Hassan Khamis Said v Kenya Orient Insurance Co. Ltd [2012] KECA 89 (KLR)
The bottom line
#Kenya's Court of Appeal confirmed that if even one of your employees joins a theft, your insurer can refuse to pay under an infidelity exclusion clause.
What this practically means
#Executive summary
#Questions the Court framed
#The issues the Court set itself to decide, in its own words.
- 1.Whether the infidelity of employees exclusion clause applied where the appellant's employees, together with strangers, were involved in the theft of the insured sugar
- 2.Whether the respondent could rely on the exclusion clause where the employees were not shown to have been charged with the specific offence of theft by servant
- 3.Whether the Senior Resident Magistrate's award of refund of premium and Kshs.800,000 (above the Kshs.700,000 maximum cover) was erroneous
Key legal issues
#Operation of the infidelity of employees exclusion clause where strangers also participated in the theft
The exclusion clause applies where at least one employee of the insured was involved in the theft, regardless of the participation of strangers; the magistrate erred in reading a qualification into the policy.
The policy expressly contained an infidelity of employees exclusion clause. The magistrate's view that silence on mixed employee-stranger theft negated the clause amounted to introducing a new condition into the policy. The court reasoned the clause was designed to prevent policy holders stage-managing thefts with their employees, and that reading it as inapplicable where strangers are harnessed would defeat that purpose. At least one employee was convicted of the theft.
Refund of premium ordered by the magistrate
The order refunding the premium was misplaced because its effect would be to cancel the insurance contract, destroying the very cause of action claimed under it.
The High Court judge held, and this Court agreed, that ordering a refund of premium implied cancellation of the policy; if the contract were cancelled, there would be no anchor for the appellant's claim for policy proceeds. The court adopted that reasoning as an additional basis for upholding the decision below.
Award exceeding the maximum insured amount and failure to account for recovered goods
The magistrate erred in awarding Kshs.800,000 when the policy's maximum cover was Kshs.700,000, and in not deducting the thirty bags recovered, which reduced the claim to 320 bags.
The policy's limit of liability was Kshs.700,000, so an award of Kshs.800,000 had no basis. Additionally, although 350 bags were insured, thirty were recovered and returned to Mumias Sugar Company, so any covered claim would have concerned only 320 bags and would have attracted an amount well below the maximum.
Argument that employees had to be charged with theft by servant for the clause to bite
The court rejected the distinction; what mattered was the involvement of an employee in the theft, not the specific offence charged.
Counsel for the appellant argued the employees should have been charged with theft by servant for the exclusion clause to operate. The court held that the policy insured theft of whatever nature so long as the insured's employees were not involved; here employees were involved, so the clause operated irrespective of whether the offence was theft by servant or simple theft.
Legal principles established
#- On a second appeal, the Court of Appeal is confined to matters of law under Section 72 as read with Section 79D of the Civil Procedure Act.
- Where an infidelity of employees exclusion clause forms part of an insurance policy, the clause applies once it is proved that an employee of the insured was involved in the loss, even if strangers also participated; the policy cannot then be invoked against the insurer.
Court orders
#- 1.The appeal is dismissed
- 2.Costs of the appeal in the Court of Appeal are awarded to the respondent
- 3.The costs order does not extend to costs in the High Court, the learned Judge having made no orders on costs there
The bench
#One judgment of the whole court — no separate or dissenting opinions.
- On appeal from
- High Court of Kenya at Bungoma
- H.C.C.C. No. 3 of 2006
- Jurisdiction invoked
- Section 72 as read with Section 79D of the Civil Procedure Act (second appeal on matters of law)
Relief refused
#Reversal of the High Court decision and reinstatement of the magistrate's judgment/compensation under the policy
The exclusion clause applied once an employee of the insured was proved involved in the theft, whether alone or with strangers; the policy could not be invoked
Costs
The appeal is dismissed with costs to the respondent; the order for costs is confined to costs of this appeal in this Court and does not extend to costs in the High Court.
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.
In our view once it was proved as was done here that the appellant's employee or employees were involved in the theft of the sugar, then the policy excluded that situation.
so long as the employee of the appellant was involved whether alone or with others, the clause infidelity of the employees applied and the policy could not be invoked.
The learned Magistrate's argument that that clause could not apply where strangers were also involved in theft since the policy was silent on that aspect is with respect as strange as it sounds and is an attempt to introduce a new condition to the policy.
Considering all the above, this appeal lacks merit. It is dismissed with costs to the respondent. As the learned Judge made no comment on the issue of costs in the High Court, the order for costs herein is confined to costs of this appeal in this Court and does not extend to costs in the High Court.
Issues in the judgment
#The judgment states the suspects were taken to court for plea on 25th June, 2002, which conflicts with the theft date of 17th June, 2003 and the case number (Criminal Case No. 602 of 2003); this appears to be a typographical error for 2003.
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Hassan Khamis Said v Kenya Orient Insurance Co. Ltd [2012] KECA 89 (KLR)", Case Analysis (2012). Civil Appeal No. 213 of 2009. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2012/89/eng@2012-09-20
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.