APA Insurance Limited v Gatugi (Civil Case 32 of 2020) [2024] KEMC 18 (KLR)
The bottom line
#A Kenyan court let an insurer off the hook because the vehicle owner hid that she was using her privately insured car as a taxi.
What this practically means
#Executive summary
#Key legal issues
#Whether the Defendant breached the doctrine of uberrima fides by misrepresenting the intended use of the vehicle as private when it was used for hire and reward
The Plaintiff proved on a balance of probabilities that the Defendant misrepresented and/or concealed material facts by stating the vehicle was for social, domestic and pleasure purposes while it was in fact used for taxi/hire services, entitling the Plaintiff to avoidance.
The Plaintiff exhibited the proposal form showing the vehicle was declared for private use only, plus a Police Abstract, accident report form and an investigation report by Starden Insurance Investigators. The investigation report, unchallenged and consistent with cross-examination admissions, established the vehicle was carrying out taxi operations. The Defendant contradicted herself on whether the three passengers were business associates or her porters, undermining her credibility. Her evidence failed to shake the Plaintiff's case.
Whether the insurer is nevertheless bound under section 10(1) of Cap 405 to satisfy claims arising from the accident
No. The statutory duty to pay is confined to liabilities covered by the terms of the policy; a private vehicle used for hire and reward is outside such cover, so the insurer is not liable.
Relying on Corporate Insurance Company Ltd v Elias Okinyi Ofire, the court held that an insured who converts a private vehicle to carrying fare-paying passengers does so at his own risk. Sections 5 and 10 of Cap 405 do not create a blank cheque: the statutory duty attaches only to liabilities covered by the policy terms. Allowing otherwise would incentivise insureds to act as they please and imperil the insurance industry.
Exceptions to the duty of disclosure and the legal effect of non-disclosure
Non-disclosure renders the insurance contract voidable, not void, at the election of the insurer; exceptions exist where facts were outside the insured's knowledge or where the proposal form failed to ask the relevant question. Neither exception applied here because the proposal form contained the relevant question.
Citing Elius Gachii Karanja v Concord Insurance and BMK v AIG Kenya Insurance Ltd, the court acknowledged innocent non-disclosure outside the insured's knowledge and poorly designed proposal forms as exceptions. However, in this case the proposal form clearly asked about the proposed use, so the Defendant had the opportunity to disclose the hire/taxi use and did not.
Whether the Defendant's Counterclaim for declarations of liability was proved
The Counterclaim failed as the Plaintiff established its entitlement to avoidance.
Since the Plaintiff proved breach of utmost good faith by misrepresentation and non-disclosure of the true use of the vehicle, the policy was validly avoided and the Defendant could not establish that the insurer was bound to compensate her for the loss of the vehicle or to satisfy third-party claims arising from the accident of 21st July 2018.
Legal principles established
#- An insured is legally obligated to disclose to the insurer all material facts and circumstances within the insured's personal knowledge likely to materially affect the risk; failure to disclose renders the contract voidable at the insurer's election.
- The statutory duty of an insurer under section 10(1) of the Insurance (Motor Vehicles Third Party Risks) Act is limited to liabilities covered by the terms of the policy; it is not an open-ended obligation.
- An owner of a private vehicle insured for private use who carries fare-paying passengers does so at his own risk and without the appropriate insurance cover.
- The burden of proving the basis of repudiation for non-disclosure or misstatement of material facts lies on the insurer.
- Where the declination is by the insurer, the insurer is bound to prove the basis of the repudiation (as per British American Insurance Co. Ltd & another v Isaac Njenga Ngugi).
Court orders
#- 1.A declaration that the Plaintiff is and has at all material times been entitled to avoid and has henceforth avoided liability arising from policy of insurance number 43/700/2018/044-COMP, having been obtained by non-disclosure of material facts and/or misrepresentation of facts
- 2.A declaration that the Plaintiff is not liable to satisfy the specific claims arising from the accident of 21st July 2018 under the Insurance (Motor Vehicles Third Party Risks) Act, Chapter 405 of the Laws of Kenya
- 3.The Defendant to bear the costs of this suit with interest at Court rates from the date of judgment until payment in full
- Jurisdiction invoked
- Original civil jurisdiction of the Magistrates' Court over the insurance contract claim and counterclaim (Insurance (Motor Vehicles Third Party Risks) Act, Cap 405 invoked)
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "APA Insurance Limited v Gatugi (Civil Case 32 of 2020) [2024] KEMC 18 (KLR)", Case Analysis (2024). Not stated in the judgment. Source: https://new.kenyalaw.org/akn/ke/judgment/kemc/2024/18/eng@2024-09-27
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.