Universal Marketing Insurance Agencies Limited v CFC Assurance Limited & Population Services International – Kenya [2018] KEHC 3437 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NAIROBI

COMMERCIAL & ADMIRALTY DIVISON

HCC NO. 846 OF 2009

UNIVERSAL MARKETING INSURANCE AGENCIES LIMITED....PLAINTIFF

VERSUS

CFC ASSURANCE LIMITED.........................................................1ST DEFENDANT

POPULATION SERVICES INTERNATIONAL – KENYA.........2ND DEFENDANT

JUDGEMENT

1. Universal Marketing Insurance Agencies Ltd (Universal or The Plaintiff) has sued CFC Life Assurance Ltd (CFC Life or the 1st Plaintiff) and Population Services International Kenya (PSI or the 2nd Defendant) for Breach of Contract and lays a Claim of Special Damages of Khs.3,484,800/- and Damages for Breach of Contract.

2. Universal which describes itself as an Independent Agent doing procurement of all kinds of Insurance Business for various Insurance Companies, had related with both CFC and PSI from the year 2005. In June 2009, PSI put out a Newspaper Advertisement inviting Applications for pre-qualification of Suppliers and Contractors for the Provisions of Insurance and Insurance Brokerage Services.

3. Through a Letter dated 9th July 2009 (P Exhibit 2 page 27-37), PSI invited Universal to submit a proposal for Provision of a Group Medical Cover for its Employees. With that invitation at hand, Universal invited CFC to pitch for the Business in a Letter of 24th July 2009 (P Exhibit 1 page 17).  CFC wrote to the Tender Committee of PSI confirming to them that it had given Universal its quotation and authorized them to act on their behalf.  That quotation was of even date (P Exhibit 1 page 18-22).

4. The evidence of Charles Irungu Maitho,(Maitho or PW1)  the Managing Director of Universal, is that about 4 days later (on 28th July 2008) two Senior Managers of CFC and himself made a presentation for the Medical Insurance Services to PSI.  The outcome was positive because on 31st July 2009 9 (P Exhibit 1 page 24) PSI awarded the said Tender to CFC with the following highlights:-

(i) The Award was for an initial period of 2 years effective 5th August 2009 and with a possibility of renewal upon positive negotiations between the two parties.

(ii) The Award was based on a premium of Khs.29,009,960/= per annum for a population of 722.

(iii) The benefit would be in terms of the quotation of 31st July 2009.

5. Things started to look down for Universal when on 3rd September 2009 (P Exhibit 1 page 26) PSI informed it that its bid to provide Services as an Insurance Agent was not successful. In a letter 5 days later (8th September 2009, P Exhibit 1 page 27), PSI informed CFC that it had appointed Chancery Wright Insurance Brokers as its Broker.  With that CFC was asked by PSI to pay the commission to Chancery Wright and it obliged.

6. Universal relies on the Contract of Appointment as an Independent Agent of 2nd November 2005(P Exhibit 1 page 3-5), as a basis of the Claim which is presented through an Amended Plaint dated 19th May 2010 and filed on the same day.

7. The 1st and 2nd Defendants filed a Joint Statement of Defence of 2nd July 2010.  The Headlines of the Defence can be outlined.

8. While CFC admits entering into the Contract of 2nd November 2005, it denies that there was an understanding between the Universal and itself that the relationship would constitute an agency between the two.  And without prejudice to this assertion, CFC avers that the Trade Usage in the Insurance Industry is that the Insurance Agent /Broker is the Agent of the Insured person and not the Insurer and that the relationship between CFC and Universal was entered on that basis.

9. CFC further asserts that Universal merely informed it of the Advertisement by PSI and requested that they make a joint bid for Provision of Insurance and Insurance Brokerage Services.  It is emphasized that the two merely agreed to present a Joint bid to PSI whereby Universal would bid for Insurance Brokerage Services and CFC for Supply of Medical Insurance Services.

10. The evidence in this matter was led by Charles Maitho (PW1) on behalf of Universal, Ian Njogu (DW2 or Njogu) for CFC and Dorcas Odondo Wafula (DW1 or Dorcas).  The parties agreed on a set of issues dated 18th April, 2013 and these are:-

1. What was the nature of the relationship between the Plaintiff and the Defendant?

2. Whether there was breach of that relationship and the general law of contracts.

3. Whether the Plaintiff was entitled to the commission paid out on the contract arising from the tendering process.

4. Whether the Plaintiff is entitled to the orders sought against the Defendants.

5. Who bears the cost of the suit?

11. The Court starts by considering the nature of the relationship between the Plaintiff and the 2nd Defendant and the reason will be apparent shortly.

12. The undisputed evidence is that by an Advertisement whose deadline was 3rd July 2009 (P Exhibit 1 page 7), PSI invited Applications for Pre-qualification of Suppliers and Contractors for provision of various Services which included Insurance and Insurance Brokerage Services.  There are two categories of Services although Maitho’s evidence was that they can be offered by one entity.

13. Whilst under cross-examination Maitho stated,

“In 2009, we applied for Brokerage Services. I do not have the Application here”.

It was also his evidence that Universal presented a Joint proposal with CFC.

14. The evidence of Dorcas was that Universal presented a bid for Brokerage Services although it had combined with CFC as the underwriter.  As for Njogu he told Court,

“Universal was not representing CFC as an Agent, Universal presented a bid as Intermediary and CFC presented a bid as an Underwriter”.

As to the nature of intermediary, CFC’s position was that Universal was not a Brokerage firm.

15. Whether as a Broker or not, the evidence that emerges is that Universal placed a Joint bid with CFC.  In this Joint Bid CFC was the Underwriter. It has neither been suggested nor proved by Universal that PSI was obliged to either accept or reject the Joint Bid as a package, that is one or nothing.  Neither has it been proved by Universal that PSI breached any Contractual provisions or Law in rejecting the Bid of Universal as an Intermediary.

16. There have been submissions made by Universal that it negotiated with CFC on behalf of the PSI into getting the best deal and in doing so Universal was acting as an Agent for PSI.  This argument must however be examined against the backdrop that with the other side of the mouth Universal argues that it is an Agent of CFC (albeit an Independent Agent).

17. An argument by PSI that it was a double Agent! Is this tenable?  The concept of double Agency was discussed by Mega J. in Anglo African Merchants Limited vs. Bayley [1970] 1 QB 311 at pg 323-324 in the following terms:-

“It was said by Counsel, on instructions, that the Practice which he described is common knowledge, not only as being the Practice of Lloyd’s brokers, but as being General Practice in the Insurance Market.  I find it remarkable, if so, that there is no reference to it – none so far as I am aware, and none to which Counsel could refer me – in any decided case or in any of the well-known textbooks dealing with Insurance Law, some of which deal at length with the practice of the Insurance market and the position of Insurance brokers. Even if it were established to be a Practice well known to persons seeking insurance – not merely to insurers and brokers – I should hold the view, in conformity with the passage which I have cited from Bowstead, that a custom will not be upheld by the Courts of this Country if it contradicts the vital principle that an agent may not at the same time serve two masters – two principals – in actual or potential opposition to one another; unless, indeed, he has the explicit, informed, consent of both principals.  An insurance broker is in no privileged position in this respect”.

There is a suggestion by Universal that it was serving two Masters; PSI and CFC. One as an insurer and the other as an insured.  These are two principles who may have actual or potentially competing and opposing interests. It has not been demonstrated by Universal that it got the Consent of both or indeed either side to act in this manner and this Court is not prepared to uphold the argument that Universal held a unique position as a double Agent.

18. One thing seems clear, that in the Joint or combined Bid, Universal pitched as an Intermediary but did not succeed.  It has not faulted PSI for not accepting its Bid and I have to find that Universal had no Contractual relationship with PSI in respect to the 2009 Bid.  This finding slams the door against the viability of a Claim by Universal against PSI. This is supported by the general Rule that;-

“…..a contract affects only the parties to it and cannot be enforced by or against a person who is not a party, even if the contract is made for his benefit and purports to give him the right to sue or to make him liable upon it. The fact that a person who is a stranger to the consideration of a contract stands in such near relationship to the party from whom the consideration proceeds that he may be considered a party to the consideration does not entitle him to sue upon the contract”.

(Halsbury’s Laws of England 3rd Edition Volume 8).

19. The Lawyer for PSI characterizes this dispute as a Contractual Dispute regarding payment of Commission between an Insurance Company and its Agent.  Is there merit in this characterization? In its submissions, Counsel for CFC makes the proposition that Universal was a recognized Insurance Agent of CFC being in its panel of Insurance of Intermediaries.  Universal accepts this description and submits that it had a Principal /Agent relationship with CFC as an Independent Agent.

20. It is argued by CFC that the Contract between it and Universal was a General Contract in which Universal would solicit and procure Insurance Business for it. It was further submitted that,

“As an independent Agent, the role of the Plaintiff was to connect the underwriter and the client such as the 2nd Defendant. Once the connection was made, he became the agent of the client representing the interest of the Client since he had a working relationship with underwriter and negotiate the terms of insurance as would be acceptable to the client”.

21. Both Universal and CFC accept that the starting point in construing the nature of their relationship is the Letter of Appointment of 2nd November 2005.  In that Letter CFC Life appoints Universal as its “Independent Agent for the purpose of soliciting and remitting Insurance Business”.  As I understand it an Independent Agent of this type sells Insurance Policies provided by several different Insurance Companies as opposed to one single Insurance Company.  An Independent Insurance Agent is contrasted with a Captive Agent (as known elsewhere) who sells Insurance Polices of only one Insurance Company.

22. The Contract between Universal and CFC set out when and how much Commission would be due. Under the terms of the Contract entitlement to Commission would differ depending on whether the Policy was new, a renewal or a reinstatement or amended or modification.  For first year Business and renewals, it provided,

“As full compensation for your services and any expense you may incur in connection with the Company’s business, you will be entitled to receive compensation shown in the Schedule of Compensation set out below and in accordance with the following terms and conditions:

(a) First year commissions on premiums due and paid to the company in respect of the first policy year consisting of twelve months from the policy effective date.

(b) Renewal commissions on premiums due and paid to the company after the first policy year provided that you are actively servicing the policy and continue to be recognized as the agent of record by the policy holder and by the company as an Agent of record.  The decision of the company in this respect shall be final.

(c) The agent of record may not assign, transfer or dispose off any interest under the Agreement unless such assignments, transfer or disposition is filed in writing with the Company and the Company has given its written approval for such action.”

As for the other categories, it provided:-

“When a policy is reinstated, changed or modified to another form you shall have no claim for commissions unless the reinstatement, change or modification is effected by you.

The Company shall have a right at all times to offset sums due to you any debt, obligation or liability owing to the Company and may charge your account for all commissions received by you on insurance policies which for good reason have been rescinded.

This appointment shall come to an end forthwith in the event of any breach of the conditions herein or on either party giving to the other one month’s notice or termination by registered mail”.

23.  So was the 2009 Contract a new, renewed or reinstated business? The position of PSI is that, the 2009 Tender invited fresh Tenders.  In other words new Insurance Contracts.  CFC supports this position. Universal on the other hand takes the view that it was “a renewal or reinstatement” (evidence of Maitho in re-examination). Whilst this Court is not sure that renewal and reinstatement refer to one and the same thing, it turns to examine the circumstances upon which the 2009 Contract was entered.

24. The evidence of PW1 was that CFC had previously offered Staff Medical Insurance for the years 2006, 2007, 2008.  In his evidence he states,

“I was Agent for PSI for 3 years 2005-2006, 2006- 2007, 2007- 2008.  PSI re-tendered in 2009.  They continued renewing with us for the 3 years as the Services were satisfactory. They requested us for renewal.  PSI was calling for renewal”.

This evidence does seem to be inherently contradictory.  For the 3 years (2005-2008), there were renewals. That presents no difficulty! However a Tender was put out in 2009.  At the same time, PW1 asserts that this was PSI calling for renewal.  It does not seem logical that PSI would be calling for Renewal through a fresh Tender. By implication, a fresh Tender would connote an invitation of new Bids.  The fresh bidding does not support the Plaintiff’s theory that it was invited to renew in 2009. If a fresh Tender could achieve a renewal then Universal did provide any evidence that its Renewals for 2006-2007 and 2007-2008 were by way of Tender.

25. The star Document governing the relationship between Universal and CFC is the Agreement of 2nd November 2005. Universal was expected to solicit and remit Insurance Business to the CFC and in return would be paid Commission as set out thereunder. In other words Universal would be entitled to payment of Commission if it successfully solicited Insurance Business to CFC.  It is common ground that CFC was awarded the Tender for Provisions of Medical Insurance Scheme for an initial period of 2 years effective 5th August 2009.  So as to resolve the question as to whether or not Universal is entitled to commission one must understand the role it played in the Tender Business and if that role amounted to a successful solicitation of the Award.

26. The pleaded position of Universal is that in reaction to the Advertisement put out by PSI, it made its Application and was invited to bid for pre-qualification as the possible Supplier of Medical Insurance.  That armed with this Offer, it approached CFC to take up the Business and which Offer CFC accepted.  In the evidence presented to Court, Maitho asserts that CFC appointed Universal as the Agent in the bidding process.  Universal leans on the Letter of 24th July 2009 for support. This is that letter,

24 July 2009

The Tender Committee

Population Servicers International/Kenya

2nd Floor, Jumuja Place Wing B, Lenana Road

P.O. Box 22591

NAIROBI

Dear Sir

UNDERWRITTERS AUTHORISATION FORM

This is to confirm that we have given Universal Marketing Insurance Agency our quotation and have authorized them to act on our behalf.

Yours faithfully,

Signed

Njambi Chege

CFC Life, Health Division

27. In his written Statement Maitho states,

“On or about the 28th July, 2009, I accompanied my two Senior Managers of the 1st Defendant successfully made a presentation on its behalf for Medical Insurance Services and as a result, the Tender was awarded to them by the 2nd Defendant”.

28. Whilst CFC had prepared its own Document, CFC and Universal presented a Joint Bid. Universal maintains that it was the only Agent which represented CFC Life and its entitled to Commission.

29. CFC through Mr. Njogu, made an explanation as to the purpose of the Letter of 24th July, 2009. He stated,

“As per Tender requirement, CFC Life gave an underwriter authorization Letter to Universal Marketing confirming that they we(sic) had given them our quotation and authorized them to act on our behalf”.

In his oral evidence he was to add that the Letter of authority ensures that the Underwriter does not disown Documents presented on their behalf.  In regard to the Joint bid, the witness took a position that it could be severed so that one could succeed and another fails.

30. Now, there is vivid evidence that Universal and CFC presented a Joint bid.  There is amity on this by all the three parties to the suit.  The Bid of Universal was in the category of an intermediary while that of CFC was that of Underwriter. Whilst this is so, did Universal solicit the Business for CFC?

31. I begin the search for an answer to this question by the authorization letter of 24th July 2009 which is reproduced below:-

24 July 2009

The Tender Committee

Population Servicers International/Kenya

2nd Floor, Jumuja Place Wing B, Lenana Road

P.O. Box 22591

NAIROBI

Dear Sir

UNDERWRITTERS AUTHORISATION FORM

This is to confirm that we have given Universal Marketing Insurance Agency our quotation and have authorized them to act on our behalf.

Yours faithfully,

Signed

Njambi Chege

CFC Life, Health Division

32. The stance of Universal is that letter signified that CFC had given Universal its quotation and authorized it to act on its behalf.  There is then some crucial information by Njogu when he says,

“At the point of giving the Letter of authority we were aware that the Plaintiff was not a Brokerage”.

He was later to says,

“Being a Joint Bid in terms of preparing a Proposal, Universal played a role.

,,,in collaboration with the Plaintiff we walked the client through the process. The role of the Plaintiff was more than preparation of the Joint Bid”.

33. The role was even better described by CFC in its letter of 28th October 2009 to PSI when it said:-

Daun Fest

Country Director

Population Services International – Kenya

Nairobi

Dear Madam

Re: Broker Appointment for the Medical Scheme Policy year 2009/2010.

We refer to your letter dated 11 August 2009 appointing CFC Life as the Underwriter and Chancery Wright Insurance Brokers Limited as the broker for the above scheme.

During the tendering process, our quotation was submitted by Universal Marketing Insurance Agency. In collaboration with Universal Marketing Insurance Agency, we walked your team through detailed benefits and policy terms and conditions and consequently appointed as the underwriter.

However, at a later date, PSI appointed Chancery Wright Insurance Brokers Limited as the broker although the quotation had been submitted and presented by a different intermediary. Your letter in effect made commission payable to Chancery Wright Insurance Brokers Limited. As a consequence we have a dispute in our hands as both parties are claiming the commission.

We needed to bring this matter to your attention since you have appointed Chancery Wright Insurance Brokers as your broker when our quotation that you subsequently accepted came through Universal Marketing Insurance Agency. In view of the circumstances we seek your assistance to determine which party has rightfully earned the commission before we can pay.

Please don’t hesitate to contact the undersigned in case of any questions. We thank you for your usual cooperation and appreciate the ongoing business relations between our two organizations.

Yours sincerely,

Signed

Priscilla Kirigua Mwangi

Health Director

Cc. Abel Munda, Managing Director CFC Life

John Mbugua, Chancery Wright Insurance Brokers

34. It is the finding of this Court that CFC was well aware that Universal was not a Brokerage but an Insurance Agency and having played a bigger role than just preparing the Joint Bid, Universal was infact the Agent of CFC in the Bidding process.

35. As to whether Universal helped CFC solicit the Business, Mr. Njogu candidly testified,

“At the point we got the Award Letter, the Plaintiff had played its role in delivering the Bid to us”.

That indeed the role of Universal in CFC getting the Business is not one to be understated finds support in another respect.

36. Looking at all the intermediaries who participated in the Tender process (see written Statement of Dorcas Odondo Wafula) none presented a Bid for or on behalf of CFC.  Universal upon being prequalified to take part in the bid, invited CFC to bid.  Subsequently Universal helped in preparation of the Joint Bid and represented CFC in the Tendering process (of course together with the Representatives of CFC).  This is a role that was acknowledged by the witness of CFC to be more than preparation of the Joint Bid.  One cannot help but find that had Universal not interested CFC to the Tender and participated with them in it, CFC would not have won the Business.

37. I am inclined to find that Universal solicited and remitted the Medical Insurance Business of PSI for the year 2009 to CFC and are entitled to a commission.  A commission for the first year worked out at 12% of the premium due and paid. The premium paid was Khs.29,009,960/= and so the commission is Khs.3,481,195. 20.

38. This Court has reached this decision by enquiring into the intention of Parties and the Contract signed between Universal and CFC. And I may say that if this outcome does not fit into the Conventional manner in which Insurance Business is conducted then it must be because of the manner in which PSI arranged and concluded the Tender and how Universal and CFC interacted and conducted themselves in respect thereof.

39. In the end I enter Judgement for the Plaintiff against the 1st Defendant for a sum of Kshs.3,481,195. 20 which shall attract interest at Court rates from the date of filing of the Suit and costs.  The case against the 2nd Defendant is dismissed with costs to be borne by the Plaintiff.

Dated, delivered and signed in open Court at Nairobi this 5th day of October 2018.

F. TUIYOTT

JUDGE

In the presence of;

Nderitu for Plaintiff

Mumbi for 1st Defendant

Asewe for 2nd Defendant

Nixon-Court Assistant