Corporate Insurance Company v Loise Wanjiru Wachira [1996] KECA 70 (KLR)

Section 6(1)(a) of the Arbitration Act permits a stay application only after appearance and before delivering any pleadings or taking other steps. The appellant entered appearance and filed a defence raising the arbitration clause, but made no stay application for over four years. While a Scott v Avery clause can found a substantive defence, the court held a party cannot circumvent the statutory stay requirement, and by filing a defence the appellant lost its right to rely on the clause.

Although Section IV of the policy kept the indemnity operative while the vehicle was in the custody of a motor trader for repair, notwithstanding General Exception 1(b), the court held the appellant could not be liable because Kinyua was not an authorised driver. The motor trader disowned Kinyua's act of driving, and the risk of an unauthorised driver was not covered by the policy.

The trial judge awarded Shs.1,080,000/- as direct consequential loss arising from the insurer's delay in settling the claim. The Court of Appeal held this was compensation for consequential loss expressly excluded under the policy's exceptions, and that the claim was in substance one for special damages which must be specifically pleaded and strictly proved, requirements the claim did not satisfy.

The court found no provision in the policy covering loss of user, and observed that the appellant was not the tort-feasor nor the employer of the person who caused the damage; such a claim would lie against the garage owner. It also noted that insurance claims take time to investigate and imposing settlement time limits would be unreasonable and an intolerable burden on insurers.