Madison Insurance Company Limited v Elijah Nyoike Kibe

the Appellant to repudiate liability and avoid indemnifying the Respondent in respect of any claims arising from the accident. 5. The Respondent opposed the claim and maintained that the vehicle was not being used for commercial purposes at the time of the accident. His evidence was that the journey was a social trip undertaken by friends travelling from Nairobi to Meru to visit an ailing acquaintance. He explained that the contributions made by the passengers were merely towards fuel and incidental travel expenses and did not amount to payment of a transport fare or consideration for carriage. 6. After hearing the evidence and considering the respective submissions, the learned trial magistrate dismissed the Appellant’s suit. The court found that although the Appellant had raised suspicion regarding the use of the vehicle, it had failed to prove, on a balance of probabilities, that the vehicle was being operated for hire and reward contrary to the terms of the insurance policy. 7. Aggrieved by that decision, the Appellant lodged the present appeal challenging the findings of the trial court and contending that the evidence on record sufficiently established that the insured vehicle was being used for commercial purposes outside the scope of the policy. 8. The Appellant raised several grounds of appeal which, although differently worded, revolve around the central complaint that the learned trial magistrate erred in finding that the alleged breach of the insurance policy had not been proved. 9. In summary, the Appellant contended that the learned magistrate erred in law and fact by failing to appreciate that the Respondent had breached the express terms of the insurance policy by allowing the insured vehicle to be used for hire and reward. The Appellant further faulted the trial court for failing to properly evaluate the investigation report and the testimony of its witnesses, particularly the evidence demonstrating that the vehicle was allegedly operating as a commercial transport vehicle. 10. It was also argued that the learned magistrate applied an unnecessarily high evidential threshold and failed to appreciate that the circumstances surrounding the accident, including the mileage travelled, the nature of the passengers’ contributions and the Respondent’s previous use of the vehicle for commercial purposes, cumulatively established a breach of the policy. 11. The Appellant further contended that the Respondent had obtained private insurance cover through misrepresentation and non-disclosure of material facts and was therefore not entitled to indemnity under the policy. 12. This being a first appeal, this Court is required to reconsider and re-evaluate the evidence presented before the trial court and to draw its own independent conclusions. However, in undertaking that mandate, the Court must bear in mind that it neither saw nor heard the witnesses testify and must therefore accord appropriate respect to the findings of fact made by the trial court. 13. The principles governing the exercise of appellate jurisdiction in such circumstances are well settled. In Selle & Another v Associated Motor Boat Company Ltd & Others [1968] EA 123, the Court of Appeal stated: “ An appeal to this Court from a trial by the High Court is by way of retrial, and the principles upon which this Court acts in such an appeal are well settled. Briefly put, they are that this Court must reconsider the evidence, evaluate it itself and draw its own conclusions though it should always bear in mind that it has neither seen nor heard the witnesses and should make due allowance in this respect.” https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/13159/eng@2026-07-29 2

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14. Similarly, in Peters v Sunday Post Ltd [1958] EA 424, the Court held that an appellate court will not ordinarily interfere with findings of fact by a trial court unless it is satisfied that the trial court failed to consider relevant evidence, considered irrelevant matters, misapprehended the evidence, or arrived at a plainly wrong conclusion. 15. This Court is therefore enjoined to undertake a fresh examination of the evidence, while respecting the advantage enjoyed by the trial court in assessing the credibility and demeanour of witnesses. Having considered the record of appeal, the proceedings before the trial court, the grounds of appeal and the submissions by counsel, the Court shall determine whether the Appellant proved that the Respondent breached the insurance policy by using the vehicle for purposes outside the insured risk. 16. Upon considering the pleadings, the evidence and the submissions made by the parties, the following issues arise for determination: a. Whether there existed a valid contract of insurance between the Appellant and the Respondent in respect of motor vehicle registration number KCK 318V; b. Whether the insurance policy restricted the use of the vehicle to social, domestic and pleasure purposes and excluded use for hire and reward; c. Whether the Appellant proved, on a balance of probabilities, that the Respondent breached the policy by using the insured vehicle for commercial purposes; d. Whether the Appellant was entitled, in the circumstances of this case, to repudiate liability under the insurance policy; Whether There Existed a Valid Contract of Insurance Between the Parties 17. It is not disputed that the Appellant issued a comprehensive motor vehicle insurance policy in favour of the Respondent in respect of motor vehicle registration number KCK 318V, Toyota Noah. Both parties expressly admitted the existence of the policy. The Appellant accepted the risk, received the requisite premium and issued the relevant insurance documentation. Accordingly, there existed a valid contract of insurance between the parties. 18. Like every other contract, an insurance contract is founded upon the ordinary principles of offer, acceptance and consideration. However, insurance contracts possess a unique characteristic arising from the nature of the relationship between the insurer and the insured. They are contracts founded upon the principle of utmost good faith (uberrimae fidei), under which both parties are expected to act with complete honesty and disclose material facts relevant to the assessment of risk. 19. The classic statement of this principle is found in Carter v Boehm (1766) 3 Burr 1905, where Lord Mansfield observed: “ Insurance is a contract of speculation. The special facts upon which the contingent chance is to be computed lie most commonly in the knowledge of the assured only…” 20. The rationale behind this doctrine is that the insurer ordinarily relies upon information supplied by the insured when determining whether to accept a risk, the premium payable and the terms upon which cover will be extended. Consequently, concealment or misrepresentation of material facts may entitle an insurer, in appropriate circumstances, to avoid liability. https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/13159/eng@2026-07-29 3

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21. In Co-operative Insurance Company Ltd v David Wachira Wambugu [2010] eKLR, the court affirmed that an insured has a duty to disclose material facts which would influence a prudent insurer in determining whether to undertake the risk. 22. However, while the doctrine of utmost good faith imposes significant obligations upon an insured, it does not absolve an insurer from proving allegations upon which it seeks to avoid contractual liability. The insurer remains bound by the fundamental evidential principle that a party who alleges the existence of a fact bears the burden of proving it. 23. The central question in this appeal is therefore not whether the Respondent owed a duty of good faith when obtaining the policy. That proposition is not contested. The real question is whether the Appellant proved that, at the time of the accident, the Respondent had used the insured vehicle in a manner contrary to the policy terms by operating it for hire and reward. Whether the Policy Excluded Use for Hire and Reward 24. The Appellant’s principal argument was that the policy issued in respect of motor vehicle registration number KCK 318V was a private motor vehicle policy which expressly restricted the use of the vehicle to social, domestic and pleasure purposes. According to the Appellant, the policy did not extend to commercial carriage of passengers, and any such use amounted to a fundamental breach entitling the insurer to repudiate liability. 25. There is no controversy regarding the legal effect of such a contractual limitation; Parties to an insurance contract are bound by the terms to which they have voluntarily agreed. An insurer undertakes to indemnify the insured only in respect of risks falling within the scope of the policy, and an insured cannot extend the risk beyond the contractual agreement without exposing himself to the consequences provided for under the policy. 26. In Madison Insurance Company Limited v Solomon Kinara t/a Soko Transporters & Another [2019] eKLR, the Court of Appeal emphasised that the contractual obligations between an insurer and an insured are derived from the policy document itself. The Court held that the policy document defines the nature and extent of the risk undertaken by the insurer and the obligations imposed upon the insured. 27. In the present case, the policy document produced before the trial court provided that the vehicle was insured for private purposes and specifically excluded: “ Use for hire or reward, commercial travelling, carriage of goods in connection with any trade or business or use for any purpose in connection with the motor trade.” 28. It follows that if the Appellant established that the Respondent had permitted the vehicle to be used for commercial carriage of passengers in exchange for payment, such use would fall outside the scope of the insured risk. The insurer would then be entitled to rely upon the policy exclusion, subject to proving the alleged breach. 29. The issue, therefore, is not whether commercial use was excluded by the policy. The policy terms are clear. The decisive question is whether the Appellant proved that the vehicle was actually being used for such excluded purposes on the date of the accident. https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/13159/eng@2026-07-29 4

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Whether the Appellant Proved Use of the Vehicle for Hire and Reward 30. The burden of proving the alleged breach of the insurance policy rested upon the Appellant. While the Respondent was under a duty of utmost good faith, including full disclosure of all material facts at the inception of the insurance contract, once the Appellant asserted that the insured vehicle was being used in a manner falling outside the permitted scope of cover, the evidential burden lay upon the Appellant to prove that allegation on a balance of probabilities. This is because the party alleging a breach of an insurance policy bears the legal burden of establishing the facts constituting that breach. 31. Section 107 of the Evidence Act, Cap 80 Laws of Kenya provides: “ Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist.” 32. The Appellant was therefore required to demonstrate, on a balance of probabilities, that the Respondent had breached the policy by using the vehicle for commercial passenger transportation. It was not sufficient to show circumstances that merely raised suspicion. The evidence had to establish that the more probable explanation was that the vehicle was being operated for hire and reward rather than for private purposes. 33. In support of its case, the Appellant relied principally upon three categories of evidence: a. the investigation report prepared by Leon Private Investigation Agency; b. the testimony of PW1, an officer of the Appellant; and c. the testimony of PW2, the investigator who participated in the investigations and adopted the report. 34. The Appellant submitted that when the evidence was considered cumulatively, it demonstrated that the vehicle was not being used privately but was instead operating as a commercial transport vehicle. The Court has carefully considered each aspect of that evidence. 35. The central pillar of the Appellant’s case was the investigation report prepared after the accident. The Appellant relied upon several observations contained in that report as proof that the vehicle was being operated commercially. 36. First, the investigators analysed the mileage of the vehicle and concluded that it had travelled approximately 130 kilometres per day over a period of 57 days. The Appellant argued that such extensive mileage was inconsistent with ordinary private use and was indicative of a vehicle being operated as a taxi. 37. Secondly, the investigators stated that one of the passengers, John Machina Mathenge, informed them that each passenger had contributed Kshs. 1,100 towards the journey. The Appellant relied on this alleged contribution as evidence that the passengers had paid a fare. 38. Thirdly, the report referred to the fact that the Respondent owned another motor vehicle, registration number KCL 357Y, which was allegedly used for taxi operations. The Appellant argued that this demonstrated that the Respondent was engaged in commercial transport activities and that the Toyota Noah was similarly being operated commercially. 39. Finally, the investigators relied upon Safaricom call records and M-Pesa statements which they stated showed no prior communication or financial relationship between the Respondent and the driver, https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/13159/eng@2026-07-29 5

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Benson Njagi Maina. The Appellant argued that the absence of such a relationship suggested that the Respondent had hired the driver for commercial purposes. 40. The Court accepts that circumstantial evidence may, in appropriate cases, establish a fact in issue. It is not a requirement that every breach of an insurance policy must be proved through direct evidence. Commercial activity may, in certain circumstances, be inferred from surrounding facts and conduct. 41. However, circumstantial evidence must meet the necessary threshold of reliability. The circumstances relied upon must be sufficiently cogent and must point more strongly towards the alleged conclusion than towards any reasonable alternative explanation. 42. Having carefully considered the evidence placed before the Court, it is apparent that the material relied upon by the Appellant did not sufficiently establish the specific allegation that the insured vehicle was being used for hire and reward. In several respects, the evidence remained inconclusive or incomplete and was therefore of limited probative value in proving the alleged breach of the policy. 43. The Appellant’s significant contention was that the passengers who were travelling in the vehicle had paid money for the journey and that such payment constituted hire and reward within the meaning of the insurance policy. The Appellant relied on the investigation report which attributed this information to one John Machina Mathenge, alleged to have been a passenger in the vehicle at the time of the accident. 44. According to the Appellant, the fact that each passenger allegedly contributed Kshs. 1,100 demonstrated that the vehicle was not being used for a purely private journey but was instead operating as a commercial transport vehicle. 45. It is noteworthy that John Machina Mathenge, whose alleged statement formed part of the Appellant's evidential basis, was not called to testify before the trial court. As a result, the contents of the alleged statement were not subjected to the ordinary processes of examination and cross-examination, a factor that the Court must take into account in assessing its probative value. 46. The investigator could properly testify regarding matters within his own knowledge, including the steps he undertook during the investigation and the documents he reviewed. However, he could not, without the testimony of the person who allegedly made the statement, convert an unverified assertion into proof of the fact asserted. 47. The Court is therefore unable to place substantial reliance upon the alleged statement attributed to John Machina Mathenge. While the investigation report was admissible as evidence of the investigation undertaken, the contents of statements made by third parties remained subject to proof in the ordinary manner. 48. The Appellant’s case was therefore left dependent upon an inference that because passengers contributed money towards the journey, the vehicle must have been operating commercially. That inference, however, does not necessarily follow. 49. The Court must therefore consider whether the Respondent’s explanation was reasonably probable when weighed against the evidence presented by the Appellant. 50. The record shows that the Respondent admitted that he had previously used the vehicle for Uber operations. He explained that he had changed the insurance cover from PSV/commercial use to private use in late 2018 due to regulatory requirements affecting PSV vehicles. https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/13159/eng@2026-07-29 6

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51. The Respondent further explained that he owned another vehicle, registration number KCL 357Y, which was used for taxi operations. The Appellant relied on this fact to suggest that the Respondent was engaged in commercial transport generally. 52. However, ownership of a commercial vehicle does not, without more, establish that every vehicle owned by the same person is also being operated commercially. Each insured vehicle must be considered independently based on the evidence relating to its actual use. 53. The Court therefore finds that the Respondent’s explanation regarding the purpose of the journey was not displaced by the Appellant’s evidence. The possibility that the passengers were merely sharing expenses remained a reasonable and probable explanation. 54. The Appellant relied upon the testimony of PW1, its legal officer, and PW2, the investigator from Leon Private Investigation Agency. Since the Appellant’s decision to repudiate the policy was founded primarily upon the investigations conducted after the accident, the reliability and weight of this evidence requires careful examination. 55. PW1 testified that after receiving the investigation report, the Appellant formed the view that the Respondent had breached the policy conditions by using the vehicle for purposes other than those permitted under the policy. He stated that the Appellant thereafter repudiated liability and communicated that decision to the Respondent. 56. However, PW1 did not produce the alleged repudiation letter before the trial court. He also did not produce evidence demonstrating when or how the alleged repudiation was communicated to the Respondent. 57. This omission is material because the Court was not placed in a position to examine the precise basis upon which the Appellant purported to avoid liability. The contents of the alleged repudiation, the allegations communicated to the Respondent and the reasons relied upon by the Appellant remained unclear. 58. It is acknowledged that an insurer is entitled, under the terms of an insurance contract, to investigate suspected breaches and to take appropriate contractual action. However, the exercise of that contractual right must be based upon reliable evidence demonstrating that the insured risk has in fact been exceeded. 59. An insurer cannot avoid liability merely because circumstances surrounding an accident create suspicion. A repudiation founded upon allegations of breach must rest upon facts capable of establishing the breach alleged. PW2, the investigator, testified that he had approximately twenty years’ experience in investigations and adopted the investigation report as his evidence. The Appellant urged the Court to treat PW2 as an expert witness and to accord considerable weight to his conclusions. 60. During cross-examination, PW2 admitted that there were no receipts, M-Pesa records, booking records or other documentary evidence demonstrating that passengers had paid fares for transportation. PW2 conceded that his conclusion that the vehicle was being used commercially was substantially based on inference drawn from surrounding circumstances rather than direct evidence of commercial activity. 61. The Court appreciates that investigations often involve drawing conclusions from circumstantial evidence. However, where such conclusions are relied upon to avoid contractual liability on allegations of fraud or breach of policy conditions, the inferences must be firmly grounded in established facts. 62. The investigator’s conclusion that a vehicle travelling approximately 130 kilometres per day must necessarily have been engaged in commercial activity was, with respect, an assumption rather than a https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/13159/eng@2026-07-29 7

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demonstrated fact. The investigation did not establish that the vehicle operated along a commercial route, transported passengers at scheduled intervals, collected fares, advertised transport services or engaged in any activity associated with a commercial transport enterprise. 63. The report established that the vehicle travelled extensively. It did not establish the purpose of those journeys. That distinction is central to this appeal. The issue was not whether the vehicle had moved frequently, but whether it was being used for hire and reward contrary to the express terms of the insurance policy. 64. Having considered the evidence of PW1 and PW2, this Court finds that although the investigation raised legitimate questions regarding the vehicle’s past use and travel patterns, it did not provide sufficient evidence to prove that the vehicle was being operated commercially at the time of the accident 65. The Appellant further argued that the Respondent had obtained private insurance cover through fraudulent misrepresentation and non-disclosure of material facts. Its position was that the Respondent represented that the vehicle would only be used for private purposes while, in reality, he continued operating it for commercial passenger transport. 66. It is undoubtedly correct that insurance contracts are contracts of utmost good faith. An insured is required to disclose material facts which would influence a prudent insurer in deciding whether to accept a risk and on what terms. In Margaret Nduta Kamithi & George Njenga Kamithi v Kenindia Assurance Company Limited [2001] eKLR, the court recognised that suppression or concealment of material facts may, in appropriate circumstances, entitle an insurer to avoid liability. 67. However, the existence of the duty of disclosure does not mean that every allegation of non-disclosure automatically succeeds. The insurer must first establish the existence of the material fact allegedly concealed. In this appeal, the material fact alleged to have been concealed was that the vehicle would be used for commercial carriage of passengers. The Appellant’s argument depended on proving that the Respondent continued to operate the Toyota Noah commercially after obtaining private insurance cover. 68. Having carefully considered the evidence, this Court finds that the Appellant did not prove that fact. The evidence established that the vehicle had previously been used for Uber operations. It also established that the Respondent owned another vehicle which was used for taxi purposes. However, those facts do not necessarily establish that the Toyota Noah continued to be used commercially after the change of insurance cover. Previous commercial use does not inevitably prove subsequent commercial use. The relevant inquiry was not whether the Respondent had ever used the vehicle commercially, but whether he was doing so on 16th February 2019, the date of the accident. 69. The evidence before the Court showed that the Respondent had changed the insurance cover and that he maintained that the vehicle had ceased commercial operations. The Appellant did not produce sufficient evidence to displace that explanation. Consequently, the Court is unable to find that the Respondent obtained the policy through fraudulent concealment or misrepresentation. 70. The Appellant submitted that once it established a breach of the policy conditions, it was entitled to repudiate liability. The general legal position advanced by the Appellant is correct. Where an insured vehicle is used outside the scope of the insured risk, and such use amounts to a breach of the policy, an insurer may in appropriate circumstances avoid liability. 71. However, the right to repudiate does not arise merely because an insurer suspects that a breach may have occurred. Repudiation must be founded upon an actual and proven breach of the contractual terms. The foundation upon which the Appellant relied in avoiding liability was the allegation that the Respondent had used the vehicle for hire and reward. https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/13159/eng@2026-07-29 8

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72. The Court further notes that although an insurer is not required to conduct a formal trial before making a contractual decision regarding liability, fairness and good faith require that where avoidance is based on allegations of dishonesty, fraud or material misrepresentation, the insured should ordinarily be informed of the allegations and afforded an opportunity to respond. 73. The Respondent testified that he was not confronted with the investigator’s findings before the Appellant reached its decision to repudiate the policy. The Appellant did not produce any correspondence demonstrating that the Respondent was informed of the allegations or invited to provide an explanation. 74. This omission, by itself, may not necessarily invalidate a contractual repudiation. However, in the circumstances of this case, it reinforces the Court’s conclusion that the Appellant acted upon an investigation report whose conclusions were not sufficiently tested before liability was avoided. 75. Having reconsidered and re-evaluated the evidence as required of a first appellate court, this Court finds that the Appellant failed to prove, on a balance of probabilities, that the Respondent breached the insurance policy by using motor vehicle registration number KCK 318V for hire and reward. 76. The Court further finds that the Appellant failed to prove that the Respondent obtained the policy through fraudulent misrepresentation or non-disclosure of a material fact. The allegation that the Respondent continued to operate the vehicle commercially after obtaining private insurance cover remained unproved. 77. The evidence relied upon by the Appellant raised questions regarding the history and usage of the vehicle but did not establish the essential element of commercial carriage for reward. The Appellant’s evidence did not adequately address the distinction between sharing travel expenses and operating a commercial transport service. 78. Consequently, the Court finds that the learned trial magistrate arrived at the correct conclusion that the Appellant had failed to prove its declaratory claim. 79. Accordingly, the Court makes the following orders: i. The appeal herein is hereby dismissed. ii. The Respondent shall have the costs of this appeal DATED, SIGNED AND DELIVERED VIRTUALLY VIA MICROSOFT TEAMS AT MERU ON 29TH OF JULY 2026 DK RONO JUDGE https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/13159/eng@2026-07-29 9

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