Cic General Insurance v Chuka Farmline Stores Limited & 2 others

2. The facts of the case are rather straightforward. Chuka Farmline Stores Limited, the 1st respondent, purchased a motor vehicle registration number KBY 327J, with financing by the Co-operative Bank of Kenya Limited, the 2nd respondent herein. The vehicle was insured by CIC General Insurance Ltd, the appellant, at the suggestion of Co-operative Bank and was fitted with a tracking device by Track and Trace, the 3rd respondent herein as recommended by CIC Insurance. On the night of 14th and 15th October 2016 the vehicle, while in the possession of Chuka Farmline’s driver David Karimi was stolen at Mwea area while transporting fertilizer for Chuka Farmline Stores Ltd from Nairobi to Chuka Farmline’s stores at Chuka. Chuka Farmline lodged a claim for indemnity with the appellant for the loss of both the motor vehicle and the goods, but the same was declined by the appellant on grounds that Chuka Farmline had breached the principle of utmost good faith otherwise known in insurance terms as uberimma fides for the reason that Chuka Farmline regularly used the vehicle for hire and reward contrary to what it had declared in the insurance policy that it would be used for carriage of own goods as the regular and normal use for the vehicle. 3. After the theft of the vehicle, Track and Trace indicated that the subscription for the tracking device for the vehicle with Track and Trace had not been renewed and so the location of the vehicle could not be done. Chuka Farmline’s contention was that its agreement with the appellant was that upon payment of the insurance premium’s CIC would pay the subscription for the tracking device with Track and Trace. 4. Chuka Farmline’s contention was that in spite of the theft of the vehicle and the failure to settle the claim by CIC Insurance, the Co-operative Bank continued to demand that Chuka Farmline continues to service the loan for repayment of the vehicle. 5. Chuka Farmline was aggrieved by these circumstances and brought suit against CIC Insurance, the Co-operative Bank and Track and Trace, the appellant, 2nd and 3rd respondents herein respectively for the reliefs outlined above. 6. Chuka Farmline Stores pleaded its case as per the plaint dated 22nd August 2017 and adduced evidence in court through its witness PW 1 John Wahome Gitonga, one of its directors. PW 1 produced as exhibits the various documents in the 1st respondent’s list of documents as follows: a. Co-operative Bank of Kenya approval form dated 18th March 2014. b. Certification dated 11th March 2014 from CIC Insurance Group Ltd to the Managing Director Co-operative Bank of Kenya Limited that it had issued a comprehensive insurance cover for the motor vehicle with the Hirer’s confirmation, acceptance and awareness duly signed. c. CIC Motor Commercial Plus Proposal Form dated 5th March 2014. d. Certificate of Installation of a GPS/GPRS/GSM Tracking system by Track and Trace dated 4th March 2014 and expiring on 3rd March 2017. e. Police abstract report dated 26th October 2016 from National Police Service, DCIO, Kirinyaga South. f. Letter from CIC General Insurance Ltd to Chuka Farmline Stores Ltd dated 8th February 2017 declining to settle the claim. g. Letter of Confirmation of sales order from Yara East Africa. h. Delivery notes. i. Copies of demand letters. https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/18321/eng@2025-11-24 2

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7. The appellant, CIC General Insurance Company Ltd pleaded its case as per its statement of defence dated 15th September 2017 and adduced evidence in court through three witnesses. DW 1 Peter Kitela and DW 2 John Mwai Ndungu are insurance investigators with Web Insurance Assessors. They investigated the theft of the vehicle herein and prepared a report which they produced in evidence. DW 3, Lydia Mwangi was a legal claims officer with CIC. 8. The appellant produced the following documents as exhibits: a. Investigation report b. Claim form. c. Policy document and schedule. d. Valuation report. 9. The 3rd respondent, Track and Trace, pleaded its case as per its statement of defence dated 18th October 2017 and called one witness DW 4, James Mbugua, its employee. 10. The 2nd respondent, Co-operative Bank filed a statement of defence dated 25th September 2017 but did not call a witness at the hearing, the position being that by the time of hearing the case, Chuka Farmline had repaid the entire purchase price for the vehicle. So that the case against the Co-operative Bank was as good as compromised and it was not proceeded with. 11. Upon considering the evidence and submissions of parties, the learned trial magistrate found the case by the 1st respondent against the appellant proved on a balance of probability and entered judgment for the 1st respondent against the appellant as per prayers (a) and (b) in the plaint which were respectively for a sum of Kshs 4,675,500/= for the loss of the motor vehicle through theft together with its load of fertilizer worth Kshs 520,000/= and general damages for loss of income. However, in his judgment the learned trial magistrate had erroneously indicated prayer (b) to be for special damages of Kshs 1,733,539/80 which was not one of the prayers sought by the 1st respondent in the plaint. In any case, the learned trial Magistrate had declined to grant any damages for loss of income finding that the same had not been proved. 12. The appellant was dissatisfied with the judgment and appealed to this court on the following grounds as per the memorandum of appeal dated 9th December 2019: a. The learned trial Magistrate erred in law and in fact in the manner that he analysed the evidence and in failing to make a finding that the actions of the 1st respondent antecedent to the theft exposed the insured vehicle to risks and the appellant was not liable for the loss of the 1st respondent’s vehicle. b. The learned trial Magistrate erred in law and in fact in the manner that he applied the doctrine of utmost good faith and in failing to make a finding that the 1st respondent had breached the said doctrine. c. The learned trial Magistrate erred in law and in fact in failing to apply the policy conditions in relation to excess and in entering judgment for loss of goods or cargo which was not covered under the policy. d. The learned trial Magistrate erred in law and in fact by entering judgment for the 1st respondent who had not produced any documentary evidence in support of its claim. https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/18321/eng@2025-11-24 3

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e. The learned trial Magistrate failed to critically analyse the case, applicable law and applicant’s submissions. 13. The appellant therefore prays that the appeal be allowed, the judgment of the trial court be set aside and be substituted with an order dismissing the 1st respondent’s case and the court to issue such further orders and directions as it may deem fit in the interest of justice. 14. The appeal was disposed of on the written submissions filed by learned counsels for the appellant and the 1st respondent. The other respondents did not participate in the appeal. 15. Learned counsel for the appellant submits that one question is at the centre of the appeal, that is, whether the contract of insurance was breached, and if so, by which party? He then summarized the grounds of appeal into three issues for determination as follows: a. Whether the trial court erred in failing to find that the company was entitled to repudiate the policy on the grounds of non-disclosure of material facts. The case of William Kazungu Karisa v Cosmus Angore Chanzera [2006] KEHC 1974 (KLR) is cited to support that submission for the holding that the basic rule of the law of contract is that the parties must perform their respective obligation in accordance with the terms of the contract executed by them. b. Whether the trial court erred in the manner that he applied the doctrine of utmost good faith and in failing to find that the 1st respondent breached the doctrine. In support thereof the case of Sita Steel Rolling Mills Ltd v Jubilee Insurance Co. Limited [2007] KEHC 2192 (KLR) c. Whether the trial Magistrate critically analyzed the case while making the award on damages and whether it was proved on a balance of probability that the award of damages was properly due to the 1st respondent. The appellant submits on this point that the insured value of the vehicle at the time of the theft was Kshs 4,250,000/= as per the pre-insurance vehicle inspection report produced in evidence and not Kshs 4,675,500/= which was for a policy that had expired earlier. 16. The appellant submits that in any case the pre-theft value was also subject to excess of 25% and that is what would be due to the 1st respondent if the claim was successful. 17. The appellant submits that the insurance cover did not include loss of goods in transit and the sum of Kshs 520,000/= awarded by the trial court was erroneous as the 1st respondent had failed to insure cargo in transit. 18. On its part, the 1st respondent also paused three issues for this court’s determination as follows. a. Whether the learned Magistrate erred in law and in fact by finding that the actions of the 1st respondent antecedent to the theft exposed the insured vehicle to risks. Here the 1st respondent’s argument is that at the time of the theft the motor vehicle was ferrying goods belonging to the 1st respondent and not for hire and reward. b. Whether the learned Magistrate erred in the manner he applied the doctrine of utmost good faith and whether the 1st respondent had breached the doctrine. https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/18321/eng@2025-11-24 4

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The case of Elius Gachii Karanja vs Concord Insurance Company Limited [1997] KEHC 49 (KLR) is cited where the High Court was dealing with an issue almost on all fours with the present case and allowed the claim for indemnity by the insured against the insurance company. It is further submitted that the appellant had failed to demonstrate that it had suffered as a result of non-disclosure or misrepresentation of material facts, it at all. The case of Moses Odhiambo Kokelo v Apollo Insurance [2005] KEHC 21 (KLR) was cited in support of that submission. b. Whether the learned Magistrate erred in failing to apply the policy conditions in relation to excess and entering judgment for loss of goods/cargo. The 1st respondent submits that it was the negligence of the appellant in failing to pay the subscription for the tracking device that occasioned the loss both of the vehicle and the cargo and so the appellant cannot hide behind the policy to escape liability to settle the claim. It is the 1st respondent’s contention that according to the agreement between the parties, upon paying the premiums, which the 1st respondent asserts that it did, it was upon the appellant to pay for the subscription. In failing to so pay the 1st respondent submits that the appellant breached its duty of care owed to it. The appellant had asserted in its letter of 8th February repudiating the contract that it had renewed the subscription for the tracking device when in fact it had not. Further that the policy for the insurance provided that in case of theft while fitted with a tracking device from the appellant’s appointed provider the 1st respondent would not pay anything excess cover. As for the compensation for loss of goods the 1st respondent submits that it produced evidence in the form of delivery notes and sales orders to prove the loss. 19. This being a first appeal, the duty of the court is to consider, re-evaluate, re-analyze the evidence and draw its own conclusions, bearing in mind that it did not see witnesses testifying and therefore give due allowance for that. See for example Selle & another vs. Associated Motor Boat Co. Ltd & others [1968] EA at page 126 and Peters vs. Sunday Post Limited (1968) EA 123. (1956) EA page 424. 20. I have considered the case by each of the parties before the trial court including the pleadings, the evidence tendered and the submissions by learned counsels. I have also reviewed the judgment of the trial court, considered the grounds of appeal herein and the submissions by learned counsels. The point for determination is whether, in allowing the 1st respondent’s case against the appellant, the learned trial Magistrate made a correct finding on the facts and the law presented to her. In Wareham t/a A.F. Wareham & 2 Others Kenya Post Office Savings Bank [2004] 2 KLR 91, the Court of Appeal stated in this regard that: “ We have carefully considered the judgment of the superior court, the grounds of appeal raised against it and the submissions before us on those matters. Having done so we are impelled to state unequivocally that in our adversarial system of litigation, cases are tried and determined on the basis of the pleadings made and the issues of fact or law framed by the parties or Court on the basis of those pleadings pursuant to the provisions of Order XIV of the Civil Procedure Rules. And the burden of proof is on the Plaintiff and the degree thereof is on a balance of probabilities. In discharging that burden, the only evidence to be adduced is evidence of existence or non-existence of the facts in issue or facts relevant to the issue. It follows from those principles that only evidence of facts pleaded is to be admitted and if the evidence does not support the facts pleaded, the party with the burden of proof should fail.” https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/18321/eng@2025-11-24 5

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21. An appellate court will not ordinarily interfere with a finding of fact made by a trial court unless such finding was based on no evidence, or it is demonstrated that the court below acted on wrong principles in arriving at the finding it did. See Ephantus Mwangi & Another vs Duncan Mwangi Wambugu [1982 – 1988] 1KAR 278). 22. The 1st respondent’s claim before the trial court was that the appellant had breached the contract of insurance by failing to settle the claim for theft of the vehicle and the goods being transported therein after the theft had occurred. The appellant on its part maintained that the 1st respondent was in breach of the principle of utmost good faith for failing to disclose in the proposal form that it would be using the vehicle for hire and reward and therefore it was entitled and did avoid settlement of the claim. 23. If at all it was established that the 1st respondent had breached the principle of utmost good faith, then the policy was voidable at the instance of the appellant. 24. In the case cited by the appellant of Sita Steel Rolling Mills Ltd v Jubilee Insurance Co. Limited [2007] KEHC 2192 (KLR), the High Court, Maraga, J. (as he then was) made a considerable exposition of the principle when he stated thus: “ … I would like to state that the contract of insurance is perhaps the best illustration of a class of contracts described as uberrimae fidei, that is, of the utmost good faith. That being so the potential parties to such contract are bound to volunteer to each other, before the contract is concluded, information that is material. This principle imposes on the proposer or insured the duty to disclose to the insurer, prior to the conclusion of the contract, but only up to that point, all material facts within his knowledge that the latter does not or is not deemed to know. A failure to disclose however innocent, entitles the insurer to avoid the contract ab initio and upon avoidance it is deemed never to have existed – Mackender –vs- Feldia AG [1967] 2 QB 590. The rationale for this rule was stated by Lord Mansfied in the old English case of Carter vs- Boehm (1766) 3 Burr. 1905 thus: “Insurance is a contract upon speculation. The special facts, upon which the contingent chance is to be computed, lie most commonly in the knowledge of the insured only: the underwriter trusts to his representation, and proceeds upon the confidence that he does not keep back any circumstance in his knowledge, to mislead the underwriter into a belief that the circumstance does not exist, and to induce him to estimate the risqué as if it did not exist.” There can be no doubt therefore that the contract of insurance is a special one in terms that Lord Mansfield expressed but it is important to remember that the case of Carter –vs- Boehm in which he formulated those terms involved a contract entered into at a time when communications were poor and insurers were not equipped with means of easily discovering all the information they needed to know by asking the proposer questions (emphasis by underlining mine). I will in due course revert to this point. At this stage what I need to add is that because the duty of disclosure arises by law and not as a term of the contract, whether or not the proposer knows that he is under duty to disclose is totally irrelevant. Innocent non-disclosure is as actionable as negligent non-disclosure or fraudulent concealment. It must, however, be emphasized that it is only actual knowledge of those facts that imposes the duty to disclose. As was stated by Moulton LJ in Joel -vs- Law Union and Crown Insurance Co. [1908] 2 KB 863 at p. 884:“ The duty is a duty to disclose, and you cannot disclose what you don’t know. The obligation to disclose, therefore, necessarily depends on the knowledge you possess.” https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/18321/eng@2025-11-24 6

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25. One thing that I have found quite unappealing on the part of both parties in this case is that neither of them produced a current proposal form completed by the 1st respondent for the period in issue. Both of them relied on the proposal form dated 5th March 2014 the duration of whose insurance cover was 6th March 2014 to 5th March 2015. The incident of theft occurred on the night of 14th and 15th October 2016, outside the period of cover indicated in the proposal form produced in evidence as exhibit. Somehow, both parties agreed that the insurance cover was in force and so nothing turns on the failure to produce the correct proposal form. 26. PW 1 denied in his evidence in chief that the 1st respondent was ever issued with the insurance Proposal Form nor Policy and stated that he never signed the same. 27. During examination in chief, he referred to the letter of certification by CIC Insurance Group to the managing director Co-operative Bank dated 11th March 2014 as though this was the policy of insurance when it was not. For instance, while referring to that certification, he pointed to paragraph 2 which had the provision for “Goods Type Serial No.” filled as N/A and stated that the vehicle could carry any type of goods and another provision therein that the vehicle/goods described therein were comprehensively insured for all risks for his thinking that this referred to the extent of cover for the vehicle and goods in transit. That was not correct because that document was neither the insurance policy nor the proposal form which contained the terms of the contract with the appellant. 28. When he referred to the proposal form he said that the proposer was himself but denied that he and his co-director were the ones who executed the document. He stated that they received the proposal form after the vehicle was stolen when the appellant forwarded the document to them and noted that his signature and that of his co-director who was also his brother had been forged. He therefore denied that it was their document. In cross-examination he conceded that he was provided with a proposal form for the cover of the motor vehicle and that he signed it. 29. I find from the foregoing that PW 1 was not consistent on this issue, denying in evidence in chief and accepting in cross-examination in his evidence that he was aware of the proposal form. Moreover, allegations of forgery are serious and proof of the same is on a standard beyond a balance of probability but below a reasonable doubt. I do not find that standard to have been met in this case. I am satisfied that the directors of Chuka Farmline Stores signed the proposal form which was produced in the case as an exhibit. 30. As stated in the Sita Steel Rolling Mills Ltd case (supra) the utmost good faith principle starts to apply from the information provided at the time of completing the proposal form so that there is no misrepresentation as to what use the vehicle will be put, through the period of the cover and extending to the claims process whereby the insured is required to act honestly and not make fraudulent claims or misrepresent facts related to the loss. Therefore, contrary to the argument by the 1st respondent, the principle goes beyond the material time that the insured risk arises. 31. It is the appellant’s contention that the 1st respondent by filling in the proposal form that the usage of the motor vehicle was “carriage of own goods” and then going ahead to use the vehicle for hire and reward was inaccurate and dishonest of the 1st respondent. Indeed, it appears quite obvious that the director of the 1st respondent knew very well that the vehicle would be used for hire and reward and especially for purposes of ferrying bananas in order that the 1st respondent would obtain some money to fuel the vehicle. This is evident from the fact that PW 1 said that this was not the first commercial vehicle owned and operated by the 1st respondent. PW 1 conceded that he was and therefore the 1st respondent was aware that the vehicle was being used for hire and reward. PW 1 said that he was very https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/18321/eng@2025-11-24 7

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much aware of the same and it seemed obvious to him that the driver of the vehicle would obtain such jobs in order to raise funds to fuel the vehicle. 32. Therefore, the appellant argues that had it known that the vehicle would be used for hire and reward, the premiums would have been different and higher due to the high risk exposure. 33. In the case of Invesco Assurance Co. Ltd v Granata Ernesto (suing as Attorney of Denise Granata) [2018] KECA 19 (KLR) the Court of Appeal held that: “ … the legal position is that where an insurer feels that there was material misrepresentation and/or non-disclosure by the insured, the duty is upon the insurer to prove not just the misrepresentation or non-disclosure, but also that the same induced him to enter into the contract to his detriment.” 34. In the present case, it is the appellant insurer’s position that the non-disclosure by the 1st respondent that it would be using the vehicle for hire and reward caused it to set lower premiums than it would. The issue then is whether the non-disclosure induced it to enter into the contract so that if it had known the true state of facts it would have declined to enter into the contract or only that it would still have entered into the contract but on higher premiums. 35. PW 1 said in his evidence that he had never been issued with the policy document of insurance. In cross-examination he maintained that he had never been provided with the policy document and he had never read it. He said he thought that the vehicle was fully covered. 36. The appellant never rebutted the evidence by PW 1 that the appellant never forwarded to Chuka Farmline Stores the policy of insurance. I am inclined to believe the evidence of PW 1 that the appellant never provided the policy of insurance, which it produced in this case as exhibit, to the 1st respondent. It was the policy of insurance that provided in clause 12 on limitation of own use cover that the policy did not cover use for inter alia carriage of passengers or goods for hire and reward. There is no evidence of delivery of the same to the 1st respondent. In that case, he was not expected to know the clauses in it. 37. Another issue is that the appellant has not showed that if the 1st respondent had disclosed that it would be using the vehicle for hire and reward, a purpose other than the one for which it was insured; it would have set higher premiums or it would have declined to insure the risk at all. There was no indication that the non-disclosure induced the appellant to enter into the contract on the terms that it did and not otherwise. When DW 3 gave evidence, she did not state which higher premiums are applicable to vehicles that are used for hire and reward. That left its contention as mere speculation without proof. See the case of Elius Gachii Karanja vs Concord Insurance Company Limited [1997] KEHC 49 (KLR). 38. Thirdly, as fervently argued by the 1st respondent both in evidence and in submissions, the vehicle at the time of theft was not being used for hire and reward. There is uncontroverted evidence that it was carrying the 1st respondent’s goods from Nairobi to Chuka. 39. Therefore, the theft occurred whilst the vehicle was in use for a purpose for which it was insured and therefore permitted by the policy in this case as carriage of the owner’s own goods. The fact that the vehicle had been used earlier on for hire and reward and that the 1st respondent was aware of the same and permitted his regular driver to raise money by using the vehicle as such does not mean that the theft took place whilst the vehicle was in such use (see the case of Heritage Insurance Co. Limited v Alex N. Migore [2009] KEHC 198 (KLR)). 40. In the light of the foregoing, the answer here is that there is no evidence which proved on a balance of probability that the vehicle was being used for hire and reward at the time of the theft. There was no https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/18321/eng@2025-11-24 8

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breach of the condition as to user which was proven. It follows that the appellant was not entitled to repudiate the policy on this ground. 41. Sir Charles Newbold P in Damondar Jihabhai and Co Ltd and another v. Eustace Sisal Estates Ltd [1967] EA 153 emphasised that the function of courts is to enforce and give effect to the intention of the parties as expressed in their agreement. 42. Further in the case of National Bank of Kenya Ltd v Pipeplastic Samkolit (K) Ltd & another [2001] KECA 362 (KLR) it was held that, “ A Court of law cannot re-write a contract between the parties. The parties are bound by the terms of their contract, unless coercion, fraud or undue influence are pleaded and proved.” 43. And this was reiterated in the case of Pius Kimaiyo Langat v Co-operative Bank of Kenya Limited [2017] KECA 152 (KLR) that: “ … it is not the business of courts to rewrite contracts between parties. They are bound by the terms of their contracts, unless coercion, fraud or undue influence are pleaded and proved.” 44. There being no breach of the terms of the contract of insurance between othe appellant and the 1st respondent it follows that the 1st respondent was under obligation to settle the claim for theft of the vehicle by Chuka Farmline Stores. 45. I agree with the appellant that the learned trial magistrate did not consider the principle of utmost good faith in insurance law as stated above. All the same, he arrived at the correct decision and the same cannot be faulted. 46. On the issue of excess cover, the same came into play on determination of whether or not the 1st respondent had a vehicle tracking device installed. Indeed, the vehicle had a vehicle tracking device installed. However, the same was not functioning because the subscription had not been renewed. PW 1 gave evidence that it was its agreement with the appellant that once the premiums for the insurance were paid, the appellant would pay for the subscription. DW 3 tried to deny that she was not aware of the existence of Track and Trace but afterwards she conceded that indeed it had an arrangement with the appellant on the issue of fitting the vehicle with a tracking device. Once again the evidence of the 1st respondent that it was not the one liable to directly pay for the subscriptions remained uncontroverted. 47. Consequently, the contention by the appellant that in case the claim was to be paid, it would be less 25% as the excess cover has no basis. It has itself to blame for failing to renew the subscription for the vehicle tracking device. 48. I however agree with the appellant that the respondent failed to prove that the comprehensive insurance cover also provided for cover for goods in transit which ordinarily would require its own cover. 49. I am however satisfied that the amount recoverable by the 1st respondent was Kshs 4, 250,000/= as per the pre-insurance vehicle inspection report dated 17th February 2015 from Auto-Mobile Association of Kenya. The value that was relied upon by the 1st respondent was the initial purchase value in 2014 at the time of issuance of the first insurance cover for the vehicle but this was not the value applicable at the time of the theft. 50. I therefore find that the learned trial court was correct in its findings and conclusion that the 1st respondent had proved its case on a balance of probability so as to entitle it to the claim as pleaded save for the value of the vehicle at the time of theft and the value of the goods lost in transit. https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/18321/eng@2025-11-24 9

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51. Consequently, I find the appeal has merit and is partially allowed. The judgment of the trial court allowing the respondent’s entire claim is hereby set aside and substituted with a judgment allowing the claim to the extent explained above, that is for the sum of Kshs 4,250,000/= together with interest at court rates from the time of filing suit. 52. Since the appeal is successful only to some extent the appellant will pay half of the costs of the appeal to the 1st respondent. 53. Orders accordingly. DATED, SIGNED AND DELIVERED ON THE VIRTUAL PLATFORM TEAMS THIS 24TH DAY OF NOVEMBER, 2025. ................................................................ ANDAYI W. F. JUDGE In the presence of: Jayo (Ms) for the Appellant. Kipngetich for the 1st Respondent. N/A for the 2nd and 3rd Respondents. Ummu h/b for Job: Court Assistant. https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/18321/eng@2025-11-24 10

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