance Benefits Act 2007. The policy was taken out on the 22. 6.2012 for a period of one year with a retroactive date of 29th May 2012 and agreed to run from the period of 29. 5.2012 to 28. 5.2013 both days inclusive. The policy was further renewed with effect from 29. 5.2013 to 28th May 2014 and a further renewal from 29. 5.2014 upto 28th May 2015 both days inclusive.

It was pleaded by the plaintiff that the required premiums of Ksh.2,090,926/= in consideration of the said policy of insurance and subsequent payment were in fulfillment of the contract and issuance of the policy cover.

The policy of insurance was in respect of compensation of any liability arising from injuries or death of the plaintiff’s employees which may be occasioned and suffered in the course of employment with the plaintiff company.

According to the plaintiff, during the existence of the cover some employees sustained injuries at their respective work stations within the company. The plaintiff claimed indemnity arising out of the loss on behalf of the claimants.

The defendant company repudiated the claim on the basis that the plaintiff’s claim was filed outside the substance and pendency of the said policy. The defendant company purported to repudiate liability relying on a clause on ‘a claim’s made basis’.

The plaintiff instituted action for a declaration seeking compensation against the company to meet the claims sought by respective employees. The defendant company in its statement of defence denied any obligations to satisfy any claim which ought to have arisen out of the policy document. The defendant averred that the plaintiff company did not notify the defendant on occurrence of loss during the pendency of the policy and compensation sought fell outside cover of the current policy document.

That the repudiation not to indemnify the claimants was based on a legitimate cause which was communicated to the plaintiff appropriately

The plaintiff’s evidence:

In support of their case plaintiff called as a witness PW1 – Catherine Wanjiru. In her testimony as a Human Resource Manager she testified that under the provisions of Work Injury Benefits Act of 2007 a policy between the plaintiff and defendant was taken to cover employees who may be injured in the course of work.

In her testimony the initial policy covering the period 29. 5.2012 to 28. 5.2013 was issued to cushion the plaintiff in the event of injury or loss among the employees. She further adduced evidence and produced the policy document as exhibit 1A and further evidence of renewals covering the period between 29. 5.2013 to 28. 5.2014 and a final renewal period from 29. 5.2014 to 28. 5.2015 as exhibit 1B.

As a Human Resource Manager, witness told this court that a register of all employees within the company was maintained in compliance with the law. She produced the employee’s register as exhibit 2A. It was her contention that during the policy cover period some employees sustained injuries while performing various tasks within the plaintiff company premises.

As a consequence the claimants filed various suits at Kajiado Magistrate’s Court seeking compensation. In her further testimony the summons served upon them by the claimants were in turn forwarded to the defendant company for action.

The plaintiff’s witness further in her testimony told this court instead of the defendant taking over the cases a letter was received to repudiate the policy. It was further her testimony that during the period of the cover the defendant has settled some claims while declining others with no justifiable cause.

The defendant on their part called one witness DW1 – Gibson Maina a Legal Service Manager. In support of the contention by the defendant to repudiate the policy it was his testimony that the plaintiff did not comply with the procedure of filling the so called Doshi forms. He further asserted that when the thirty eight (38) employees were injured there was no notification on the occurrence or particulars of the claims as stipulated in the policy document.

In his admission DW1 told this court that there existed an insurance policy between the plaintiff and defendant covering the period 29. 5.2012 – 28. 5.2013 with further renewals upto 28. 5.2015. The defence further told this court that the settlement of claims with the plaintiff was based on ‘a claim made policy basis’. He further told this court that the policy had an exclusive clause in respect of any liability arising out of any court proceedings. As the claims forwarded by the plaintiff arose from court summons, the defendant was not liable to compensate the claimants.

He urged the court to dismiss the declaration to hold the defendant company liable in respect of any accident, injury, loss or liability caused, sustained whilst the employees were in employment with the plaintiff.

The thirty eight (38) interested parties opted not to call any witness at this stage but supported the position taken by the plaintiff.

At the close of both the plaintiff’s and defendant’s case each learned counsel filed written submissions. The agreed issues filed in court dated 12. 2.2016 constituted the following:

1. Had the plaintiff taken out an insurance cover with the defendant?

2. When was the cover taken?

3. Was it in force during the material time of this suit?

4. What did the insurance policy cover?

5. Did any claims arise during the period of the cover?

6. Were the said claims within the stipulated claims covered in the policy?

7. Were the claims reported?

8. Did the defendant take up the defence of the suits on behalf of the plaintiff?

9. Whether the plaintiff is entitled to reliefs sought?

10. Who is to bear the costs of the suit?

SUBMISSIONS

The plaintiff submissions:

Mr. Maina counsel for the plaintiff began his submissions by reiterating the contract of insurance between the parties which was contained in a policy document produced as exhibit 1A. It was Mr. Maina’s submissions that the policy exhibit 1A is not disputed and details of the risks covered.

Counsel submitted that the requisite premium was paid to the defendant. The terms of the agreement was reduced into a policy to cover and indemnify the plaintiff in the event employees sustain injuries or loss whilst in employment with the plaintiff.

Mr. Maina further submitted that during the period of cover some employees suffered injuries. The defendant was notified including court summons received from the claimants. It was contended by counsel that the defendant declined to take over and defend the cases on behalf of the plaintiff.

According to Mr. Maina the defendant in a purported attempt to avoid the policy returned the summons on ground that the policy was on ‘a claim made basis.’ In his further submissions Mr. Maina contended that the defendant maintained that no notice of accident, loss or injury was made during the pendency of the cover hence indemnity is declined.

Mr. Maina’s further asserted that a communication vide a letter dated 14. 10. 2014 and a document referred as Doshi forms containing the list of occupational injury was forwarded to the defendant. He disputed any issue to do with notice on occurrence of the accident and details of the claimants.

Mr. Maina further challenged the defendant’s evidence asserting that indemnity under the policy does not involve claims arising out of court judgements. Counsel submitted that the jurisdiction clause invoked by the defendant is not available to entitle it to avoid liability. In support of that contention counsel invited the court to peruse the provisions of Clause G of the policy on liability arising out of any court proceedings.

In buttressing plaintiff’s submissions counsel placed reliance on various authorities:

Corporate Insurance Company Limited v Stephen Kamau Wamutwe HCC No. 500 of 2009 eKLR on the proposition regarding interpretation of a contract in line with the governing laws and any clause in the contract which is inconsistence with the statutory provisions shall be considered as void.

National Consumer Dispute Redressal Commission New Dell, Revision Petition No. 1503 of 2004. G. Kothainacliar W/O K. Guvundani 1 – A Agraham Street Madavawalgam, S. Tamil Nadu – 626 v The Branch Manager, United India, Insurance Co. Ltd, C-52, 1st Mani Road, Anna Nagar Chennai 600 – 102 on the proposition that statutory liability of an insurer and mere fact that there was a violation of terms and conditions in the policy cannot have the effect of exonerating insured in regard to payment made to a third party.

The case of Alfred Mcalphine PlcvV Bai (Run Off) Ltd 2000 Lloyds Pep 43 also cited the case of Sirins v Frunds Provident Life & Persons Ltd [2005] EWCA Civbo for the proposition on repudiation.

In the case of fundamental or material breach, a contract has to demonstrate that it was a condition precedent and fundamental in terms to be invoked in order to avoid the policy. Accordingly counsel prayed for declarations that the plaintiff is entitled to be indemnified under the policy by the defendant.

The Defendant Submissions:

Mr. Wambua on behalf of the defendant submitted and admitted existence of an insurance policy between the parties. Mr. Wambua contended that the plaintiff breached the condition in the policy by not notifying the defendant of occurrence of an accident or injury on the claims by the employees.

Mr. Wambua for the defendant further submitted that in absence of a notice and sufficient evidence to that effect is a justifiable basis to repudiate the policy. The counsel relied on the provisions of Section 22(1), 26, 16, 7(1) and 53(1) of the Work Injury Benefits Act of 2007. With regard to the claim made basis policy alluded to by the defendant’s counsel submitted that plaintiff was mandated to report any claim arising during the period of insurance. It was counsel’s submission that even if the purported letter was sent by the plaintiff the same was after 28. 5.2015 when the policy had expired.

The respondent’s counsel further submitted that the claims for payment under the Work Injuries Benefits Act are to be lodged with the Director of Work Injuries and not the courts. Counsel asserted that in compliance with the Section 16, 7 (1) and 27 (4) an exclusive clause on jurisdiction of the court was factored in the policy as the claims arising thereto were not to be a subject of court proceedings.

The respondent’s counsel further submitted that the plaintiff was under an obligation to report the accident on injury, loss or death within a stipulated period. It was counsel’s assertion that the obligation to report the claims within the period of insurance was mandatory and a condition precedent. Mr. Wambua counsel for the respondent urged this court to dismiss the plaintiff’s relief with costs.

Interested Parties’ submissions:

Mr. Gichure on behalf of the interested parties submitted and reiterated the submissions by the plaintiff’s counsel. Mr. Gichure contended that the interested parties were employees with the plaintiff company. They were injured in the course of their employment. The plaintiff had taken a policy covering the risk of injury, loss or death of the employees. Mr. Gicheru asserted that the defendant has not placed cogent evidence to repudiate the policy.

DISCUSSION AND RESOLUTION

From a consideration of the pleadings and evidence I make the following factual findings:

The plaintiff and defendant entered into a contract of insurance vide a policy cover represented NP12WB0034 with effect from 29/5/2012 to 28/5/2013. The policy by agreement of both parties was renewed on 29/5/2013 to 29/5/2014 and final renewal covering the period 29/5/2014 to 29/5/2015. The plaintiff complied with obligations in remitting the required premiums for the original policy and subsequent renewed as evidence of payment. That under the terms of the policy the defendant was to indemnify the plaintiff in respect of the employees injured or who suffer death in the course of their employment at the plaintiff company. That on diverse dates the plaintiff took cognizance of the employees who had been injured and lodged claims seeking compensation. That pursuant to a letter dated October 14, 2014 the plaintiff forwarded a total of twelve claims involving employees who had filed claims with the company seeking compensation. The said letter annexed as LWT2 to the affidavit by the Managing Director one Lawrence Wanjohi. The letter required the defendant to acknowledge the claims and process them according to the policy document.

In the year 2015 the claimant’s employees filed civil suits at Kajiado Court seeking damages arising out of the injuries sustained while in employment with the plaintiff. Pursuant to a letter written by Vike Insurance Brokers Ltd dated 20/8/2015 writ of summons received from various advocates on behalf of the claimants were forwarded to the defendant for action. The defendant (Insurer Company) on receipt of the letter from Vike Insurance Brokers Ltd replied on 7/9/2015 asking to take up the claims.

On 2/10/2015 the plaintiff’s counsel replied the defendant’s letter dated 15/9/2015 demanding compliance on the part to take up the claims or in any event compensation. The claimants as per the policy the fourteen days period demanded by the defendant lapsed culminating in filing suit seeking declaration and reliefs in the plaint. The key relief being an order that the defendant is obliged to indemnify the plaintiff from claims arising from employees injured at work according to policy of insurance. It is also not disputed that the policy between the plaintiff and defendant was issued under the statutory framework of Injuries Benefits Act of 2007.

The gist of the matter as deduced from the case is whether the reasons ascribed for rejection of the claims by the defendant can withstand scrutiny.

Mr. Maina counsel for the plaintiff contended by referring to authorities and provisions of Work Injuries Benefits of 2007 for the proposition that the defendants disclaimer to take up the claims is untenable under the law.

Mr. Wambua counsel for the defendant maintained and urged the court to scrutinize the evidence which only gives one conclusion that there was no notification by the plaintiff of the claims during the period of the policy. Learned counsel disputed the communication referred to by the plaintiff dated 14/10/2015. Learned counsel basis was absence of the actual letter being produced in evidence to prove existence of that communication to the defendant.

From the facts and legal principles contained and argued before this court one need to restate that contracts of insurance are contracts of uberrima tides and every material is required to be disclosed. This phrase was defined in the case of United India Insurance Co. Ltd v M.K.J Corporation [1996] 6SCC India 428.

“It is a fundamental principle of insurance law that utmost good faith must be observed by the contracting parties. Good faith forbids either party from concealing (non-disclosure) what he privately knows, to draw the other into a bargain, from his ignorance of the fact and his believing the contrary. Just as the insured has a duty to disclose, similarly, it is the duty of the insurers and their parties to disclose all material facts within their knowledge, since obligations of good faith applies to them equally with the assured.”

In this connection Mr. Maina counsel for the plaintiff made references to a series of decisions. The contract entered into between the parties was unambiguous to content and structure. He urged the court to find that the policy as drafted and understood was aimed at indemnifying the plaintiff under the Work Injury Benefits Act. Counsel further drew the attention of the court to various authorities on interpretation of policy including terms indicative as condition precedent. The authorities in point Alfred Mkaliphine PLC Bal C Rain Off Ltd [2000] & Others v Friends Provident Life & Pensions Ltd 2005 EWCA.

The battle ground to determine this dispute between the plaintiff and defendant is whether Clause 5 of the policy on notification was complied with by the insured (plaintiff). It is essential to state what the provisions of clauses constituted.

“Notification of all possible occurrences and co-operation by insured in the event of any occurrence which may give rise to a claim under this policy the insured shall immediately give notice thereof to the company with full particulars as specified in the Act and in any case not later than seven days. Every claim writ summons and process shall be notified or forwarded to the company immediately on receipt. Notice shall also be given to the company immediately. The insured shall have knowledge of any impending prosecution or fatal inquiry in connection with any such occurrence.”

Mr. Maina learned counsel for the plaintiff submitted that the defendant had been notified of the claims when they were received from the claimants. Learned counsel made reference to a forwarding letter dated 14/10/2014 and a second one dated 20/8/2015 which formed part of the bundle exhibited.

Mr. Wambua for the defendant submitted that there was a breach of Clause 5 on notification of occurrence of the accident, loss or injury and that entitles rejection of the claim by the defendant.

What triggered the current dispute between the plaintiff and defendant. The answer is traceable in a letter dated 11/9/2015 by the defendant to Vike Insurance Brokers Ltd for onward communication to the plaintiff as follows:

“Kindly note that this clients employers liability with us was on a claims made basis which meant that we would have been liable to indemnify the insured for any claims made against them in writing during the period of insurance. However, this policy lapsed on 28 May 2015 and out of the bundle of documents save, none of the claims had been initiated during the currency of the policy. A copy of the policy document is herewith enclosed for your perusal and records.”

Mr. Wambua learned counsel for the defendant submitted that Clause 5 of the policy on notification was a condition precedent which entitles repudiation of the claim against the plaintiff.

Mr. Maina learned counsel for the plaintiff vehemently objected to the arguments being advanced by the defendant who in the letter was introducing a foreign term to the contract. In this regard learned counsel was making reference to the “claim made basis” assertion in the letter by the defendant.

What is essential the parties are ventilating before this court among other issues involves interpretation of their contract of insurance. The other consideration which flows from the argument by both learned counsels is in respect to the making of the word condition or condition precedent in a policy. Thirdly, this court is being asked to make a finding whether Clause 5 was complied with as stipulated in the policy.

To start as of, let me reposition the law on the above various issues. In the case of Baj (Run Off Ltd) v Durlian and Others [2012] UK Supreme Court 14 the court held thus on the guiding principles in interpretation the contract of insurance:

“To resolve these questions it is necessary to avoid over concentration on the meaning of single words or phrases viewed in isolation, and to look at the insurance contracts more broadly. As Lord Mustil observed in Charter Reinsurance Co. Ltd v Faganc [1977] AC 313, 384 all such words must be set in the landscape of the institution as a whole carry instinctive response to their meaning must be verified by showing the other terms of the contract, placed in the context of the factual and commercial background of the transaction. The present case has given rise of considerable argument about what constitutes and is admissible as part of the commercial background to the insurance, which may shape their meaning. But in my opinion considerable insight into the scope, purpose and proper interpretation of each of these insurances is to be gained from shoddy of its language, read in its entirely so for the moment, I concentrate on the assistance to the gained in that connection.”

Mr. Maina counsel for the plaintiff said that the policy between the insurer and insured should be read as a whole and under the terms regulated by the Work Injury Benefits Act of 2007; that it is without ambiguity and the statute creates no exceptions in respect of compensation. Mr. Maina contended that the claim made basis by the defendant be rejected.

Mr. Wambua maintained that for as the defendant was concerned the breach of Clause 5 falls under a condition precedent entitling the defendant to repudiate the policy.

Mr. Maina placed reliance on the following authorities; Corporate Insurance Company Limited v Stephen K. Wamutwe HCC 500 of 2009 where the court held:

“However, I am accurately aware that when the insurer is so liable under the Act for such liabilities as are required to be insured by the Act, the insured is entitled to indemnity or repayment of all such sums which shall be paid out under the Act but which it would not have been obligated to pay but for the provisions of the Act.”

On reference to repudiation of the claim by the defendant, Mr. Maina further relied on the case of National Consumers Dispute Redressal Commission New Delhi Revision Petition No. 1503 of 2004 where the court held:

“The court observed the mere fact that there was violation of the terms and conditions subject to which the insurance policy had been issued cannot have the effect of exonerating the insurer from statutory liability case upon to pay the amount to third party.”

In answer to what will constitutes a condition or condition precedent in an insurance policy, the phrase in the book (Warranties in Marine Insurance Ltd in UK) Cavendish Publishing Ltd pg 2, it is defined as:

“A condition in an insurance policy is a term which would entitle an insurance company to claim damages in the event of a breach but not to disclaim liability under the policy where a term in a policy is a condition or condition precedent is a matter of contraction. The mere fact that an insurer has labeled a term as a condition precedent does not turn that term as a condition precedent unless the context in which the term appears is capable of making the term a condition or precedent.”

In the case of Hong Kong Fir Shipping Co. Ltd v K. Kisen Kaisha Ltd the court introduced innominate term approach in interpreting conditions in a contract to give effect to the intention of the parties. The court observed:

“Rather than seeking to classify the term itself as a condition or warranty, the court should look to the effect of the breach and ask if the breach has substantially deprived the innocent party of the whole benefit of the contract. Only where this is answered affirmatively is to be a breach of a condition. 20 weeks out of a 2 year contract period did deprive the defendants of whole benefit and therefore they were not entitled to repudiate the contract.”

In a book entitled Law of Carriage by Inland Transport 4th Edition at pg 556 it states on interpretation of a policy:

“Restrictive conditions in a policy are of no effect in so far as the insurance is compulsory where third parties are enabled to recover damages for injury or loss suffered.”

In Apperian (Insurance Law and Practice at pg 2 – 5 (Revised Edition 1981) it stipulates on notice as follows:

“The purpose of a policy provision requiring the insured to give the company prompt notice of an accident or claim is t give the insurer an opportunity to make a timely and adequate investigations of all the circumstances of the occurrence, and further if the insurer is thus given the opportunity for a timely investigations reasonable comprises and settlements may be made, thereby avoiding prolonged and unnecessary litigation.”

In the persuasive authority of Kidsons v Lloyds Underwriters [20080 AU ER the English Court of Appeal observed on notification circumstances:

“First is that the insured must be subjectively aware of the circumstances. Second is that the circumstances must objectively be material in that it is likely to it may give rise to a claim. Awareness therefore is a matter of fact to trigger notification by the insured to the insurer.”

The essential question in this claim is whether the claimants who suffered injuries or loss while working for the plaintiff have a right to recover damages from the defendant. Secondly, whether the defendant has a legitimate ground to repudiate liability to a policy holder (plaintiff) because no notice was given of the claim in accordance with the terms of the policy.

The plaintiff took out a policy of insurance with the defendant only signed on 22/5/2012. The policy was effective from 29/5/2012.

Section 1 of the policy insuring agreement provides:

“That if any insured employee in the insured’s immediate service shall sustain bodily injury by accident or disease during the period of insurance stated in the schedule arising out of and in the course of employment by the insured in the business described in the schedule for which a claim shall first be made against the uninsured and reported to the company during the period of insurance.

(b) in the event of the death of the insured employees indemnity, the insured legal personal representatives in the terms of this policy in respect of liability incurred by the insured provided that such personal representatives shall as though they were the insured observe fulfill and be subject to the terms of this policy in so far they can apply.

(c) The indemnity provided by this policy shall apply in respect of judgements which are in the first instance delivered by or obtained from a course of competent jurisdiction within the Republic of Kenya.

Clause 5: Notice of claim provides pertinent to as follows:

“In the event of any occurrence which may of the rise to a claim under this policy such notice shall be given immediately to the insurer with full particulars as specified in the Act and in any case not later than 7 days.

(ii) Notice shall also be given to the insurer immediately the insured shall have knowledge of any impending prosecution inquest or fatal inquiry in connection with any such occurrence.”

It is clear from the record that the plaintiff and defendant covenanted to be governed by the provisions of the Work Injury Benefits Act 2007. The defendant has submitted and adduced evidence that coverage underlying actions from the employees under the policy is barred due to the plaintiff failure to give written notice as soon as practicable and not later than 7 days after occurrence of the claim.

It is not disputed that the plaintiff insurance policy with the defendant commenced on 29/5/2012. By a further agreement a renewal of the policy was made in two occurrences on 28/5/2013, the 29/5/2015 both dates inclusive.

What can be construed from the provisions of Clause 5, the policy was on claim made within a reporting period. The same clause has a proviso that which shall be given to the company immediately the insured shall have knowledge of any impending prosecution or inquest or fatal inquiry. The clause therefore in part one has the time as to notice but it is also clear the policy defines the claim of terms of when the insured or plaintiff has knowledge of a prosecution or inquiry by the claimants.

The provision of Clause 5 on knowledge of a prosecution is tied with jurisdiction clause on indemnity in respect of judgements delivered and obtained from a court of competent jurisdiction. The plaintiff submitted that Vike Insurance Brokers Ltd in a letter dated 20/8/2015 forwarded the claims to the defendant; providing particulars as provided for under the policy. The defendant in response declined indemnity on the basis of claim made basis clause.

The contention by the defendant letter is not on the notification of not less than 7 days but introduced a new clause of claim made basis. What the defendant did in their letter was to introduce a new clause to the contract of insurance which was not agreed either initially or on subsequent renewals. The claim made basis not negotiated at the time of the contract cannot be introduced as an ouster clause belatedly and unilaterally by the defendant. The claims procedure between the plaintiff and defendant is governed by the express terms and conditions of the policy as read together with the provisions of Work Injury Benefits Act 2007.

The defendant in order to shed more light to the meaning of the claim made basis used to decline indemnification called for the testimony of DW1. In his testimony the defendant witness made attempts to attach meaning to the phrase to give effect to disentitle the plaintiff of right in the policy.

The general principle of law is that part evidence rule bars the introduction of extrinsic evidence to vary or contradict the terms of a completely Written Contract Restatement Second Edition of Contracts [1982]. It further restates as follows on this rule:

“Many contract disputes arise because different people attach different meanings to the same words and conduct. The phrase manifestation of intention adopts an external or objective standard for interpreting conduct. It means the external expression of intention as distinguished from undisclosed intention.”

The rationale of this principle on insurance contracts is because a party’s undisclosed instance about a policy is not admissible as evidence of the meaning of the written agreement.

According to the plaintiff, the phrase claim made basis was not one of the terms negotiated with the defendant in the policy document. Indeed on consideration of the contention by the defendant in their letter to the plaintiff, one can deduce an inference of intention to exclude liability from the core obligation of the contract.

There is no evidence from the policy that the term claim made basis was negotiated and agreed upon between both parties. What the term causes is a consideration in balance in the party’s rights and obligations to the detriment of the claimants. The plaintiffs were not aware that the policy was based on a claim made basis CH. Beale (Legislative Control of Fairness), the direction on unfair contract terms in consumer contracts.

It is trite law that insurance is a contract based on utmost good faith. That duty to disclose is imposed upon both parties to the contracts. What was expected of the defendant was to bring to attention of the plaintiff existence of the clause relied upon to reject the claim before signing of the policy.

Assuming the phrase claim made basis was an exclusive clause within the contract, how have courts interpreted exclusive clause. In the case of  Securicor Courier Kenya Ltd v Onyango & Another Civil Appeal No. 323 of 2012 the Court of Appeal held interalia:

“An exemption clause should not be constructed in the view of actual terms of complete exclusion of liability or indemnity.”

In relating to that legal proposition, the learned judge cited the case of Alisa Craig Fishing Co. Ltd v Malven Fishing Co. Ltd [1983] ALL ER 101 where the court stated on exclusive cause as follows:

“The key requirement is that an exemption clause must be clear and ambiguous. If it is clear and unambiguous, the court will as a general rule enforce it.”

In my view, the defendant purported to repudiate the policy on the phrase claim made basis without any contractual or legal justification. The anatomy of the policy document which constitutes the contract of insurance between the plaintiff and defendant contains no such clause either in the main body or in the exemption clauses. I therefore find the defendant disclaimer on this basis unprovided in the policy document.

The second contention relates to notice. The defendant argued based on Clause 5 of the policy that a breach of the provisions is a condition precedent to deny the plaintiff liability. The legislative response to on notice of injury or accident by the employees is outlined in Section 22 (5) of the Work Injury Benefits Act provides that:

“An employee is not prevented from reporting an occupational accident or disease at any stage.”

Section 27 (1):

“A right to benefits in accident within this Act shall lapse if the accident is not reported to the employer within twelve months after the date of the accident.”

Section 27 (2) provides that:

“Notwithstanding provisions under subsection (1), the failure to report an accident to an employer as required in subsection (1) is not a bar to compensation if it is proved the employer had knowledge of the accident from any other source.”

Section 27 (3) provides:

“That failure to report an accident to the employer as required under subsection (1) to any error or inaccuracy in such notice is not a bar to compensation.”

The policy in question was formulated and agreed to operate within the statutory provisions of the Work Injury Benefits Act. The liabilities and risk to the covered are in respect of employee’s injuries, or death arising out of their performance of duty with the plaintiff.

In order to fulfill the obligation to compensate employees under the Act, an indemnity policy was taken by the plaintiff and issued by the defendant. The dictates of the terms of the policy regulated by an existing statutory framework, of the Act should inform the contractual instrument entered into by the plaintiff and defendant.

In this case the claim was made by the employees. The plaintiff learnt of the claims from the writ of summons received from various courts seeking judgements on damages for injuries arising thereto during executing of duties by the claimants. There is evidence that the plaintiff on receipt of the summons forwarded them to the defendant. The existence of the policy has not been disputed. The plaintiff annexed the policy agreement covering the period from 29/5/2012 and annually renewed upto 28/5/2015 both days inclusive.

The claimants have sued the plaintiff that they sustained injuries on diverse dates within the scope of their employment. The plaintiff invoked the provisions of the policy to enable defendant meet settlement of claims from the employees. According to the plaintiff, the claims arose during the subsistence of valid policy with the defendant. That fact has not been contested by the defendant.

Section 22 (5) and 27 of the Work Injury Benefits Act establishes a statutory right on notification and lapse of claims. The provisions set an upper time limit of twelve months but with a proviso that an employee is not precluded from reporting an accident or injury at any stage.

The import from this provisions read together with the policy provisions given rise to one logical conclusion; a contract of insurance cannot oust the express provisions of a statute. The defendant company operates insurance business under the Insurance Act of Kenya Cap 487 of the Laws of Kenya. The Act has provided for an Insurance Regulatory Authority to develop guidelines and regulations for conduct of insurance business in Kenya.

In this regard, under Section 3A (a) (b) and (e) of the Insurance Act the authority has issued guidelines in the following terms:

“(a) The insurer shall not decline a claim on the ground of breach of warranty or condition where the circumstances of the loss are unconnected with the breach.

(b) Secondly no claim should be declined on grounds of late reporting without establishing and considering the reasons of late notification.”

The conclusions I draw from the Work Injuries Benefits Act and Insurance Regulatory guidelines made pursuant to the Insurance Act is that failure to give any notice required under the policy would not invalidate any claim or repudiate the policy.

Secondly the insurer like the defendant in this case is under a legal duty to establish the reasons where insured has issued late notice. I would affirm from the record and evidence the defendant is in breach of the guidelines issued under the provisions of the Insurance Act. I treat as undisputed for purposes of this decision in absence of any evidence to the contrary that the claims occurred during the currency of the policy was in effect though the parties did not delve into this issue exhaustively. Materials filed in court supported late notification of the claims to the defendant. This was in respect of the correspondence between Vike Insurance Brokers dated 20/8/2015. The plaintiff also referred to a correspondence forwarding the claims dated October 2014.

In the circumstances of the law, the defendant can avoid the policy to indemnify the plaintiff on ground of late notification by seeking to establish the reasons. What the guidelines seem to state as regards insurance contract is for the party to show that delay has occasioned prejudice. The defendant did not discharge that burden in this case. The statutory provisions and guidelines are meant to avoid a pernation where insurers can rely on mechanical irregularity of procedure to deny protection to claimants for which the insured has paid the required premium.

I am of the considered view that a provision in the policy on failure to give notice required to be given within the prescribed period repudiates the claim without first establishing reasons for late notification cannot be construed in favour of the insurer.

In interpreting the provisions of Section 27 of the Work Injury Benefits Act and the rules by Insurance Regulatory Authority, I see the following potential reasons for intervention:

First the unfairness emanating from the insurer permitted to disclaim liability when the insured breach of a condition precedent has not occasioned prejudicial. Secondly, the insurer on entering into the contract makes premium to cover the risk in the future in allowing the insurer to rely on procedural provision to deny compensation to the claimants for which the insured paid premium would be unfair and unjust. Thirdly, the considerable effect by insurer leaving victim of accidents uncompensated by their paid up for insurance coverage by the insured.

I find the following persuasive authority in the discussed judgement in the case of Watson Stipack Fire Marine Insurance Co. v House 315, 328, 352 [1989]quoting the case of Cooper v Government Employees Insurance Ltd [1968] NJ 237, 873 – 874. The court observed thus:

“Although the policy may speak of the notice provisions in terms of condition precedent, nonetheless what is involved is a forfeiture for the carrier seeks, no occurrence of a breach of that provision, to deny the insured the very thing paid for. Thus viewed, it becomes unreasonable to read the provision unrealistically or to find that the carrier may forfeit the coverage, even though there is not likelihood that it was prejudiced  by the breach.”

In the case of Cooper (Supra) the judge stated as follows:

“The purpose of a policy provision requiring notice of an accident or loss to be given within a certain time is to give the insurer an opportunity to acquire, through an adequate investigations, full information about the circumstances of the case, on the basis of which, it can proceed to disposition, either through settlement or defence of the claim”

A reasonable notice clause is designed to protect the insurance company from being placed in a substantially less favourable position that it would have been in had timely notice been provided e.g. being forced to pay a claim against which it has not had opportunity to defend effectively. In short, the function of a notice requirement is to protect the insurance company interests from being prejudiced where the insurance company interests have not been harmed by a late notice, even in the absence of exterminating circumstances to excuse the tardiness, the reason behind the notice condition in the policy is lacking, and it follows neither logical nor fairness to relieve the insurance company of its obligations under the policy in such a situation.

In the instant case, given the provisions cited that no claim should be declined due to late notification without establishing reasons. The defendant rejection of the claims is not available as a defence.

Besides the one paragraph letter claiming to repudiate the policy against the claimants, no other justifiable excuse to discharge the defendant from its obligations under the policy. If this court was to adopt a rigid interpretation of the policy it will go against the strong societal interest in preserving insurance coverage for accident victims so long as the preservation is equitable for parties to the contract.

The purposeful approach of interpretations on insurance contracts resonates with Article 47 on fair administration action and Article 10 on constitutional values and principles of governance. The defendant company repudiated the claim lodged by the plaintiff on behalf of the claimants without giving them an opportunity to be heard in so far as the question of delay is concerned.

It is crystal clear for the provisions of Work Injury Benefits Act a claim to compensate are not thrown out for reasons of later performing. In my opinion applying the law and legal principles the action by the defendant has no legs to stand on. My position is fortified by the persuasive authority in the case of United India Insurance Company Limited v Manbhal Dharmasinghbhai Gajera & Others [2008] 10 SCC 404 the Supreme Court observed that although the state should be free to negotiate its terms in the field of contract qua contract, its actions however cannot be arbitrary. In this case the court holds, for the reasons stated above that the actions of the insurance company was wholly arbitrary and therefore there is no question of this court attempting to rewrite the contract or make a new contract. All that this court desires to say is that the insurance company having acted arbitrary cannot be allowed to say that a writ court should not interfere therefore in such a case a writ would be maintainable even if it arises within a contractual obligation in as much as the insurance company being a state or instrument of a state cannot be allowed to go scot-free because one of its officers mechanically decided to come to a conclusion that merely because there was a delay of 4 months, the claim itself should be repudiated.

DECISION

It follows therefore, applying the legal principles in the cases discussed including the persuasive authority of United India Insurance (Supra) the statutory provisions of Work Injury Benefits Act, Section 27 on notification of claims, the Insurance Regulatory Authority Guidelines, I hold that:

(1) A condition in the policy which enables the defendant to avoid liability is of no effect as it relates to claims in respect of the claimants who might have suffered body injury or death in the cause of their employment.

(2) The insurer shall not repudiate the claim on grounds of late notification without establishing and considering the reasons from the insured.

(3) The ouster clause not part of the insurance contract has no effect in a policy of insurance.

(4)The decision to repudiate the claim should not be made arbitrarily.

In these circumstances and for the reasons stated above, I am satisfied that on a balance of probabilities the plaintiff has discharged the burden of proof against the defendant. Accordingly the plaintiff’s claim succeeds and the following orders shall abide:

(1)It is declared that the plaintiff is entitled to indemnification in terms of the policy issued on 29/5/2012 and renewed thereafter upto 28/5/2015 covering employees of the plaintiff injured or suffered loss while at work.

(2) That in view of the circumstances of this case pursuant to the pending civil proceedings against the plaintiff (insured), the insurer to await the outcome and successful judgements arising out of the suits filed as due process of verification of genuine claims to be able to satisfy the same accordingly.

(3) That the defendant (insurer) to pay all costs and incidentals arising thereto from the outcome of the judgements in the pending civil proceedings.

(4) That as the claims in court are between the claimants and the plaintiff (insured), the same to be heard and concluded as such.

(5) That nothing precludes the parties as they are legally obligated under the policy to compensate and settle the claims thereto pursuant to Article 159 (2) of the Constitution which provides for alternative dispute resolution notwithstanding the pending suits in court.

(6) The order to stay lower court proceedings involving claimants is hereby lifted.

(7) The defendant (insurer) to meet the costs of this suit.

It is so ordered.

Dated, delivered at Kajiado this 28th day of September, 2016.

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R. NYAKUNDI

JUDGE

Representation:

Mr. Kamau on behalf of Maina for the respondent present

Mr. Udoto for Mr. Wambua for the defendant

Mr. Mateli Court Assistant.

Mr. Udoto – I pray for stay of execution for 30 days.

COURT: Thirty days stay granted.

………………………….

R. NYAKUNDI

JUDGE