Joseph Macharia Nderitu v Real Insurance Company Limited [2014] KEHC 5 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NAKURU

CIVIL CASE NO. 254 OF 2012

JOSEPH MACHARIA NDERITU............................PLAINTIFF

VERSUS

REAL INSURANCE COMPANY LIMITED.......DEFENDANT

JUDGMENT

The  plaintiff, Joseph Macharia Nderitu, instituted  the  suit herein against  the   respondent,  Real   Insurance  Company Ltd,  for  recovery of Kshs.4,328,000 / = plus interest thereon at the  rate of  14°/o per  annum from  9th January,  2012 till full  payment. The  plaintiff also wants the  respondent to re ­ imburse  all   expenses, interest  and  penalties he  paid  or levied  on   him   by  his  financiers (NIC  Bank Ltd)  from  9th January, 2012 to the  date of full  payment.

The  plaintiffs case is that in 2011 he  bought motor vehicle registration  number KBV 192V, Land Cruiser  pick  up at Kshs.4,328,000/=. After the motor vehicle was fitted with all the    necessary accessories and insurance in   respect thereof obtained, he went to the seller (Bhogal Auto Garage, and picked the motor vehicle. He was issued with a delivery note which he produced as PEX1. He was also issued with a certificate of insurance, No.B532l695 and policy   No. COMP.NKU/MCOM/POL/2046570 dated 25th July, 2011 being a comprehensive cover     (PEX 2).    The policy commenced on 25th July, 2011 and was in force to 24th July, 2012.

The  plaintiff contends that  under the policy of insurance herein, the  defendant comprehensively covered him  for any loss, damage and theft occurring during the   period it was in   force   (25th July,  2011  to   24th  July,  2012). In this regard, he   referred the   court to section 1 of the   policy document, which inter alia provides as follows:-

"The company will indemnify the Insured against loss of or damage to the Motor Vehicle and    its accessories and spare parts whilst thereon."

The plaintiff produced the policy document as PEX 3.

Barely 7 months after the policy herein was executed, one of the covered risks to wit, theft occurred.As required of him, the plaintiff reported the theft of the motor vehicle to the authorities (Pangani Police Station) and   shortly thereafter, to the defendant. Later on, he made a formal report through his agent, New Corona Insurance Agencies).

The  agent formally reported the  loss to  the  defendant and made arrangements  for  the plaintiff  to  fill  the   necessary claim forms. As the  motor vehicle was never traced or recovered,  the    defendant  offered   to   settle his  claim at Kshs.2,974,500/= after deducting the  applicable excess.

Contending that he  was neither given  an assessment report nor  an explanation as to  how  the  defendant arrived at the proposed payment of Kshs.3,305,000 /= the  plaintiff argues that since the   motor vehicle was  as good   as new  (having covered less than 10,000 /= kilometres and not  having been serviced at the  time  it  was  stolen), he  was entitled to  the full  value of  the  motor vehicle, that is,  Kshs.4,328,000/=. Further that the defendant had   no   basis for   deducting nearly a million shillings from the sum assured. To prove that fact, the   plaintiff produced the   defendant’s letter of offer as PEX 6. Vide his letter dated 3rd May, 2012 (PEX 7) the plaintiff rejected the Defendant’s said offer.

Subsequently,   the defendant   revised   its   earlier   offer upwards to Kshs.3,420,000/= being Kshs.3, 800,000 less the  excess payable in  respect of the  claim.  That was done through a letter dated letter dated 30th May, 2012 (PEX 8).

Dissatisfied by the   said offer, the   plaintiff sought counsel from a lawyer who wrote a demand letter to the defendant, PEX9.

It is  the  plaintiffs case that owing  to  the  loss of the  motor vehicle herein and  the  defendant's failure to compensate him within a reasonable time, he was unable to meet his financial  obligations  to   his financier  (NIC  Bank). Consequently, his said financier began levying default interest. It was the plaintiffs testimony that his financial obligations rose from Kshs.71,000 /= per  month to Kshs.77,600/= because of default interest. To prove this fact he produced bank statements and a letter from his financier, PEX 10. He was also referred to the Credit Reference Bureau. To attest that fact he produced a letter from his financier to that effect (PEX 11).

In addition to the documents cited herein above,  the plaintiff  produced   copies  of   photographs  of   the  motor vehicle before   it  was  stolen   (PEX  12),   certificate   of installation of  a tracking device (PEX  13),   a  record from registrar of  motor vehicles and  log  book showing that  his financier (NIC Bank)  and   himself  were the   registered owners of the  motor vehicle (PEX 14(a)  and (b) respectively.

The  plaintiff denied the defendant's contention that he  was responsible for  the  delay  in   settlement of  his  claim and reiterated that under the   policy herein  he  was entitled  to the  sum assured subject to 10°/o deduction of excess.

Explaining that his  financier has threatened to  attach his property  owing   to his inability  to   meet  his  financial obligations, the  plaintiff urged  the  court to  award him  all the  reliefs sought in  the  plaint.

In its defence the defendant called its legal officer, Anthony Kariuki Njoroge (D.W.1) who acknowledged that the defendant had insured the motor vehicle herein. D.W.1 also acknowledged that  the   defendant received the  plaintiffs claim  for settlement  of   the  loss  and   made   offers  for settlement but  the   plaintiff rejected those  offers arguing that he  was  entitled to  the  total sum assured and not  the pre-theft value of the  motor vehicle.

He explained that in  determining the amount to pay, when the insured risk occurred, the   defendant is  guided by  the policy   document (PEX 1),  in  particular, a clause therein which provides as follows:-

"....the company's   liability  shall  be limited  to  the  reasonable  value  of   the motor  vehicle   at  the  time  of   loss   or damage but  not  exceeding the  insured's estimate of value stated in the schedule."

He argued that there is nowhere in the policy where the defendant is required to pay the sum assured.

Further that the contract being one of indemnity, the defendant’s obligation was to restore the   plaintiff to the position that existed immediately prior to the loss. He distinguished the policy herein from an agreed value policy, wherein the figure payable at the time of loss is agreed on the time of entering into the contract.

It was  his  case that where the  amount payable is the  pre ­ loss  value, the  reasonable market value is determined by appointing an assessor who  gives  an estimate of  the  value of   the   property at  the    time    of  loss.  In   this case, he explained that an assessment was done which put the estimated value at Kshs.3. 3 million. On the   basis of that estimate, the defendant made the first offer to the plaintiff, which the plaintiff rejected.

Following the rejection of the first offer, the defendant commissioned another assessment which assessed the loss at between Kshs.3. 8m and 3. 6m. On the basis of that assessment, the     defendant raised its initial offer to Kshs.3. 8 million, which offer the plaintiff yet again rejected.

According  to   D.W.1  the  plaintiff could  not  be paid the purchase price  in  a contract of indemnity because doing so would benefit him (at the time  the  loss occurred, the  motor vehicle had lost  some value through depreciation).

With    regard   to  the  plaintiffs   claim   for   interest and penalties charged by his financier, D.W.1, argued that  it would  be  unfair  to  load  the  interest  charged  by the plaintiffs financier on  the  defendant, when the plaintiff  had refused to mitigate his loss.

Terming the plaintiffs refusal of the defendant’s offer unreasonable, D.W.1, opined that the plaintiff should have taken the amount offered by the defendant and sued for the balance (Kshs.500,000/=). This way,  he would have avoided the bank interests he now claims from  the defendant. He argued that the interest was in any event, not payable under the contract as it is excluded in the policy as consequential loss.

As for the differences in the assessed pre-accident value of the motor vehicle, he explained that  the  1st  assessor misapprehended  the  purchase  price of  the  motor  vehicle and based his assessment on  Kshs.3. 8m as opposed to Kshs.4. 328m.  In   his   view,  the  2nd  assessment  was the correct one  as it was based on  the  correct purchase  price of the  motor vehicle.

Although the policy   document does not   explain how   the market value is to be arrived at, he explained that customarily, an assessor determines that value.

Admitting that the plaintiff  was not    involved in  the assessment, D.W.1 stated that the defendant never stopped the plaintiff   from commissioning an alternative assessment.

On examination by the court, D.W.1 explained that the sum insured is a term used in long term insurance like life benefits and that it is important for purposes of calculating the premium payable.

D.W. 2, John Waweru Njoroge, informed the court that he received instructions from the defendant to assess the pre­ theft value of the motor vehicle herein.  Using the  motor vehicles  logbook and  the  guidelines  gIven  by   the Automobiles Association he  assessed the  pre-theft value of the  motor vehicle at Kshs.3,895,000 / =.

He explained that the purpose of assessment is to establish the estimated value of the motor vehicle before the theft for purpose of compensation. Like D.W.1, his testimony was to the effect that there are instances when an insured is paid the total sum assured. According to him, that occurs when is indicated in the policy that the total sum assured would be  payable. Maintaining that his assessment was fair and that he did not favour any of the parties to  the dispute, he produced the  assessment report he  prepared as DEX 1.

I have read and considered the rival arguments by the parties and the submissions filed  in   respect  thereof. The issues for consideration are:-

1. Whether the plaintiff was entitled to the total sum assured or the pre-theft value of the motor vehicle?

2. Whether in the absence of the motor vehicle, it was possible to determine the pre-theft value of the motor vehicle?

3. Whether the plaintiff is entitled to interest on the sum assured or any consequential expenses or losses?

4. What order(s) should the court make?

Whether the plaintiff was entitled to the total sum assured or the pre-theft value of the motor vehicle;

On behalf of the plaintiff, it is submitted that the contract signed between the   plaintiff and the   defendant expressly provided for what the   plaintiff would be paid in the event the covered risk occurred. Contrary to the defendant's contention that  the   plaintiff was  entitled  to  the  pre-theft value of the motor vehicle, the plaintiff  maintains that under the  contract he  executed with the  defendant he was entitled to  the full  sum insured.  That is to say the   total value of the motor vehicle at the time of taking the cover.

As the  parties herein had executed a contract to guide their affairs, the  duty of this court with regard to  that contract is limited to  giving  effect to  the  clear intention, in  as far  as it can be  ascertained. In  this regard see   Jiwaji & others v. Jiwaji  &  another  (1968)  E.A   547  where  the  Court  of Appeal for Eastern Africa  (Clement De  Lestang, V.P)  held:-

"The courts will not, of course, make contracts for the parties but they will give effect to their clear intention...."

In the instant case, the contract signed by the parties, inter alia, provided as follows:-

"The company will indemnify the insured against loss of damage to the motor vehicle and its parts accessories and spare whilst thereon......................................................

..................................................................

The  Liability  of   the  Company shall not exceed  the  value  of   the  parts  lost  or damaged  and   the   reasonable   cost   of fitting such parts it being understood that the Company's liability shall be  limited to the reasonable market value of  the motor vehicle at the time of  the loss or damage but not exceeding the insured's estimate of the value stated in the schedule."(Emphasis supplied).

It is clear from   the foregoing section of the policy that the duty of the defendant was to indemnify the plaintiff.

In Civil Appeal No.  263 of  2003; Madison Insurance Company Ltdv Solomon Kinara t/a  Kisii Physiotherapy Clinic the Court of Appeal quoted with approval a passage

in Preston  and  Colinvaux book;   "THE  LAW  OF INSURANCE", 2nd   Edition,  under   the   heading,   "THE CONTRACT   OF    INSURANCE," and   Sub-heading "INDEMNITY" Page  4 thus:-

"lndemnity, it  has been said, is the controlling principle in insurance law, and by   reference  to  that   principle  a   great many difficulties arising on insurance contracts  can be  settled.  Except in insurance on life and against accident the insurer contracts to indemnify the assured for what he may actually lose by the happening of the events upon which the insurer's liability is to arise, and in no circumstances, is the assured in theory entitled to make a profit of his loss. That rule might be inferred as being the intention of the parties, having regard to the aim of the contract of insurance, but there are further powerful reasons for its application.  Were it not so, the   two parties to the contract would not have common interest in the preservation of the thing insured and the contract would create a desire for the happening of the event insured against.  Where infact the assured has a prospect of profit, there and there only can arise the temptation to crime, fraud or such carelessness as may bring about the destruction of the thing insured."

The  defendant's liability under the contract herein was expressly stated  to   be   limited  to   the reasonable  market value of the motor vehicle at the  time  of loss or damage but not  exceeding the  insured's estimate of the  value stated in the  schedule.

Given the fact that  the contract  herein  was one for indemnity, my  interpretation of the  foregoing section of the contract, and the obligations created thereunder is that the defendant was  not  obliged to pay  the  plaintiff the total sum assured, if  at the   time the   loss occurred the value of  the motor vehicle had gone down.

Although the   contract does not   state how   the reasonable market price would be  arrived at, by  providing for  payment of   the   reasonable  market  price  at  the  time  of   loss  or damage,   the    parties  must  have contemplated that a valuation would be done to  ascertain what the   reasonable market price of the  motor vehicle was at the time of loss.

Since the motor vehicle herein had been in use for nearly seven months before it got lost, I agree with the defendant that under the contract, the amount payable was its pre­ theft value.

Whether in the absence of the motor vehicle, it was possible to determine the pre-theft value of the motor vehicle;

Having found that  the  amount payable under the  contract herein  was the pre-theft  value  of  the   motor vehicle, the question that arises is whether, in  the  absence of the  motor vehicle, it  was  possible to  determine the  pre-theft value of the  motor vehicle.

Concerning this  question,  D.W.2's testimony was to the effect that  by  using   the  guidelines   provided by the Automobiles Association and other considerations  like fluctuations in  currency exchange rates and wear and tear, it is  possible to  determine the  reasonable market price of a motor vehicle. In  this regard, using the said guidelines and considerations D.W.2  was able  to assess the  pre-theft value of the  motor vehicle herein at between Kshs.3,893, 424 and 3, 810, 246/=.

Under Section  60( 1)  (m)  of  the   Evidence Act,  Cap 80 Laws  of  Kenya, courts are obliged to  take judicial notice of the  ordinary course of nature. In the circumstances of this case, I take judicial notice that machines lose their value when in use. In the circumstances of this case, the subject, motor vehicle had been in use for 7 months.  According to the testimony of the plaintiff, the motor vehicle had covered approximately 8000km at the time of loss. That being the case, by the time it was lost, it had lost some value.

Although the  plaintiff was not  involved in  the  assessment of the   motor  vehicle,  having  read   and considered  the testimony of  D.W.2,   and there being no  evidence to  prove that he  was biased in  his assessment of the motor vehicle, I am persuaded  that  his   assessment  was  a  fair representation of the reasonable market price of the motor vehicle at the  time  of loss.

Whether the plaintiff is entitled to interest on the sum assured or any consequential expenses or losses;

It is contended that since the defendant was aware that the motor vehicle was financed by a third party (NIC Bank), it has an obligation to meet all the expenses, interest and penalties levied by the plaintiffs financiers. That obligation is said to have arisen from   the    defendant's   failure to promptly compensate the plaintiff.

In reply, it is submitted that the contract executed between the plaintiff and the defendant did not cover consequential loss; and that the plaintiff failed to mitigate his losses. It is the   defendant's case that, as a way  of mitigating his loss, the   plaintiff should  have taken  the  amount  offered by  the defendant and only  sued for  the   balance and that  having failed to  do  so,  he  cannot be  had to  say  that he  is  entitled to re-imbursement of such costs.

The defendant argues that if the plaintiffs claim for interest is allowed, he would benefit from the loss and his failure to mitigate the loss. The  court is urged to  disallow that claim and/ or   if  inclined  it,   to   peg   the   award  thereon,  on   the amount the  plaintiff is  entitled to  over  and above the offer the  he  rejected.

In  considering the dispute herein the  court is urged to  be guided  by  the   decision  of  the  court of  Appeal  in  Civil Appeal No. 263 of  2003;  Madison Insurance Company Ltdv.   Solomon Kinara t/a  Kisii Physiotherapy Clinic (supra). In that case it was held:-

"...one thing is clear from this text; ordinary or standard form policies or contracts of insurance do not cover consequential loss unless the parties specifically contract that such loss would be covered.  The 4th Edition of Denis Riley's book “CONSEQUENTIAL LOSS INSURANCES & CLAIMS" specifically deals with such policies, namely consequential loss policies.

The  policy  of   insurance between the Appellant  and  Respondent was  an ordinary or standard form contract and as such there was nothing to import into that  policy the element of consequential loss. The Respondent's claim was that the loss was occasioned by   the Appellant’s wrongful refusal to pay for the loss of the items of the policy covered, but we do not think this takes the matter any further. The parties could have covered such an eventuality in their policy of   insurance and in absence of such a provision, the Respondent was not entitled to claim consequential loss of profits."

In the   policy  executed between the parties herein, the defendant was not liable for:-

"(a) consequential losses,

(b) depreciation wear and tear mechanical

or electrical breakdown failures or breakages..."

See exceptions to section 1 (page 4 of the policy document).

That  being the case, and  there being no justification  for deviating  from  the  holding  of   the Court of Appeal in Madison Insurance Company (supra),  I find  the  plaintiffs claim for consequential losses to be unmaintainable.

What order(s) should the court make?

As pointed out above, under clause 1 of the policy of insurance executed between the plaintiff and defendant, the defendant's liability was limited to the reasonable market value of the motor vehicle at the time of loss or damage.

D.W.2, who assessed the motor vehicle recommended payment of Kshs.3,895,000/= less the applicable excess. Being persuaded that his  estimate is reasonable, I enter judgment  in  favour  of the Plaintiff and  against the defendant for  the  said amount, subject to  payment of  the applicable excess.

As concerns costs of the suit, D.W.1 admitted that the defendant neither replied to the plaintiffs demand letter nor offered any explanation to the plaintiff concerning its rejected offer. Without  such  explanation,  the  plaintiff cannot be  blamed for  having chosen to  take  the  dispute  to court for  determination of  his  perceived rights under  the contract he  had executed with  the  defendant. Having failed to respond to the plaintiffs demand and/ or failed to offer any  explanation as to how it had arrived at its rejected offer it should, and is hereby condemned to  pay  the costs of the suit.

Dated, Signed and and Delivered at Nakuru this 13th day of August 2014

H A OMONDI

JUDGE