Madison Insurance Company Ltd v Solomon Kinara t/a Kisii Physiotherapy Clinic [2004] KECA 162 (KLR)
The bottom line
#Kenya's Court of Appeal ruled that a standard burglary insurance policy only pays for stolen goods' value—not lost business income—unless the policy specifically covers it.
What this practically means
#Executive summary
#Questions the Court framed
#The issues the Court set itself to decide, in its own words.
- 1.Whether a party to a contract of insurance can be given special damages arising from loss of profits or loss of income under an ordinary burglary policy that makes no provision for consequential loss.
- 2.Whether damages which naturally flow from an insurer's breach of the policy are recoverable under the ordinary principles governing breach of contract where the policy does not expressly exclude consequential loss.
- 3.Whether the respondent, on cross-appeal, was entitled to loss of income for the full 41 months claimed and to interest at 30% per annum.
Key legal issues
#Whether special damages for loss of profits or loss of income are recoverable under an ordinary (standard-form) burglary insurance policy that makes no provision for consequential loss.
No. The indemnity principle is the controlling principle of insurance law; an ordinary policy covers only the value of the property lost or damaged, and consequential loss is recoverable only if the parties specifically insure it as such. The Shs 548,460/- loss-of-income award could not stand.
The Court began with the contract itself: the policy obliged the insurer to pay only the value of property lost through theft following forcible entry, and made no provision for any other payment. Drawing on Preston and Colinvaux, it held that indemnity is the controlling principle of insurance law and an assured is never entitled to profit from his loss. MacGilvary and Parkington confirm that ordinary policies do not cover loss of profits; such loss must be described in the policy and insured as such. The Court aligned itself with its earlier decision in Corporate Insurance Company Ltd v Loise Wanjiru Wachira.
Whether damages naturally following from the insurer's breach (wrongful repudiation or refusal to pay) are recoverable under general contract principles where the policy does not expressly exclude consequential loss.
No. The argument that whatever is not excluded by the policy is claimable under ordinary breach-of-contract principles finds no support and ignores the basic principles underlying a contract of insurance.
Counsel for the respondent sought to distinguish Corporate Insurance Company Ltd v Loise Wanjiru Wachira, where consequential loss was expressly excluded, whereas this policy contained no such exclusion. The Court rejected the equivalence between insurance contracts and ordinary contracts: the premium-payer intends indemnity, not profit, and allowing profit from loss would destroy the parties' common interest in preserving the insured thing and create a temptation to crime, fraud or carelessness. Framing the claim as arising from wrongful repudiation or refusal to pay did not take the matter any further.
Whether the respondent was entitled to interest at 30% per annum on the insured value, as sought in the cross-appeal.
No. There was no provision in the policy for such a rate; interest at court rates was awarded on Shs 871,000/- from the date of filing suit until payment in full.
The cross-appeal sought interest at 30% per annum on the basis that the respondent was repaying bank loans contracted to finance the purchase of the stolen items. The Court noted that the policy contained no provision for such a rate of interest, and since the respondent had failed on the loss-of-income claim the cross-appeal failed in its entirety. The Court substituted interest at court rates on the retained award of Shs 871,000/- from the date of filing the suit until payment in full.
Legal principles established
#- Ordinary or standard-form contracts of insurance do not cover consequential loss (such as loss of profits or loss of income) unless the parties specifically contract that such loss would be covered; the absence of an exclusion clause does not import such cover.
- An insured cannot claim consequential loss under the ordinary principles governing breach of contract merely because the policy does not expressly exclude it; the indemnity principle, not general contract damages, governs the insurer's liability.
- The extent of an insurer's liability is determined by the terms of the policy itself; the starting point is the contract of insurance.
Court orders
#- 1.The appellant's appeal allowed to the extent that the Commissioner of Assize's order awarding Shs 548,460/- as loss of income for one year is set aside, reducing the total award of Shs 1,419,460/- by that sum to leave a balance of Shs 871,000/-.
- 2.The appellant to pay the respondent Shs 871,000/- representing the value of the stolen insured goods, liability having ceased to be live after grounds 1 and 2 of the memorandum of appeal were abandoned.
- 3.Interest at court rates to be paid by the appellant to the respondent on the sum of Shs 871,000/- with effect from the date of filing the suit until payment in full.
- 4.The respondent's cross-appeal dismissed in its entirety.
- 5.The appellant to have half the costs of its appeal; no order as to the costs of the cross-appeal.
The bench
#One judgment of the whole court — no separate or dissenting opinions.
- On appeal from
- High Court of Kenya at Kisii
- Jurisdiction invoked
- First appeal to the Court of Appeal of Kenya from a decision of the High Court of Kenya at Kisii; the judgment does not expressly cite the constitutional or statutory provision under which the appeal was brought.
Relief refused
#Special damages for loss of income/profits (Shs 53,944/- per month for 41 months, and on cross-appeal for the full 41 months rather than one year)
The standard-form burglary policy provided only for indemnity against loss of or damage to the insured property; consequential loss is not covered unless specifically insured as such, and the indemnity principle bars an assured from profiting from his loss.
Interest at the rate of 30% per annum as sought in the cross-appeal
The policy contained no provision for such a rate of interest; the Court substituted interest at court rates on the sum of Shs 871,000/- from the date of filing suit until payment in full.
The cross-appeal in its entirety, including the complaints that the Commissioner failed to take loan repayments into account and erred in requiring mitigation of loss
The cross-appeal necessarily failed because the respondent was held not entitled to loss of income under the policy at all.
Costs
On costs, the appellant shall have half the costs of its appeal since it has succeeded on two grounds and abandoned the other two grounds. We, however, make no order as to the costs of the cross-appeal.
Quotable passages
#Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.
Accordingly we allow the appellant’s appeal to the extent that the Commissioner of Assize’s order awarding to the respondent Shs 548,460/- as loss of income for one year is set aside and the total sum of Shs 1,419,460/- awarded to the respondent by the Commissioner is reduced by the said Shs 548,460/- leaving a balance of Shs 871,000/-.
Our final orders shall be that the appeal of the appellant is allowed to the extent already indicated herein. The crossappeal is dismissed in its entirety.
Accordingly, we order that interest at court rates shall be paid by the appellant to the respondent on the sum of Shs 871,000/-
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.
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.
The parties could have covered such an eventuality in their policy of insurance and in the absence of such a provision, the respondent was not entitled to claim consequential loss of profits.
On costs, the appellant shall have half the costs of its appeal since it has succeeded on two grounds and abandoned the other two grounds. We, however, make no order as to the costs of the cross-appeal.
Issues in the judgment
#The judgment contains an apparently duplicated and internally inconsistent passage on the basis of the 30% interest claim: the first sentence attributes the claim to the respondent not being entitled to loss of income, which contradicts the immediately following sentence attributing the claim to bank loans repayable at 30%.
Apparent typographical or scanning errors in the text as supplied, which quote-matching should disregard (e.g. 'in out view' for 'in our view', 'efiect' for 'effect', 'ofiering' for 'offering').
The paragraph numbering of the supplied text skips from 11 to 13; no paragraph numbered 12 appears.
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Madison Insurance Company Ltd v Solomon Kinara t/a Kisii Physiotherapy Clinic [2004] KECA 162 (KLR)", Case Analysis (2004). . Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2004/162/eng@2004-07-09
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.