Extract from Commercial Law in Zambia: Cases and Materials

(forthcoming) by Mumba Malila. (Unedited version, strictly for

private circulation)

Chapter Six - Insurance

6.1. Introduction: Nature and Definition
of Insurance
Commercial activity necessarily entails risks. Take a sale of
goods transaction, for instance; the seller may fail to deliver the
goods contracted to be sold, or the buyer may not pay, or the
goods may be delivered but they may be defective, or they may
fail to do the job for which they were bought, or the goods may
be delayed, lost or damaged in transit etc. In each of these
circumstances, there is some potential loss to one party or the
other. Even a seemingly straight forward commercial
arrangement like a mortgage, may present risks which the parties
may on face value take for granted. The mortgaged property may
be gutted down by accidental fire; the mortgagee may die as the
market value of the mortgaged property declines, etc.
Ordinarily, businesses seek to minimize risks by using
appropriate terms in their contracts with trading partners to
allocate particular risks between the contracting parties (eg
exclusion clauses which relocate risks).

At common law losses lie where they fall ie on the party liable.
In some cases the law may shift these losses from that party to a
wider group or to a person more able to pay. In this regard
arrangements are designed to protect the person who bears the
risk. The commonest and most efficient means of guarding
against risk is by insuring against it. A contract of insurance is
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effectively a contract by which a person pays someone else – the

insurer – to bear the risk. Insurance is in essence a risk sharing
devise.

An insurance contract may broadly be defined as an agreement

in which a person called the insurer agrees for consideration
called the “premium” to pay a sum of money or to provide
services for the benefit of another person called the insured or the
assured on the occurrence of a specified event whose happening
is uncertain. Sometimes contracts of insurance have been defined
as aleatory contracts because they depend on an uncertain event
or contingency.

6.2. Historical Development of Insurance.

Insurance as it is known today is largely associated with the

development in maritime commerce in Europe As was the case
with much of banking law, modern insurance law has its origins
in the crucible of practices of Italian merchants of the fourteenth
centaury who would arrange to insure their vessels and cargoes
against the risk of sea travel. It was these enterprising traders
from the thriving commercial cities of Northern Italy who
introduced into England the custom of insuring their marine into
ventures. A merchant or shipper who want to insure against
perils from the sea voyages would circulate among the merchants
gathered, a piece paper containing a description of the ship, its
cargo, the nature of the voyage, the character of the crew and the
name of the captain. It was under this information that those who
wished to become insurers would write their names and the
amount of the risk they were willing to assume, hence the term
‘under-writer’.

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Merchants would agree in return for a fee, to undertake a share of

the risk of their fellow merchant’s trading ventures. Besides the
fee, the merchants who partook in these insurance arrangements
naturally benefited from the fraternal links that such
arrangements brought forth.

Maritime risks and risk of losing ships and cargoes at sea

therefore precipitated the practice of medieval insurance and
dominated insurance for many years. Disputes arising out of
contracts of insurance were decided according to the prevailing
custom and practice of merchants. It was this mercantile custom
that became the foundation of all the laws and codes
subsequently enacted upon the subject of insurance1. However,
for many years after its introduction, the law of insurance was
unknown to the common law courts. The common law played
little or no part in the regulation of insurance disputes as most
insurance disputes were as a rule settled by arbitration of
mercantile men. In 1756 however, Lord Mansfield, upon being
appointed Chief Justice of Court of Kings Bench and during his
career as Judge, became conspicuous in making the contract of
insurance the subject of careful study. It was during this time
that, “from foreign ordinances, writings and usages of trade”,
Lord Mansfield drew and shaped the principles of insurance law2.

In 1601 merchants secured the establishment by statute of a

chamber of assurance that was outside the normal legal system.
Maritime insurance retained its prominent position for a long
time and in England from the later part of the seventeenth
centaury was increasing transacted at a coffee house in the city of
London owned by a man called Lloyd. The law of insurance

1
F Warner (ed) , Richards on the Law of Insurance, 5 th Edition, ( New
York; Baker Voorhis & Co. Inc., 1952) p52
2
Ibid.

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therefore formed part of the lex mercatoria and as with many

aspects of commercial law, and in particular the law relating to
banking and bill of exchange it was only in the eighteenth
centaury that insurance contracts came under the jurisdiction of
the common law courts.

The adage that necessity is the mother of invention, proved true

in the growth of insurance as it does in other spheres of life. A
number of events that happened in Europe acted as catalysts in
the growth of insurance. For insurance, the grate fire of London
of 1666 made the people aware of the kind of damage that could
be caused by fire and hence fire insurance came into being. The
aftermath of the first World War saw a gradual increase in the
number of vehicles on the British roads. Consequently, the
number of accidents also increased. As deaths caused by motor
vehicles increased, people became significantly concerned with
the need to mitigate the resultant loses. Social interest become
virtually concerned in two ways, first, the enormous amount of
injury caused by motor vehicles created a problem of
compensation which, because of its size, could hardly remain a
matter of individual concern; and second, resulting burden of
litigation and its consequence imposed a stain upon judicial
administration which threatened serious harm to the whole
institution. This meant that those injured through the fault of
motorists were not always able to obtain compensation because
the negligent motorist might have been uninsured and without
sufficient resources to pay damages. This was because at
common law a person injured by reason of another person’s
wrong doing has no right of action against insurance who have
undertaken to indemnify wrong doers; his only cause of action is
against the other person who has committed the wrong whether
the wrong whether the wrong falls to be regarded as a as a tort or

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as a breach of contract1. This position in the law led the British

Parliament to pass the Road Traffic Act, 1930 which made it
compulsory for every vehicle driver to have, or be covered by, an
insurance policy which covers him in respect of all liability for
the death of or bodily injury to any person caused by, or arising
out of, the use of the vehicle on the road. This Act imposed for
the first time in British history, a statutory obligation on the user
of all motor vehicles to provide security against their legal
liability for causing death of or bodily injury to third parties or
take out insurance cover for such liabilities.

6.3. The Emergence and Development of

Insurance Law in Zambia.
The history of insurance in Zambia dates back to the era of
colonial rule when Zambia was then known as Northern
Rhodesia. During that time there were a number of private
insurance companies that carried out insurance business. These
insurance companies were run by private individuals and were
largely controlled from Salisbury, in Southern Rhodesia. This
meant that the rules and requirements regulating insurance
practice were based on the various practices of the various
countries of origin of particular insurance companies, especially
those of England. In this regard the rules and practices of Lloyds
of London were of utmost importance in guiding the satellite
offices that were formed in Rhodesia. Insurance in Zambia
remained a matter of private enterprise for many years before
independence.

1
Cack & Shulam, “Study of Law Administration in Connecticut; in
Cases and Materials on Tort by H Shulam and FJames Jr (eds) Brookln
: The Foundation Press Inc., 1952 p 637

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After independence, however, in 1967 the Zambian Government

sought to acquire control over insurance business in the country.
It was argued that the prevailing system whereby the insurance
profits were externalized without due regard to the needs of the
less privileged and without much concern for national
development, was unsatisfactory. The Zambian President then,
Dr. Kenneth Kaunda put the position thus:

“… in order to avoid the possibility of the emergence of

local over mighty commercial barons… insurance…
would be under the local
forms of ownership, management and control …”1

This led the Zambian Parliament to pass the Insurance

Companies (Cessation and Transfer of Business) Act2 in 1970,
whose main aim was to introduce a national insurance business
solely carried out by the Zambia State Insurance Corporation.3 It
was anticipated that by passing this Act the services and facilities
of insurance would reach every Zambian including the less
privileged since there would be adequate and effective
supervision as insurance as it “would then be under the local
forms of ownership, management and control.” The formation of
the state owned monopoly, the Zambia State Insurance
Corporation was accompanied by a Presidential directive that
twenty six foreign based insurers should transfer their assets to

1
K.D. Kaunda, Humanism in Zambia, ( Lusaka: Government Printer,
1967) pp 63-64
2
The Chapter 711 of the Laws of Zambia. See Part 111 Section 4 (3)
which provides that, (after 31st December, 19971) no person other than
the Corporation shall carry on any insurance business, or enter into any
contract of insurance in Zambia.
3
Then Chapter 705 of the Laws of Zambia.

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the Corporation. Up until 1992, the Zambia State Insurance

Corporation remained the only institution permitted under
Zambian law to transact insurance business.

6.4.The Regulation of Insurance Business

in Zambia
Insurance in Zambia today is governed by the Insurance Act
Number 11 of 1997. The common law, no doubt continues to
play a significant part in insurance as it does in other spheres of
life. The present Insurance Act repealed the former Insurance
Act 1. The new Act was necessited by the imperious need to
strengthen control and regulation of the insurance industry
following the deregulation of the insurance market in 1992.
Many locally registered insurance companies came on the scene
bring about a competitive customer-oriented approach to the
market. In spite of the competition that liberalization brought
about, the market is fairly small. Most insurance companies
operating in Zambia are composite companies writing both life
and non life insurance business including pensions. The Pensions
and Insurance Authority is the body responsible for the
supervision of the insurance industry in the country. The
Pensions and Insurance Authority came into existence in 1997,
some five years after the liberalization of the insurance business
in Zambia. The Authority operates under the auspices of the
Minister of Finance. Although the Pensions and Insurance
Authority is outside the civil service, it does not have a distinct
legal personality, and therefore, operates essentially as an agency
of the Minister of Finance. The Registrar of pensions and
Insurance is appointed under the Pension Scheme Regulation

1
Chapter 392 of the laws of Zambia

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Act1 . His duties with regard to insurance are however outlined in

section 99 of the Insurance Act as follows;

“(l) The Registrar shall have the functions and powers conferred
on him by or under this Act or any other written law.

(2) Subject to this Act the duties of the Registrar shall include-

(a) the formulation and enforcement. of standards in the conduct

of the business of insurance with which a member of the
insurance industry must comply;

(b) directing insurers and re-insurer on the standardization of the

contracts of compulsory insurance;

(c) directing an insurer or a re-insurer where he is satisfied that

the contract of insurance issued by the insurer or re-insurer is
obscure or contains ambiguous terms or terms and conditions
which are unfair or oppressive to the policy-holders, to clarify,
simply, amend or delete the wording, terms or conditions, as the
case may be, in respect of future contracts;

(d) formulate standards for the conduct of insurance business:

(e) make recommendations to the Minister on any matter

affecting the insurance industry;

(f) advise the Government on adequate insurance protection and

national assets and properties; and

(g) perform such other functions as the Minister may assign to

him.

1
No. 26 of 1996

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(3) In the performance of his functions, the Registrar shall at all

times have regard to the need to-

(a) protect the rights, benefits and other interests of policy

holders and any beneficiaries of policies of insurance and:

(b) monitor the solvency insurance principles insurance business

of insurers and maintain sound insurance principles and practice
in the conduct of insurance business

(4) The Registrar shall as soon as reasonably practicable after

each year ending on 31st December, furnish to the Minister a
report on the working of this Act during that year.

It will be seen from this provision that the Registrar’s duties and
functions include the formulation and enforcement of standards
in the conduct of the business of insurance which members of the
insurance industry must conform with.

Licensing of insurers is done by the Pensions and Insurance

Authority. In terms of section 4 of the Act, no insurance business
can be undertaken in Zambia without a license issued under the
Act. This requirement is curiously repeated in section 11 of the
Act. By section 10 of the Act, a company desiring to carry on
insurance business in Zambia is required to submit to the
Registrar; the Articles of the company; a statement of assets and
liabilities; details of share capital; financial projections; copies of
all documentation to be issued to policy holders including
policies and proposal forms, and such other documents and
information as the Registrar may require.

The Registrar issues a licence which is valid for one year but
subject to renewal.

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The Minister of Finance is empowered by section 41 to prescribe,

by statutory instrument, the minimum paid-up share capital to be
maintained by a licensed insurer. Insurers are obliged under
section 45 to submit solvency statements within ninety days after
the end of each financial year. Section 67 empowers the Registrar
to require the insurer to to maintain assets of such value as
appears desirable to ensure that the insurer is able to meet his
obligations. Section 45 requires insurers , within ninety days after
the end of each financial year to file audited insurance accounts
prepared in accordance with the regulations These capital
adequacy and solvency requirements are intended to safeguard
the interests of the insuring public

The Registrar has vast powers to met out disciplinary sanctions

on erring members of the insurance industry. These include
power to suspend, revoke, or refuse to renew a license held under
the Act.

6.5. Formation and formalities of the

insurance contract
The process of formation of a contract of insurance is the
elementary general contract law process of offer and acceptance;
the offer being contained, usually but by no means necessarily,
in the proposal form. The contract must be supported by
consideration and intention to create legal relations.
Consideration and intention are often satisfied almost
automatically and consideration of these two elements of the
contract of insurance is, therefore, hardly necessary.

Offer and Acceptance

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The learned authors of MacGillivray and Parkington on

Insurance Law1 explain the formation of a contract in the
following terms.

“ In order that the building contract shall be concluded

there must be an offer put forward by one party to the
contract and acceptance of it by the other. An offer is
usually made by the proposer who completes a proposal
form and sends to the insurers for their consideration.
Counter proposals may however be made by the insurers
so that negotiations may end with the insurers making a
final offer of insurance cover to the applicant which is up
to him to accept by for instance tendering the premium
due.”

In much the same way, Lowe2 explains that:

“The usual procedure followed is for the person seeking

insurance to complete a proposal form which is then submitted to
the insurers. If they reject the proposal, there is no contract. If
they accept it a contract may come into existence but the precise
moment at which it does so is essentially a question of
construction of the relevant documents. Thus if acceptance
provides (as it sometimes does) that no insurance can take place
until the first premium is received’ it is clear that there will be
no cover until the premium is paid or tendered and it has been
suggested that even if the premium is tendered the insurers are at
liberty to change their minds and decide not to proceed.”

Communication of Acceptance.

1
6th Edition paragraph 201 at page 86
2
Robert Lowe, Commercial Law , 4th Edition p390

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Once an offer has been made, it remain for an acceptance of that

offer to be given. In the absence of an acceptance, there will be
no contract. As rightly observed, an acceptance will be of no
effect in law unless the parties have agree upon every material
terms of the contract they wish to make. The material terms of a
contract of insurance are: the definition of the risk to be covered,
the duration of the insurance cover, the amount and mode of
payment of the premium and the amount of the insurance
payable in the event of a loss. As to all these, there must be
consensus ad idem that is to say an express agreement or the
circumstance must be such as to admit a reasonable inference that
the parties tacitly agreed. Without such agreement, it would be
impossible for the court to give effect to the parties’ contract
except by virtually writing the contract for them, which is not the
function of the courts to do.1

Formalities.

English law prescribes no requirements as to form or other

qualities for an insurance contract to satisfy for it to be valid.
This technically means that an oral insurance contract, as long as
it can be proved, will be valid and binding between the parties,
provided of course, that there is agreement on the material terms.
In practice, apart from cases involving temporary cover,
insurance contract are normally embodied in a document known
as a policy. Section 75 of the Zambian Insurance Act2 provides
that;

1
Mac Gillivray and Parkinson on Insurance Law, Opcit p 201
2
No. 27 of 1997

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“No person shall issue a policy containing printed provisions

which are not in clear type face with letters of a size not less than
eight point.

This may seem to suggest that an insurance policy ought to be in

writing. This assumption would however not be necessarily
correct in view of other provisions such as section 80 of the Act
which states that;

“A policy issued to any person before or after the commencement

of this Act shall not be invalid, nor shall it be unenforceable by
that person, by reason only of the fact that the person
contravened or failed to comply with the provisions of any
enactment in force applying to that policy.”

Schr v Policyholders Protection Board (1993) 3

All ER 396

6.6. Agents in Insurance Business

Most insurance business is conducted through agents. These are
either insurance agents, so called, or insurance brokers. Under
this topic therefore, we shall examine the principles relating to
the important features of each of the agents in the insurance
industry, these agents being, (i) the insured’s agents and (ii) the
insurer’s agents.

Both the relationships between the insured and his agent and the
insurer and his agent are governed by the ordinary principles of
the law of agency. This means that the agent’s authority will be
either actual authority or ostensible authority. It is actual
authority where the agent is authorized to make the insurance

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contract with the third party. This authority is of two kinds,

namely, (i) express actual authority where it is given orally or in
writing and (ii) implied actual authority where the agent exercises
those powers which are reasonably incidental to the authority
given, or which third parties will be free to imply that the agent
has.

In addition to the usual contractual duties that agents have under

the common law principles of agency, agents in insurance
business also have certain duties and obligations both to their
principals and to the insuring public. These are imposed by the
statute. Breach of those statutory duties attract penalties under the
insurance Act which may include imprisonment.

Insurance Brokers

Insurance brokers occupy a rather peculiar place in the insurance

industry. A person seeking insurance may chose to approach an
insurance company directly or may do so through an agent
known as a broker.

The Zambian Insurance Act defines the term “broker” in section

2 as “ a person who, on behalf of an insured person or a person
who intends to take up an insurance policy, arranges insurance
policies” This definition makes it plain that an insurance broker
is an agent of the person seeking insurance.

Brokers are middlemen between insurance companies and those

persons requiring insurance. Brokers are meant to be experts in
insurance and in the insurance market, but it is not uncommon for
quacks to masquerade as insurance brokers and therefore swindle
the unsuspecting public. Insurance brokerage business is
therefore, carefully regulated. Under the Insurance Act, there are
numerous provisions intended for the regulation of brokers and

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the insurance brokerage business. In terms of section 5 of the

Act, no person shall engage in insurance brokerage business
unless the person is a company licensed under the Insurance Act.
The term “company” as used in that section has the same
meaning as company under the Companies Act. This provision,
already, limits brokerage business in Zambia to limited
companies. In terms of section 13 of the Act, a person shall not
carry on insurance brokerage in Zambia unless that person is
registered as such under the Act. The Act goes further to state
that a broker shall be issued a broker's license by the Registrar of
Insurance. To qualify for an insurance brokerage license, a
person must have a minimum of ten years experienced as a
licensed agent. A license given by the Registrar to a broker
remains in force for a term of one year, or for such shorter or
longer term as may be specified in the license, but shall be
renewable on application made in accordance with the
regulations made from time to time under this Act.. Serious
penalties attend to anyone holding out as an insurance broker
when he is in fact not licensed.1 Further more, under section 20
of the Act, a broker is not allowed to carry on any business other
than insurance brokerage, unless firstly, the Registrar has, in
writing, approved the business as reasonably ancillary to
insurance brokerage carried on by the broker; and secondly, the
proportion of turnover of the insurer attributable to the non-
insurance business in any financial year does not exceed such
proportion as the Minister may, by statutory instrument,
prescribe. In order to prevent insurance companies or related

1
By section 22 of the Act, any person who falsely holds himself out to
be licensed under the Act shall be guilty of an offence and shall be
liable, on conviction, to a fine not exceeding twenty thousand penalty
units or to imprisonment for a period not exceeding two years, or to
both.

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parties from having interest in insurance brokerage business,

which if allowed would inevitably lead to conflict of interest,
section 31 of the Act states that an insurer, any subsidiary
company of an insurer or any director of an insurer or any of its
subsidiary companies, shall not, directly or indirectly hold shares
in, or have any other financial or controlling interest in the affairs
of a broker or insurance agent. Any person who contravenes the
provisions of that section is guilty of an offence and is liable to
fine. Furthermore, under section 134 (2) it is a requirement that
every licensed broker should be a member of the insurance
Broker's Association of Zambia and should subscribe and
conform with the Association's Code of Conduct.
The Registrar has power to suspend for a period of not less than
one year, any insurer or broker who refuses, neglects or fails to
join the Insurance Broker’s Association of Zambia.

There is absolutely no doubt from these few sections that

insurance brokerage business in Zambia is closely regulated.

Brokers advise would-be insurers on their insurance

requirements by prescribing what the best policies would be for
any particular would-be insurers his the circumstances peculiar to
them. Brokers help persons seeking insurance in the completion
of the proposal form. They make it very clear, or at least they
should, to people intending to take out insurance, that the
proposal form is the basis of the insurance contract and as such
any non-disclosure of material fact or any concealment thereof
makes the contract voidable by the aggrieved party.

Upon the completion of the proposal form the brokers forwards it

to the insurance company and during that same time negotiate the
premium to be paid. At this stage in the transaction the broker
plays a very important role in that he tires by all means, when
negotiating with the insurer, to arrive at a competitive rate and

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terms favorable to the would-be client. This role of the broker

clearly is to the advantage of the would-be client because better
and more favorable terms may be arrived at which would not
have been the case had he gone directly to the Corporation.

Assuming the policy has been taken up by the insurer, the broker
plays a further role of interpreting the contents of the policy to
the client. The broker, in other words, advises the client on the
perimeters of the policy he has taken. For instance, in the case of
a comprehensive motor insurance cover, such advice may be to
the effect that such policies do not extend to cover damage or
loss due to an accident resulting from the use of a motor vehicle
with worn out tires. This is because such use of a motor vehicle
would be in breach of the implied condition on road worthiness.

The broker also plays the role of processing insurance claims on

behalf of a client. In so doing the broker arranges for speedy
payment and ensures that the final payment is acceptable to the
client. The broker also arranges on behalf of the client what are
termed :tailor-made or package polices” to suit each client’s
requirements. This is so in situations where a particular client is
exposed to some peculiar risk which is not covered by any of the
polices presently offered by the Corporation. In such a case the
broker arranges for a policy especially made for the particular
client with the insurer. A brokers is clearly an agent of the
insured, but it is undeniable that he may also act for the insurer.
___________________________

The law generally takes the position that the agent of an

insurance company in completing a proposal form for a proposer
is acting as an agent of the proposer, and not on behalf of the
company.

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Newsholme Brothers v Road Transport &

General Insurance Co., Ltd (1929) ALLER 442
A proposer for a motor insurance policy gave answers to the
questions in proposal from orally to the agent of agent an
insurance company. These answers were written down
incorrectly by the agent. The proposer then signed the form,
which stated that it was to be the “basis” of the contract, and that
he warranted the truth of the statements contained in it. The
insured claimed for a loss under the policy, but the insurance
company repudiated liability on the ground that there had been a
misstatement in the proposal form.

Held, by the Court of Appeal that the action failed. Knowledge of

the agent that certain answers as filled in were incorrect was not
notice to the company, since the agent of the proposer.

SCRUTTON, L. J. (at page 451) If the answers are untrue and he

knows it, he is committing a fraud which prevents his knowledge
being the knowledge of the insurance company. If the answers
are untrue but he does not know it, I do not understand how he
has any knowledge which can be imputed to the insurance
company. In any case, I have great difficulty in understanding
how a man who has signed, without reading it, a document which
he knows to be a proposal for insurance, and which contains
statements in fact untrue, and a promise that they are true and the
basis of the contract, can escape from the consequences of this
his negligence by saying that the person he asked to fill up for
him is the agent of the person to whom the proposal is addressed.

GREER, L. J. (at page 454) I also take the view that notice to
agent whose duty was to obtained a signed proposal from and

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send it to the company, was not notice to the company of

anything inconsistent with the signed proposal form, and that in
filling up the form, whether he mistook the instructions of the
insured, or whether he intentionally filled in something different
from what he was told, he was not acting as the agent of the
company, but as the agent for the insured.
____________________

Broker’s Authority to issue Cover Notes

Even though insurance brokers are paid a commission by the

insurer they are nevertheless agents of the insured, but may be
considered as agents of the insurer for some purposes such as in
the delivery of the policy and in the payment of the first
premium. Although in truth only an insurer can accept an offer
for a full contract of insurance, insurance brokers are often given
authority to conclude binding cover notes. The fact that brokers
are entrusted with blank cover notes seems to be sufficient to
confer upon them implied actual authority or apparent authority
to act on behalf of the insurer whose cover notes they issue.

Mackie v European Assurance Society (1869) 21

LT 102.

The insured effected a policy of insurance of his mill and

warehouse through W, at the time an agent of the Commercial
Union. In due course, W became an agent of the defendant.
When the insured’s policy with Commercial Union expired, the
insured asked W for a new policy. W gave the insured a cover
note, which was also some form of a receipt, for a month in the
name of the defendant. This was notwithstanding the fact that at
the time the insured did not realize that the insurer was different

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and despite the fact that the defendant no longer transacted fire
business.

Held, that there was a binding temporary contract of insurance

between the parties. As W was provided with cover notes, the
defendant had conferred authority on him to bind them.

Brokers Duty of Care.

Since the broker is said to possess the knowledge and expertise in

the insurance market, he is expected to exercise due care and skill
in advising the would-be clients. As such the broker can be held
liable by the client for professional negligence if the advice given
turns out to be wrong. Therefore, the brokers, to cover
themselves from such liability, take up an insurance cover called
a Professional Indemnity Policy. This policy provides cover in
relation to damage or loss that the client might suffer from as a
result of relaying on the wrong advice of the broker.

Mariane Inqurid Winther v. Arbon Languish

and Southern Ltd EALR p. 292 (1966)
Plaintiff was widow and administratrx of the will of (W) who
died in a flying accident on August 3, 1964, when piloting a
jointly owned aircraft and claimed damages for alleged neglect of
the defendant, an insurance broker to renew a policy of insurance
which, had it been renewed would have entitled the estate of (W)
to a sum of $2000. The policy of insurance was an admitted
liability personal accident policy and covered the period May 8,
1963 to May 7, 1964 and for such further periods as might be
agreed. The policy was originally issued to “Golden
Mighlanders and related to a piper Tei-pacer aircraft but by an
addendum dated March 23 1964 and with the agreement of a

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giving of underwriters in London, the name of the assured was

charged to those of (f) and (w) the new local owners – under this
policy the passengers of the aircraft including the pilot were
entitled to a sum of $2000, in the event of death resulting from
body injury. There was also in existence during this period
another policy of insurance the “hull policy” which was similarly
acquired and which covered physical damage to the aircraft
liability to the public and to passengers but afforded no cover to
the pilot. Both the policies were due to expire on May 7, 1964
and manager of the defendant wrote to plaintiff informing him of
this and suggested a discussion of the policies prior to the
renewed date. It was alleged that on May 4, 1964, the plaintiff
called on broker and gave him definite instructions to renew the
policies. On May 5 the defendant, sent a cable to its London
representatives with directions to renew the hull policy and said
the would advise later as regards the admitted liability policy and
subsequently on May 11, suggested that the later policy should be
allowed to lapse. On June 3, 1964 © wrote to plaintiff informing
him that the hull policy had been renewed for a further twelve
months an June 15, both (f) and (w) called on © to ascertain the
cover afforded by the policies and was as swell that all was in
order and on July 8 (f) received a further letter with debit note for
additional premium but not indicating whether it related to both
insurances or to only one of them. It was common ground that
the business of an insurance broker in regard to effecting or
renewing of an aircraft insurance with underwriters in London or
elsewhere was a specialized class of insurance business and
further that the defendant was the owners agent for wansferan the
two policies to themselves for advising them upon the policies
and for renewing the null policy. It was contended on behalf of
the plaintiff that if she had instructed (to renew the policy in
question and later owing to a genuine misunderstanding did not
appreciate and nor instructions and as a result failed to renew the
policy, the defendant was answerable for a breach of the duty to

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take care which wrote from the general relationship existing

between the parties.

Held. (i) the of insurance broker and assured between the

defendant (E) the owners gave rise to a duty of care on the part of
the defendant independent of – contract.
(ii) the defendant had not sufficiently discharged the duty of care
cast open it and was answerable for the damage which resulted.

Besides using a broker, a person wishing to insure his property or

his life, would do so through an agent designated as such by the
insurer. Consequently, one finds that insurance law abound with
may instances of the application of the law of principal and
agent. An insurance agent is a representative of an insurance
company and has such powers as considering and accepting risks,
executing insurance contracts and effecting their delivery.
These agents have an apparent authority to do anything in respect
to which the principal can do in the conduct of insurance business
and as such the insurer is bound by a variety of acts of these
agents such as the elimination from the printed policy of a vital
provision, and rescission of the insurer’s cancellation of a policy.

The last method, and the most commonly used by persons

seeking insurance, is that of approaching the insurer directly in
the negotiation and execution of an insurance policy. Once the
insurer has accepted the policy, irrespective of whether the
would-be client had approached it directly or through the broker
or agent, and has paid the premium then he is said to be
adequately insured in respect of the risks covered by the policy
he has taken.

In the event of loss of damage occurring to the insured and is

covered by the policy he will them have to make a claim with
insurer. The insured will have to make his claim by filing in a

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Claim Form containing the details of the loss or damage he has

suffered.

The Proposal Form

The law requires the adoption of a fair and reasonable

construction of the questions and answers in a proposal form in
order not to cause unnecessary injustice to the parties.

Austin v Zurich General Accident & Liability

Insurance Co. Ltd (1944) 77 Lloyds Rep. 409
A proposal form for motor insurance contained the question; “Do
you suffer… from loss, or loss of use, of limb or eye, defective
vision or hearing or form any physical infirmity?” The proposer
said “No”. The insurance company maintained that his eyes must
be defective because he wore “thick” glasses.

Held, by the King’s Bench Division, that the answer was a true
one. His eye sight was sufficient for the purpose of driving, and
thereon was not “defective” within the meaning of the proposal
form.

TUCKER, J. (at page 415) With regard to the alleged defective

to the alleged defective vision, the evidence showed that he wore
“thick” glasses. There was no evidence before me as to the
significance of “thick” glasses as distinct from any other glasses.
Although Austin was not altogether convincing with regard to
discrepancies in his evidence at the trial and at the inquest, in the
absence of any contradictory testimony before me there was no
material on I could find that there was any defect in Aldridge’s

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vision when wearing glasses, or that the necessity for wearing

them in any way affected his driving. The evidence was that he
was good shot and billiards player and that he drove without
difficulty by day night. It is to be observed that the question is
not, “Do you wear glasses?” The company do not, therefore,
regard the wearing of glasses in itself as a material question. It is
well known that a high proportion of people use glasses for
reading but not for long distance sight, and have perfect vision
for driving purposes, yet in a sense their vision is defective. I
cannot suppose such people are required to answer “Yes” to this
question. Its meaning must be construed in relation to the
circumstances in which it is put, and I think that when occurring
in a proposal form for motor insurance, it is limited to defects in
vision which in some degree affect the competence of the assured
as a motor driver and have not been corrected by glasses or other
means. I am therefore of opinion that the answer in this respect
was not untrue.

Condogianis v Guardian Assurance Co. Ltd.

(1921), 125 L.T. 610

A proposal form in respect of a fire policy contained question

stating, “Has proponent ever been a claimant on a fire insurance
company in respect of the property now proposed, any other
proposed, or any other property? If so, state when and name of
company”. The answer which was given was, “Yes” “1917”.
“Ocean”. This answer was literally true since he had claimed
against the Ocean Insurance Co. in respect of the burning of a
motor car. But he had omitted to state that in 1912 he had made
another claim against the Liverpool and Globe Co. in respect of
the burning of another motor car.

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Held, by Judicial Committee of Privy Council, that the answer

was not a true one.

LORD SHAW OF DUNFERMLINE (at page 612) . . .The

principle of fair and reasonable construction of the question must
also be applied in the other direction, that is to say, there must
also be fair and reasonable construction of the answer given; and
if on such a construction the answer is not true, although upon
extreme literalism it may be correct, then the contract is equally
avoided.

With these matters in view, what is a just and reasonable

construction of the words in the question: “Has proponent ever
been a claimant on a fire insurance company? If so, state when
and name of company”.

It is not to be wondered at that this was made the basis of the

contract, because insurance companies might hesitate long before
entering into a contract with an insured who had been formally a
claimant upon companies, and they would have been put upon
their inquiry as to what these claims were and how they had been
settled and what were the circumstances of these former
transactions. The importance of the question might be increased
by the number of times in which such transactions had taken
place. The argument of the Appellant, however, was that it was
sufficient to answer the question: Has proponent ever been
claimant…? If so, state when and name of company” by
answering in the singular and giving one occasion and one alone.
Accordingly, if, say, several years ago a proponent had been a
claimant under an insurance policy, it would be sufficient for him
to mention the further fact that every year since that occasion he
had also been a claimant upon insurance companies for fire
losses. It appears to their Lordships quite plain that this would be
no good answer to the question: “Has proponent ever been a

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claimant? If so, state when”. In short, when that question is

reasonably construed, it points to the insurer getting the benefit to
what has been the record of the insured with regard to insurance
claims. This was distinctly its intention and in their Lordships’
opinion is plainly its meaning. To exclude, however, from that
record what might in the easily supposed case be all its most
important items, however numerous these might be, and all its
most important question in the singular, which again in the easily
supposed case might be a colourless instance favourable to the
claimant, would be to answer the question so as to misrepresent
the true facts and situation and to be of the nature of a trap..

___________________

Temporary Cover and Cover Notes

The purpose of a cover note is to give temporary insurance cover

whilst the proposal is being fully considered and until a policy is
granted or refused. This is a common practice in virtually all
types of insurance, but are more prevalent in motor insurance.
Cover notes are fully effective contracts of insurance.

Julien Praet Et Cie, S.A v H G Poland Ltd (1960)

I Lloyd’s Rep. 420

PEARSON, J. (at page 428) Traditionally, the underwriting room

at Lloyd’s, and a Lloyd’s broker who has prepared the proposed
policy presents a slip giving details of the proposed risk to the
underwriter, and the underwriter, if he finds the risk acceptable,
insures it by initialing the slip. The policy is ten prepared and
issued. The Lloyd’s broker is the agent of the assured. The
underwriter deals only with the Lloyd’s broker and not with any

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outside broker, nor with the assured. This procedure, if it had to

be maintained in its full rigour without relaxation or
modification, would impede foreign insurance business and
would make motor insurance business impossible.

The typical motorist is an impatient person in the sense that,

having bought a car, he wishes to take delivery and drive off in it
at once, and he would not be willing to wait for the traditional
steps to be taken at Lloyd’s before he could obtain cover.
Therefore, even in the United Kingdom, there has to be the
familiar system of the cover note, which is issued at once on
receipt of a proposal, and covers the assured and puts the
underwriters on risk for the period while the proposal is being
considered and until a policy is either granted or refused.
There are hundreds of motor distributors and dealers and other
persons in the United Kingdom who are authorized to issue cover
notes on behalf of Mr. Poland’s for “H.P” policies are made.
Great care is taken, however, to comply with the requirements of
Lloyd’s. The authority to issue cover notes is applied for and
granted through a Lloyd’s broker, and the proposed are sent to
him and presented by him to the underwriter, and he receives the
policy from the underwriter and sends it to the assured as his
agent. The underwriter looks to Lloyd’s broker for the premium,
and has his account with the Lloyd’s broker. The main insurance
is duly at Lloyd’s, and the preliminary cover note, which is
inevitably granted outside Lloyd’s by a person acting as for the
underwriter, is regarded as merely an incidental or ancillary
matter.

This decision was affirmed by the Court of Appeal (1945), 78

LIoyds Rep. 185), though this point was not in issue on appeal.

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Hercules Insurance G. Limited v Trivedi & Co

Limited (Tanganyika) EALR. (1962) p. 358
The respondent company having submitted to the appellant
company a proposal form for insurance against burglary to cover
part of its stock in trade received a letter from the appellant
company an January 14, 1959, refusing to insure part of the stock
only but offering a policy covering the entire stock. The
respondent company accepted this offer by letter dated February
13, 1959, whereupon the appellant company issued a burglary
policy dated 17 at 4.p.m. standard time. However on February 16
the respondents company premises having been burgled and
goods to the value of over Shs. 5,000/- stolen, the respondent
company which replied declining its recognize the claim on the
ground that they were to on risk” at the time. Pursuant to a
clause in the policy providing for arbitration the respondent
company then applied in the district court for a written arbitration
agreement between the parties to be filed in court. This
application was dismissed on the ground that the respondent
company had not satisfied the court that the contract of Insurance
was in force at the material time. On appeal the high court
reversed the magistrates decision and ordered that the agreement
be filed with consequential orders as to the appointment of an
arbitration and the issue he should decide. The appellant
company then appealed and submitted that since no contract of
insurance was in force at the material time, the arbitration clause
would not apply. For the respondent company it was argued that
their letter of February 13 put the appellant company on risk
either as from the date of the original proposal or from the date of
posting the letter of February 13.

Held: the claim made by the respondent company was not a claim
under the contractual document, namely, the policy, but was a

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claim under the preliminary contract between the parties for

insurance; the real dispute between the parties has, therefore one
of rectification depending upon the existence of the alleged
preliminary contract and the arbitration clause in the policy did
not extend to a dispute as to rectification of the term of the
policy.

Appeal allowed. Judgment and decree of the High Court sit aside
and decree of the district court restored.

Insurance Agents

An insurance agent is defined in section 2 of the Insurance Act as

" a person who not being a salaried employee of an insurer (a)
initiates insurance business; or (b) does any act in relation to the
receiving of proposals for insurance, the issue of temporary
insurance cover-notes or the collection of premiums; on behalf
of an insurer”

Unlike an insurance broker who is generally the agent of the

person seeking insurance, therefore, the insurance agent is the
agent of the insurer. As with brokers, insurance agents are bound
by the various agency rules that bind agents generally under the
common law. In addition, there are various statutory provisions
governing insurance agents as such. In terms of section 16 of the
Act, a person can not carry on business as an insurance agent in
Zambia unless that person is registered as such under the
Insurance Act. Section 16(2) states that,

“except as provided by section twenty, the Registrar shall issue

an insurance agent’s licence to-

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(a) any individual who, in the opinion of the Registrar, is of good

repute and who specifies the Registrar that he has suitable
qualifications and experience to perform the duties of an
insurance agent; or

(b)any company that, in the opinion of the Registrar, is of good

repute and which satisfies the Registrar that its managers and
employees have suitable qualifications and experience to enable
the company to perform the duties of an insurance agent”.

No insurers not is allowed to accept business from unlicensed

agents. It is an offence under section 23 of the Act, for an insurer
to accept any insurance business from an unlicensed insurance
agent.

Section 31 proscribes the holding by an insurer, any subsidiary

company of an insurer or any director of an insurer or any of its
subsidiary companies whether directly or indirectly, of shares
in, or have any other financial or controlling interest in the affairs
of an insurance agent.

6.7. Conditions and Warranties.

A contract of insurance will in practice consist not only of the
policy document, but the completed proposal form where that is
the case, and any other relevant documents such as renewal
notices etc. An insurance contract may contain three types of
contractual terms, namely, warranties, conditions and clauses
descriptive of the risk. It does not always have to have these three
types of terms.

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Warranties

The warranty in insurance law is treated differently from a

warranty in the general law of contract. A warranty in insurance
is a term upon breach of which the insurer is discharged from all
liability as from the date of the breach. Warranties in insurance
contracts must be strictly complied with, and it does not matter
whether the breach is unrelated to the loss that occurs.
Warranties are in essence promises made by the insured
regarding the fact or the thing he undertakes to do or to refrain
from doing. These warranties may be of three types, namely
warranties as to the existing or past state of affairs, warranties as
to future conduct or events and warranties of opinion. These
warranties may be created in different ways . they may be in the
policy document itself or they may be in the proposal form, i.e.
the “basis of the contract clause.” The basis of the contract clause
is normally contained at the foot of the proposal form. The
questions, answers and declarations on the proposal form are
made the basis of the contract, providing that any incorrect or
untrue details furnished will entitle the insurer to avoid the
contract.

For many years it has been conventional to regard a warranty as a

fundamental term of the contract whose breach entitled the
insurer to repudiate the contract. In some instances, there has
even been a tendancy to declare that the insurer has the right to
avoid the contract or that the contract is rendered voidable, so
that in truth the language used is the same as that used for non
disclosure and misrepresentation, situations where the contract
can be avoided bythe operation of the general principles rather
than as a result of specific contractual provisions.

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West v National Motor and Accident Insurance

Union (1954) 1 Lloyd’s Rep. 463
The insured was alleged to be in breach of warranty as to the
value of the property insured. The insurers, while relying on the
terms of the contract to enforce an arbitration clause in the
contract, rejected the insured’s claim.

Held, that by relying on the term of the contract to enforce the

arbitration clause, the insurers had waived their right to avoid the
contract, which was the only right they had.

Bank of Nova Scotia v Hellenic Mutual War

Risks Association (Bermuda) Ltd, The Good
Luck. ( (1991) 2 WLR 1279
The insured ship owner , in breach of warranty contained in the
the rules of the ship owner’s mutual insurance club of which the
insured was a member, took the ship to into a prohibited area (the
Persian Gulf at the time of the Iran –Iraqi conflict) . The benefits
of the insurance had been assigned to a bank , which had lent
money to the insured and was a mortgagee of the ship. The
insurers who had been notified of the assignment made an
undertaking to advise the bank promptly if the ship ceased to be
insured. The insurer failed to advise the bank until some weeks
after it had discovered the breach of warranty and the loss of the
ship. At this time the bank decided to make a further advance to
the insured, which it would never would have made had the
insured lived up to its undertaking to notify the bank promptly.

Held by the House of Lords, that the breach of warranty in a

marine policy automatically discharged the insurer from liability,

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in accordance with section 33 of the Marine Insurance Act 1906.

the bank’s claim for damages on the basis that the club had acted
in breach of the undertaking, was upheld as the insurance had
automatically ceased.
______________________

There indeed appears to be no reason why the principle in Good

Luck can not be extended to no-marine insurance. In Hussain v
Brown1 the Court of Appeal held that breach of a no-marine
insurance warranty leads to “automatic cancellation of the cover”

Conditions

There is a tendency to consider conditions and warranties as if

they were the same. Conditions may appear in the same part of
the policy as warranties and some conditions may in fact be
warranties. While warranties must be strictly complied with, it
seems that some conditions may be dispensed with if they are
unnecessary. A breach of a condition is actionable only if it cause
the loss.

Conditions are collateral promises or obligations imposed on the

insured with regard to the claims procedure, or giving the insured
certain rights, usually a mere amplification of the rights already
available to the insured under the general law such as subrogation
rights.

Questions sometimes arise as to whether under insurance policies

with arbitration clauses the insured is obliged the condition of
obtaining an obtain an award before suing his insurer.

1
(1996) Lloyd’s Rep. IR 147

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R.B. Sirdaw v. The New Asiatic Insurance Co.

Ltd., and Another EALR 1957 282
The plaintiff sued for Shs. 42,500/- damage by fire to a building
he owned. The insurance was effected with the first defendant
which had several months before the fire issued a policy in
respect of the building. The second defendant was the insurance
agent through whom the plaintiff arranged the business including
payment of premium. After the fire there were discussions
between the parties regarding the amount of the damage and the
first defendant obtained an assessment of the damage. No
agreement was reached and ultimately the first defendant
repudiated any liability on the ground that the premium for the
policy had not been paid. The plaintiff then sued the first
defendant as insurer and, in the alternative, sued the second
defendant who had been instructed to pay the premium to the first
defendant. By the time the case came before the court for trial,
the parties had agreed that (a) the first defendant should admit
liability on the policy and the action against the second defendant
should be dismissed and (b) that the court should decide who
should pay the costs of the second defendant, and also whether
the first defendant was bound by an award already made by an
arbitrator as to the amount of the damage and who should pay the
costs of the argument in respect of the points upon which the
decision of the court was sought. The plaintiff claimed that
under a condition in the policy it was incumbent on him to obtain
an award as to damage before suing. This condition read
“If any difference arises as to the amount of any loss or damage
such difference shall independently of all other questions be
referred to the decision of an arbitrator….”

The first defendant contended that in the circumstances of the

case, the condition was inapplicable.

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Held. It was necessary for the plaintiff to obtain that award as a

condition precedent to his action, the award was binding and
there would be judgment for the plaintiff for Shs.42,500/- against
the first defendant with costs including the costs of the arbitration
and award judgment for the plaintiff.

Cases referred to:

Woodall v. Pearl Assurance Company, Ltd., [1919] 1 K.B. 593.
Heyman v. Darwins Ltd., [1942] 1 ALL ER 337.
Jureidini v. The National British & Irish Millers Insurance Co., Ltd., [1915]
A.C. 499.

The burden of proving a breach of condition lies on the insurers.

Bond Air Services v Hill (1955) 2 AII E.R. 476

A condition in an aircraft insurance policy stated that the insured
was to observe the statutory regulations relating to air navigation.
Another condition provided that:- “The observance and
performance by the insured of the conditions of policy… are
conditions precedent to the insured’s right to recover”. The
aircraft crashed and the insured claimed under the policy. But the
insurers maintained that burden of proving that he had complied
with the conditions lay on the insured.

Held, by the Queen’s Bench Division, that this contention failed.

It was the duty of the insurers to prove that the assured had
broken a condition if they wished to avoid liability under the
policy.

LORD GODDARD, C.J. (at page 480)

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I cannot find that these cases7 have ever been regarded, either in
any judgment or in the opinion of eminent text writers, as
throwing doubt on what I think is axiomatic in insurance law,
that, as it is always for an insurer to prove an exception, so it is
for him to prove the breach of a condition which would relive
him from liability in respect of particular loss. The respondent’s
contention, no doubt, is that, by providing that the observance of
conditions is to be a condition precedent to his liability to pay,
the policy has shifted the onus on to the claimants. It is enough to
say that in this court Stebbing -v- Liverpool and London and
Globe Insurance Co., Ltd.8 concludes the matter. In that case
there were words to exactly the same effect as here, namely that
compliance with the conditions should be a condition precedent
to any liability on the part of the insurer, and the court decided
that the burden of proving the falsity of an answer which
amounted to a breach of warranty was on the insurer… As those
two cases7 were not in the Exchequer Chamber, they are open to
review in the Court of Appeal. The learned arbitrator in the
present case has had that effect of provision as to the observance
of claimants’ undertakings is to give to them the quality of
warranties, so that a breach would absolve the respondent of
liabilities for a loss occurring when the claimants were in breach,
but has held that the onus of proof is not affected; and I agree
with him. The parties to a policy can use words which will
relieve insurance of the onus and cast it on the assured, as they
may with regard to any other matter affecting an insurer’s
liability; see for instance, the judgment of SCRUTTON, L. J., in
Re Hooley and Chemical Co., Ltd and Royal Insurance Co., Ltd.
9
But, in my opinion, much clearer words than are used here
would be necessary to change what I think, certainly for a
century and probably for much longer, has always been regarded
as a fundamental principle of insurance law, namely, that it is for
the insurers who wish to rely on a breach of condition to prove it.

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Tinline v Whitecross Insurance (1921), 125 L.T. 632

An insurance company must indemnify a motorist, who has
insured against third party risks, even where the third party’s
death has been cause by such negligence on his part as to
manslaughter.

The insured had taken out a motor car policy covering him in
respect of third party risks, he negligently killed a pedestrian
whilst driving at an excessive speed, and was found guilty of
manslaughter. He claimed an indemnity under the policy in
respect of the damages which he had to pay, but the insurance
company claimed that it was not liable on the ground that it
would have been against public policy to give effect to the
contract.

Held, by the King’s Bench Division, that this contention failed;

and the company was liable.

BAILHACHE, J. (at page 632) This policy indemnifies the

assured against sums which he shall become legally liable to pay
to any other person as compensation for accidental personal
injury. It is to be borne in mind that a man does not become liable
to pay compensation for accidental personal injury unless the
accident is due to his negligence. Consequently the policy is one
which obviously insures the assured against the consequences of
the negligence- not only the consequences of negligence in
general, but the consequences of his own negligence in particular.
He is insured against the rules of an accident caused by own
negligence. The defendants say that although that is perfectly
true, yet where the negligence is so gross and excessive, and the

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result is that a person is killed and the crime of manslaughter is

committed, the policy does not indemnify him against the civil
consequences of that crime, because it is against pubic policy to
indemnify a man against the civil consequences of his criminal
act. Speaking generally, I think it is true to say that it is against
public policy to indemnify a man against the consequences of a
crime which he knowingly commits, and in the word “crime” I
include the breach of any statutory duty which renders a man
liable to fine or imprisonment.

In motor accidents where the assured is the driver of the motor

car, perhaps in ninety-nine cases out of a hundred the accident is
due to the breach by the driver of some statutory duty. Many of
these accidents are due to driving at excessive speed. That was
the case here. Driving at a speed exceeding the speed limit is a
breach of statutory duty, and it is a breach of statutory duty which
subjects the offender to fine or imprisonment; and if the ordinary
law were to be applied to these third-party indemnity cases, it
seems to me it would be a defense to say: it is true that you did
not intend to commit the crime of manslaughter; it was an
accident; but you committed the crime owing to, and as a
consequence of, your breach of a statutory duty- namely, driving
in excess of the speed limit, or driving to the danger of the public,
or on the wrong side of the road; and if the ordinary law were to
be applied, it is difficult to see that that would not be an answer
to any case under these third-party indemnity insurances.

But it is notorious that in point of fact and of experience that

defense is never raised, and I do not think it has been very much
thought of.

…I want it to be clearly understood that if this accident had been

due to an intentional act on the part of the plaintiff, this policy
could not possibly protect him, but then if man driving a motor

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car at excessive speed intentionally runs into a man and kills him,
the result is not manslaughter but murder, the reason being that
manslaughter is the result of accident and murder is not, and it
against accidents only that this policy insures…

6.7. Insurable Interest

An insurable interest is an essential requirement of all contracts
of insurance. There is no single authoritative definition of
insurable interest, but it is used to describe the assureds interest
in the subject matter of the loss at the time of such loss, which the
terms of any particular insurance contract require. The assured
must have some legal or equitable interest in the subject matter of
insurance otherwise the contract will be void. But this rule is
obviously not without qualification.

By insurable interest we mean that the insured must have a

particular relationship with the subject matter of insurance. If the
insured has no insurable interest in the subject matter, the
contract is illegal, void or simply unenforceable depending on the
type of insurance.

The requirements of insurable interest was introduced on public

policy considerations. Before its introduction, people were
making wagers in the form of insurance polices on the lives of
people with whom they had no connection. This was against
public policy as it could lead to murder. Consequently the
English Parliament passed the Life Assurance Act, 1774 to defeat
these wagers. This Act is part of Zambia’s received law.

To better understand the nature of insurable interest, one ought to

be very clear about the subject matter of insurance.

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The subject matter of insurance may be some corporeal or

material property of value, for example, a motor car or a house.
Alternatively, it could be an event, the happening of which would
create a legal liability, for instance, the insurance effected by a
doctor insuring himself against a possible claim by patients for
professional negligence, or indeed a lawyer against claims for
professional negligence. In marine insurance, the ship or the
cargo it carries could be the subject matter of the insurance. In a
life policy, the life of the assured is the subject matter of the
insurance. In all classes of insurance, whatever it is that is the
subject matter of the insurance it will normally be stated and
described in the schedule to the policy.

A distinction is sometimes made between the subject matter of

the insurance and the interest of the insured in the subject matter,
which is often referred to as the subject matter of the contract.
This distinction, academic though it may sound, is of significance
because it is an established rule of insurance law that the
insurance policy does not insure the subject matter of insurance
as such, but the interest of the policy holder in the subject matter
of insurance. While the subject matter of insurance may be
property, life or liability, the subject matter of the contract is the
financial interest or insurable interest of the policy holder in the
subject matter of the insurance. Assume for example, Kalumba
purchases a motor vehicle for K30 million and insures it against
accident, fire and theft with Madison Insurance Company for its
full purchase value. The subject matter of the insurance is the
motor vehicle, but the subject matter of the contract is Kalumba’s
pecuniary interest in the motor vehicle, in this case the sum of
K30 million. If whilst the policy is still in force, Kalumba sells
the car to Dubeka, the insurance contract would terminate
because the interest insured against has ceased to exist.

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The authority for the proposition that the insurance policy does
not cover the subject matter of the insurance, but the insured’s
pecuniary interest in the thing or event insured against is the
leading case of Castellain v Preston1 where the court stated
among other things that

“What is it that is insured in a fire policy? Not the bricks and

materials used in building the house, but the interest of the
insured in the subject matter of the insurance.”

The essentials of insurable interest may be summarized in three

propositions thus:

(a) there must be property, life or limb, rights, interest or

potential liability devolving upon the insured capable of
being insured against.

(b) such property, life or limb, right interest or potential

liability must be the subject mater of the insurance; and

(c ) The insured or policy holder must bear some relationship

recognized by law, to the subject matter whereby he would
benefit by the safety of the property, life or limb, rights
interest or freedom from liability, and he would be prejudiced
by any loss, injury damage or creation of liability.

There are essentially two reason for the requirement ogf insurable
interest. The first of these reasons has to do with the moral
hazard. When the insured has insurable interest in the property
subject of insurance, he will be less tempted to destroy the
property insured. Secondly, the concept of indemnity in

1
(1883) 2QB 380

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 42

insurance law implies that the insured cannot recover more than
the loss. If the insured has suffered no loss, it would be
inequitable to unjustly enrich him.

Insurable interest cases

Owner

A legal owner of a property obviously has an insurable interest in

the property. This includes a co-owner and a tenant for life.

Trustee

A trustee has a legal interest in the subject matter of insurance

and may therefore have an insurable interest. This includes the
executor of an estate. Although ordinarily probate either from
the High Court or from the Local Court, as the case may be, is
necessary to complete the trustee’s title, yet before probate he has
title sufficient to enable him to ensure. The economic interest of
the trustee lies in his desire to avoid liability on trust property.
A beneficiary under a trust has an equitable interest in the trust
property and thus he too has an insurable interest in it.

Receiver

A receiver in bankruptcy has a legal interest sufficient for an

insurable interest. His duty is to take care that the property is
preserved as reasonably as it may be for the benefit of all
concerned and to this end is entitled to use funds in his hands to
protect property for which he is responsible against normal risk.

Seller of Land

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 43

A seller of land who has conveyed it and has been paid the
purchase price has no further insurable interest in the land sold1.

The owner of land who has contracted to sell it out has yet to
convey it retains a legal interest sufficient to enable him insure it.

Seller of Goods

A seller of goods has an interest in the goods in some cases as

owners and in other cases as risk bearer, or as unpaid sellers
having security rights under the Sale of Goods Act 1893.
Until he has divested himself of all the rights and duties relating
to goods, the seller has an his interest.

Unpaid Seller- has right of stopped in transition but until that is

exercised, no insurable interest.

Buyer of Goods

A buyer of goods will be deemed to have no insurable interest in

the goods unless he has them in his possession or they are at his
risk or he has made an advance payment for then.

In the Canadian case of Clark v Scottish Imperial Insurance

Co.2, a shipbuilding contract obliged the buyer to make advance
payments for the works and to have the ship when completed as
security for the advances. The buyer decided to take fire
insurance on the shipbuilding. Before the shipbuilding was
completed, it was destroyed by fire. The insurance company
sought to repudiate liability on grounds that the buyer had no

1
See Ecclesiastical Commissioners v Royal Exchange Assurances Co.
(1895) 11 TLR 475
2
(1879) 4 SCR 192

43
 44

insurable interest in the work. The Supreme Court however held

that he had an insurable interest and could therefore recover
because the subject matter of the contract had been subsequently
appropriated and the Plaintiff could claim an equitable lien out of
the same.

Mortgagor

A mortgagor retains an insurable interest in the goods even if his

debt is greater than the value of the goods insured.
A mortgagee also has insurable interest.

Bailees

Bailees are non owners, e.g. carriers or warehouse owners who

have possession of property as bailees. These have insurable
interest in the property because they would be liable if the
property is lost.

Life
An individual has an insurable interest in his own life to an
unlimited amount. A married person has an insurable interest in
the spouse’s life.1 A finance has no insurable interest in the life of
his intended spouse.

Lucena v Craufurd (1806) 2 BOS & PNR 269

1
Initially, it was the wife who was regarded as having insurable interest
in the life of her husband, but since the decision in Griffin v Fleming
(1900) 1KB it is now settled that a husband has an insurable interest in
the life of his wife.

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The Crown Commissioners insured a number of enemy ships

which had been captured by British vessels but were still on the
high seas. The statute which gave them authority to capture
enemy ships empowered them to take charge of such ships only
when they reached British ports. A number of ships were lost at
sea before they reached port. The issue was whether or not the
Commissioners had an insurable interest in the ships.

Held, by the House of Lords, that they did not.

LAWRENCE J at page 302

“A man is interested in a thing to whom advantage may arise or

prejudice happen form the circumstances which may attend it . . .
and whom it importeth, that its condition as to safety or other
quality should continue. Interest does not necessarily imply a
right to the whole, or part of the thing, nor necessarily and
exclusively that which may be the subject of privation, but the
having some thing to, or concern in the subject matter of the
insurance, which relationship or concern by the happenings of
the perils insured against may be so affected as to produce a
damage, detriment, or prejudice to the person insuring; and
where a man is so circumstanced with respect to matters exposed
to certain risks or dangers, as to have a moral certainly of
advantage or benefit, but for those risks danger he may be said to
be interested in the safety of the thing. To be interested in
preservation of a thing, is to be so circumstanced with respect to
it as to have benefit from its existence, prejudice from its
destruction. The property of a thing and the interest devisable
from it may very different; of the first the price is generally the
measure, but by interest in a thing every benefit and advantage
arising out of or depending on such thing may be considered as
being comprehended. . . .”

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____________________________

Note: The dictum of Lawrence J in Luceana clearly propounded

a wider factual expectation was cited by Kerr LJ in Mark
Rowland Ltd v Berni Inns Ltd (1986) QB 228 even if it does not
appear to represent current English law as shown in many
decisions including Macaura v Northern Assurance ( below)
Indemnity insurance generally requires the assured to have an
interest in the insurance other than that created by the contract
itself or other wise he will incur no loss through the happening of
the event insured against and if the insured has no interest then
the insurer will have a good defense to any claim under such
contract if he chooses to raise it.

A shareholder has no insurable interest in the assets of a

company.

Macaura v Northern Assurance Co., Ltd (1925)

ALL ER. REP. 51

The appellant was owner of a timber estate. He assigned the

whole of the timber to a company called Irish Canadian Saw
Mills Limited. The appellant owned almost all the shares in that
company. In the course of its operation the company owed him a
substantial amount of money. He insured the timber against fire
but it was gutted down by fire. He claimed on the policy. The
insurance company repudiated liability on grounds that the
appellant had no insurable interest in the timber.

Held, by House of Lords, that this contention succeeded, and that

the action failed.

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 47

LORD SUMMER (at page 55) This appeal relates to insurance

on goods against loss by fire. It is clear that the appellant had no
insurable interest in the timber described. It was not his. It
belonged to the Irish Canadian Sawmill Co, Ltd., of Skibbereen,
co. Cork. He had no lien or security over it, and, though it lay on
his land by his permission, he had no responsibility to its owner
for its safety, nor was it there under any contract that enabled him
to hold it for his debt. He owned almost all the shares in the
company, and the company owed him a good deal of money, but,
neither as creditor nor as shareholder, could he insure the
company’s assets. The debt was not exposed to fire-nor were the
shares, and the fact that he was virtually the company’s only
creditor, while the timber was its only creditor, while the timber
was its only asset, seems to me to make no difference. He stood
in no “legal or equitable relation to” the timber at all. He had no
“concern in” the subject assured. His relation was to the
company, not to its goods, and after the fire he directly
prejudiced by the paucity of the company’s assets, not by the fire.
____________________________

In a sale of goods contract, once the buyer rejects the goods

delivered as not conforming to the contract, he will not be
deemed to have insurable interest and can, therefore, not insure
the property in his name.

Livio Carli & Others v Satem & Mohamed

Bashanifer & Others (1959) EALR 701
The plaintiffs, a Yugoslavian cement company, and their agent at
Aden agreed to sell to the first defendants 200 tons of cement
described as “Dalmatian Portland cement B.S.S./12/1947 of
Yugoslavian Origin. “Two lions brand”. The first defendants
insured the shipment with the second defendants. The cement

47
 48

which arrived at Aden was of “Sahona Towers” brand which the

first defendants refused to accept as not being in accordance with
the description. According to the plaintiffs the first defendants
had orally agreed to the change in brand and to a change in the
description from “two lions brand to “Standard Portland
Dalmatian Cement”. After refusing to take delivery the cement
was damaged by rain whilst lying at the wharf and later the first
defendants assigned the insurance policy to the second plaintiffs
as assignee. The insurers claimed that as the first defendants had
disclaimed any interest in the policy they themselves could not
have claimed, and in consequence, their assignment of the policy
to the plaintiff after the loss occurred was of no effect. The
plaintiff suggested that there was an implied or equitable
assignment of the policy which arose from the nature of the
transaction and that it was valid.

Held the first defendants had not agreed to a change of brand or

in the description of the cement and accordingly the plaintiffs had
failed to tender to the first defendants cement according to the
agreed description; since this was a sale by prescription, the first
defendants were entitled to refuse to accept the delivery.
When the first defendants rejected the goods they ceased to have
any interest in the cement, and there was nothing for them to
assign; accordingly the plaintiffs had no insurable interest at the
time of the loss. There is no implication that by custom or
otherwise in contracts of this description the seller is deemed to
be a party to the insurance policy from the out set
_______________________

Datoo & Another v Estate Duty Commissioner

(1967) EALR 208 (High Court of Tanzania)

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 49

The Estate Duty Commissioner had charged and levied duty on

the proceeds of two policies of insurance on the life of the
deceased. The policies were taken out by the deceased on his
own life in 1960 and on January 22, 1962, he executed a transfer
of them in favour and his wife with a proviso that in the event of
his wife precede ceasing him or of the policy materials for some
event other than death, the policy should revert to the deceased.
The deceased continued to pay the premiums until the date of his
death on May 10, 1965. An aped was made under S. 32 of the
Estate Duty Act, 1963 (T)

Held: (i) The deceased still had an interest in the policies and
from the nature of the Assignment, he was still competent during
his lifetime to disposing of the property in the policies.
)ii) the deceased had a substantial interest in the property and had
retained a benefit to himself in the proceeds of the policies.
___________________________________

6.8.The Principle of Utmost Good Faith

Another fundamental principle governing insurance transactions
is that of utmost good faith or the doctrine of non-concealment as
it is known in the United States of America.

Under general contract law the rule is that each party to the
contract is entitled to make the best bargain he can and, as long
as he does not make a false or fraudulent statement, he need not
draw the attention of the other party to anything that might
influence his judgment..

Insurance contracts are in a different category. The knowledge as

regards the nature of the risk proposed for insurance is almost
always exclusively possessed by one side. The proposer knows

49
 50

all about the risk at the time he is proposing for insurance, whilst
the insurer knows nothing and has to rely on the proposer to
supply him the information to assess the risk. In order to make
insurance transactions fair for all parties the law has elevated
insurance contracts to the status of contracts uberrimae fidei, that
is to say contracts of the utmost good faith. The practical effect
of this principle is that each party to the contract must not only
refrain from actively misleading the other, but must disclose and
not conceal any material information relating to the proposed
insurance. The law obliges the parties to disclose all material
facts. A material fact is one which would affect the mind of a
prudent insurer in deciding whether or not to accept the proposal,
and on what terms he would accept. It is “a fact which would
affect the judgment of a prudent and rational underwriter in
considering whether he would enter into a contract at all or
enter into it at one rate or another.” “a fact which would affect
the judgment of a prudent and rational underwriter in
considering he would enter into a contract at all or enter into it
at one rate or another.”1

The legal basis of the principle of utmost good faith and the duty
of disclosure imposed by it was discussed at length by the court
in the case of Carter v Boehm2 in which Lord Mansfield had the
following to say:

“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
trust to his representations, and proceeds upon confidence that
he does not keep back any circumstances in his knowledge to

1
Rivas v Gerussi (1880) 6QB 222
2
(1766) 3 Burr 1965

50
 51

mislead the underwriter into a belief that the circumstance does

not exist and to induce him to estimate the risk as if it did not
exist. The keeping back of such a circumstance is a fraud, and
therefore the policy is void. Although the suppression should
happen through mistake, without fraudulent intention, yet still the
underwriter is deceived, and the policy is void; because the risk
run is really different from the risk understood and intended to be
run at the time of the agreement. Good faith forbids either party,
by concealing what he privately knows to draw the other into
from his ignorance of that fact and his believing the contrary.”

Where the assured is asked to answer to specific questions the

parties are taken to have agreed that the facts involved in
answering the question are material but this does not nonetheless
affect the duty to disclose material facts not covered by the
questions unless of course, the way the question are drafted have
this effect.

The test whether a fact is material or not is an objective one and

it is irrelevant that a particular insurer would not have been
influence or that the assured considered the fact immaterial.

The duty imposed by the principle of uberimae fidei is threefold:

(1) a duty to disclose material facts, and (2)a duty not to
misrepresent material facts and (3) a duty not to make fraudulent
claim.

Mutuality of the Duty of Disclosure

Insurance would equally be void against the underwriter if he

concealed material facts, for example, if he insured a ship on her
voyage, which he privately know to be arrived an action would
lie to recover the premium. The duty of good faith which gives
rise to the duty of disclosure is a reciprocal duty owed not only

51
 52

by the insured to the insurer but also by the insurer to the insured.
This position in itself did not appear to have any real significance
until the decision in Banque Financière de la Cité SA v
Westgate Insurance Co. Ltd1. In that case the judge of first
instance applied such a duty on an insurer and proceeded to
award damages for breach of that duty. Both the Court of Appeal
and the House of Lords held that the only remedy for breach was
the usual one of avoidance of the contract.

The duty to disclose is only confined to facts actually known to

the party on whom the duty falls.

There is no duty to disclose what in unknown. The onus of

proving on the balance of probabilities that there has been no
disclosure of a material fact, is upon the insurer who allege it.
There is no doubt that the onus is a difficult one to discharge
because it requires the proof of a negative ie. that insured did not
disclose a material fact.

Facts which the Insured does not have to disclose

There are certain facts which the law regards as immaterial and
no one can be penalized for failing to disclose them. Notorious
facts need not be disclosed. Similarly facts which should be
known by an insurer in the ordinary course of his business need
not be disclosed. For example, a prospective insured in Zambia
need not disclose to an insurance company that mini buses and
taxis are more prone to road accidents than vehicles driven by
priests and sisters.

Concealment or “Suppressio veri”

1
(1991) 2AC 249

52
 53

It is possible for a person to truthfully answer the questions in a

proposal form and yet be in breach of the principle of utmost
good faith as a result of a concealment of the suppression of the
truth. This is illustrated by the case of London Assurance v
Mansell.1 The proposal form of an insurance company which
was completed and signed by the proposer (Mr. Mansell)
contained these questions: “Has a proposal ever been made on
your life at any other office or offices? If, so, when? Was it
accepted at the ordinary premium, or at an increased premium, or
declined?” To these questions, the insured answered as follows:
“insured now in two offices for £1,600 at ordinarily premium
rates. Polices effected last years.”

The insurance company accepted the proposal on the basis of

these answers. The truth however was that several insurance
offices had declined to insure the life of the proposer. On these
facts the court held that there had been a breach of the principle
of utmost good faith by the insured on account of his
concealment of material facts, and the insurance company was
entitled to avoid the contract.

Breach of the duty of disclosure renders the insurance contract

avoidable at the option of the aggrieved party, usually the insurer.
Similarly a misrepresentation has the same effect, except that a
fraudulent misrepresentation also entitles the aggrieve person to
claim damages for deceit. In practice there are three or four
courses of action open to an insurer who has discovered a
misrepresentation or breach of the principle of utmost good faith.

(a) The insurer may repudiate liability

1
(1879) 11 CLD 363

53
 54

(b) As the contract is only voidable not void, the insurer may
overlook the breach and allow the contract to stand.

(c) The insurer may bring an action for delivery up and

cancellation of the policy. In Zambia, this is probably the wisest
course of action open to an insurer in respect of motor insurance
in view of the provision of section 88 of the Road Traffic Act No.
11 of 2002 which compels an insurer to meet the claims of third
parties claiming from the insured despite the fact that there might
have been a breach of duty on the part of the insured.

(d) Finally, if the policy has matured for payment, the insurer
may refuse to make any payment and leave the insured to
institute proceedings, which the insurer may answer by pleading
breach as a defense.
________________________

Where the proposal is made the “basis” of the contract, any mis-
statement in it, material or not, is a ground on which insurance
may avoid liability under the policy.

Dowsons Ltd v Bonnin (1922) ALL E.R 88

The proposers for an insurance of a lorry against fire stated that it
was kept at “46, Cadogan Street, Glasgow”. The proposal was
made the “basis” of the contract. In fact, the vehicle was garaged
at a farm on the outskirts of the city. It was destroyed by fire. In
an action on policy,

Held, by the House of Lords, that the insurers were entitled to

repudiate liability because of the misstatement by the proposer,
even though it was not a material one.

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VISCOUNT HALDANE (at page 93) It is clear that the answer

was textually inaccurate. I think that the words employed in the
body of the policy can only be properly construed as having
made its accuracy a condition. The result may be technical and
harsh; but if the parties have so stipulated, we have no
alternative, sitting as a court of justice, but to give effect to the
words agreed on. Hard cases must be allowed to make bad law.
The proposal- in other words- the answers to the questions
specifically put in it, is made basic to the contract. It may well be
that a mere slip, in a Christian name, for instance, would not be
held to vitiate the answer given if the answer were early in
substance true and unambiguous. Falsa demonstratio non nocet.
But that is because the truth has been stated in effect within the
intention shown as to the address at which the vehicle would
usually be garaged can hardly be brought within this principal of
interpretation in construing contracts. It was a specific insurance,
based on a statement which is made a foundational if the parties
have chosen, however carelessly, to stipulate that it should be so.
Both on principle and in the light of authorities such as those
which I have already cited, it appears to me that, when answers,
including in that question, are declared to be the basis of the
contract, this can only mean that their truth is made a condition,
exact fulfillment of which is rendered by stipulation foundational
to its enforceability.
________________________

Misrepresentation or concealment of material facts will entitle

the insurer to avoid the contract only if the same was given at the
time the proposal for insurance was made, and not after the
policy was insured.

Nlodwa v Republic (1968) ALR 582

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 56

The Appellant was charged in the second grade subordinate

court, Blantyre, with two offences against the Road Traffic
Ordinance (cap 146). In the first count the charge was that, being
holder of a provision license, the appellant drove without “L”
plates. In the second count he was charged with willfully doing
an act, which disentitled him to claim under his policy of
insurance, contrary to section 72 of the Ordinance. The
Appellant was convicted on both counts and fined ₤2 and ₤10
respectively.

The appellant appealed against sentence only but on appeal the

court also considered whether the charge on the second count
revealed any offence.

Held: Section 72 as amended, of the Road Traffic Ordinance (cap

146) which makes it an offence to make any false statements or
do any act which will disentitle the person concerned to claim
under the policy, applies only in respect of proposals for
insurance; it is not applicable to statements made or acts done
after the policy has been issued.

Section 72 provides that:

“If any person for the purpose of obtaining a policy of insurance

is required by section 61 of the Ordinance makes any false
statements knowing it to be false, in consequence whereby the
policy is liable to be avoided, or willfully does any act which
disentitles him to claim under the policy he shall be guilty of an
offence and liable upon conviction in the case of first offence to a
fine not exceeding ₤200 and imprisonment for one year and in
the case of a second or subsequent offence to a fine not
exceeding ₤400 and imprisonment for two years.

56
 57

Order accordingly.

Patel v Old Mutual Fire & General Insurance

Co. of Zambia Ltd (High Court for Zambia )
DOYLE, C.J . . . The Plaintiff also called a Mr. Morris, a man
experienced in insurance business. He stated that were a matter
had been reported to another insurance company and no claim
made for or against the insured, this would be immaterial for
another insurance company for the purpose of insurance by the
latter.

The Defendant called a Mr. Tobias Muyonde who had been an

immigration assistant on 1st December 1968, at Luangwa Bridge.
At 9.45 p.m that day a bus had pulled up at the immigration post
and it was followed by an oil tanker – which it is agreed the oil
tanker concerned in this case. The tanker stopped a yard or so
behind the bus. He went to the tanker and asked the driver for
papers. The driver did not seem to understand. Witness spoke to
him in English and in Nyanja but neither him nor the person
sitting beside him understood. Witness left to get a colleague. He
came back and found both men missing from the tanker. He told
the bus driver to move off and walked away. As he did so there
was an explosion.

Subsequently the witness was shown photographs of Wilson

Chinyuma and Joseph Chanda by the police. He identified Joseph
Chanda as the man in the driver’s seat and Wilson Chinyuma as
the man sitting beside him. Although it was dark, he said he had
been able to see the men for a short time in the light given by the
parking lights of the bus. He admitted that he had originally said
that the man sitting beside the driver was bearded.

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Other witnesses called by the defendant who had examined the

same deposed to finding bullets and a buckle from web
equipment in or about the scene. The tracker had been carrying
diesel oil and was almost completely disintegrated by the
explosion. A burnt out automatic weapon – sub-machine gun-
was found in the remnants of the cab. A fire extinguisher was
found which appeared to have been in an explosion. The bus was
burnt out and contained charred bodies.

A Major Love was also called. He is an explosives expert in the

Zambian Army. He examined the scene and the fire extinguisher
which appeared as if it had violently exploded. He found holes in
a girder forming part of the chassis of the tanker. The fire
extinguisher was chemically examined and had signs of having
contained plastic explosives. Major Love carried out several
experiments and came to the conclusion that the explosion had
occurred in the fire extinguisher which had contained, in his
estimate about 20-25 lb of plastic explosive. In his opinion the
extinguisher had been secured against the girder and had been
detonated by a burning fuse. The rate of such a fuse would be
thirty seconds to a foot. To learn how to use such fuse and a
detonator would be simple enough. He considered that the
explosion attached to the girder and had not been inserted at the
scene.

The defendant called a Mr. Purchase, Administrative Manager of

the defendant company. He deposed that no report had been
made to his company in respect of the accident to vehicle EC
311. He referred to the Policy and thought that if that accident
had been reported he would have wished to make inquiries. The
renewal of the policy in respect of EC 3283 was on the basis that
no material accident had taken place and was effected on
approximately October 5, 1967.

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 59

Mc Robbie, also an insurance expert, gave evidence for the

defendant. He was Assistant Branch Manager to the Commercial
Union and had insured vehicle EL 311. The accident to that
vehicle had been reported to his company and he had investigated
it. He considered it to be a material accident to be reported to
insurer if required by the policy to do so. He agreed, however,
that if such an accident had occurred to a vehicle insured with
another insurer and no claim had been made either for or against
the insured and the claim had been reported, he would neither
have refused insurance or required an increased premium.

There is really not a great deal of conflict of evidence on the facts

of this case. I accept the evidence of Plaintiff’s husband and I
accept with one reservation, the evidence given by the defense as
to the incident which destroyed the vehicle. I do not accept the
evidence given by Mr. Muyonde of identification except to the
extent that the persons were of African race. He himself admits
that he saw the men only for a short time in the light given by
parking lights of the bus. The latter could hardly be a high-
powered source of illumination. He agreed that at first he had
said that the passenger was bearded. He identified the person in
the driver’s seat as Joseph Chanda yet the latter could not drive.
Neither man seemed to understand him though he spoke in
English or Nyanja, languages which both Wilson Chinyuma and
Joseph Chanda’s case, who had been in steady employment for
five to six years with the Plaintiff, that these two men would take
part in an enterprises which was intended to damage the
Luangwa Bridge and could and did cause the deaths of a number
of innocent Zambian bus passengers. The presence of the sub-
machine gun and military equipment also points away from
Wilson and Joseph. Had they been bribed to take the explosives
to the bridge, why should they take a sub-machine gun and
webbing equipment?

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 60

On the evidence, I am satisfied that the vehicle was blown up by

an explosive charge placed in a fire extinguisher and attached to a
girder forming part of the chassis of the vehicle. I am satisfied
that the explosive was placed and detonated by persons other
than Wilson and Joseph. I draw the inference that at some stage
on its journey back from Malawi, the vehicle was hi-jacked and
Wilson and Joseph done away with by persons who wished to
damage or destroy the Luangwa Bridge and who seized the
vehicle for that purpose. Who these people are is a matter of
conjuncture, but it seems likely that they came from
Mozambique, the frontier of which is only a few yards from
Zambian frontier in the Luangwa bridge area. The explosive was
placed against the girder and the vehicle then driven to the spot.
Again this points to the hi-jacking having taken place close to the
bridge as it is unlikely that the vehicle would be driven all the
way from Malawi with the explosive in situ. From the fact that
the sub-machine gun, bullets and traces of webbing equipment
were found and the fact that the perpetrators had asses to a fairly
large amount of plastic explosive, it seems to me that they where
members of some military of para-military organization whose
interests would be served by damaging communications in
Zambia. Whether these were forces of a neighboring State acting
officially or unofficially or whether they were freedom fighters or
guerillas hoping to disturb relations between two neighboring
States is a matter of conjuncture. In coming to my conclusion that
the perpetrators were from some organized body, I take note as a
notorious fact that there have been hostilities in Mozambique
between freedom fighters and the government forces there.

That there was not in fact more damage done was due to the fact
that the tanker was carrying diesel and not petrol.
The action falls to be decided on the forgoing facts. I will deal
first with that part of the defense based on question 20 of the

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proposal for insurance. The proposal was made on October 5,

1966, and question 20 reads as follows-

“20 Have there been any accidents or losses (whether resulting in

a claim or not) during the past three years in connection with any
motor vehicle owned or driven by or for you? If so given full
details below.”

The answer made to that question on October 5,1966, was “No”

and it is not disputed that that answer was correct at the time. The
policy was subsequently renewed on October 5, 1967. The
declaration at the bottom of the proposal form contains, Inter
alia, the following-

“ I/We submit this proposal to the Old Mutual Fire and General
Insurance Company of Zambia Ltd, and I/we hereby declare and
warrant that the answers given above the are true and correct in
every respects and are deemed to be warrants and shall be
promissory during the currency of this insurance and I/we agree
to give immediate written notice to the Company of any
alteration of the risk herein submitted; and subject to such notice
the payment of each renewal premium shall be considered to
have re-affirmed the answers to the questions in this proposal.
That I/we have not concealed any important circumstances that
ought to be communicated to the company.

It was submitted by the defense that as an accident had

admittedly occurred to another vehicle EL 311 of the plaintiff in
January 1967, the answer to that question should have been
“yes”. The declaration had re-affirmed the answer as “no”. As
this was incorrect and a warranty, the policy could be avoided.

I agree that on the proposal from the answer “no” was a warranty.
If the plaintiff had been required specifically to make a fresh

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answer to question 20 when she renewed the policy on October

1967 and had answered “no”, this would clearly have been in
breach of the warranty. The declaration does not however, make
such a specific and unqualified requirement. It first contains an
agreement by the plaintiff to give immediate written notice to the
company of any alteration of the risk. It then states-
“ …subject to such notice, payment of each renewal shall be
considered to have re-affirmed the answers to the questions…”

[1] Clearly the defendant is not requiring notice of circumstances,

including accidents which do not alter the risk. If the company
had wished notice of all accidents, it could have clearly said so.
Instead it required notice of accidents alerting the risk. This is
fully understandable as motorists frequently have minor
accidents, e.g. a dented fender entering a garage, which are of no
interest to the Company unless a claim is made.

[2] Counsel for the defendant did submit an argument that it was
for the company to decide whether the risk was altered and that
therefore all accident should be reported. I do not accept this.
Whether the risk is altered is a question of fact. If an insured
person fails to report an accident, he takes the risk that it might
turn out to be such an accident a alters the risk. If it does, he may
suffer. If it does not, fact that he has not reported it does not
prejudice him.

In this case there was conflicting evidence on whether the

accidents was material. The plaintiff’s experts said the accident
was not material and need not be reported. The defendant’s
Administrative Manager said the accidents should have been
reported so he could make inquires. Another insurance witness
called by the defense said that accident was material and should
have been reported. He admitted, however in cross-examination
that should have been the same position as the defendant

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company, and the accident and circumstances had been reported

to him, it would not have caused him to refuse the insurance or to
increase the premium.

In my opinion the effect of the evidence of the last witness was

that the risk was not altered. The distinction which the
defendant’s witnesses were making between materiality and
alteration of risk was somewhat difficult to follow. It seems,
however, to be in effect what was submitted by defense counsel-
namely that the accidents necessitated a report so in fact it turned
out that the risk was not altered.

I have already stated that I do not agree with this proposition. I

do not agree that on wondering of declaration the plaintiff was
required to report accidents which did not alter the risk. I find a
fact that this was such an accident. I do not consider that the
defendant, having led plaintiff not to report such an accident by
the terms of the declaration, can rely on the answer “no” as being
an incorrect answer and a breach of warranty enabling the
avoidance of the policy.

In so far as there is any distinction in respect of the materiality of

the answer or that the accidents did not may be an important
circumstance which should have been communicated, I consider
that the same considerations apply and the policy cannot be
avoided on this ground.

The vehicle was insured for use for social, domestic and pleasure
purposes and for the business or occupation of the insured.
Excluded from the risk, however, was use “ for the carrying of
explosives” or “for any unusual or specifically hazardous
purpose” I consider that the first of these defences fails for the
following reasons-

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[3] (1) The use was not by the accused or with his authority but
was a use made of the vehicle by third parties who had stolen the
vehicle. The vehicle had clearly been taken with an intent to deal
with it in such a manner that it could not be returned in the
condition in which it was at the time of the taking vide the
definition of theft in section 236 (2) of the Penal Code. Although
loss by theft is not pleaded, it would seem to me unreasonable
that, the vehicle having been stolen and liability having arisen,
the insurance can avoid the policy if the vehicle I then destroyed
while being used by the thieves in some matter excluded from the
cover of the policy. I do not consider that the limitation on use
applies to by third parties unauthorized by against the wishes of
the insured person.

[4] (2) It is clear that the explosives were moved by means of the
vehicle for some distance, probably short, prior to the explosion.
They were not, however, in the load carrying part of the vehicle. I
do not consider that the exclusion applied to small quantity of
explosives which were affixed to the chassis for the purpose of
blowing up the vehicle. (3) the carriage of the explosives had
ceased and it was not intended that the vehicle would move again
except, of course, through the air in various disintegrated parts.
The loss was caused by deliberate act which was in no way
related to the carriage which had ceased.

The defense relating to use for an unusual or hazardous purpose

also fails in my opinion for the first reason given in the last
mentioned defense. I also don’t consider that the words “unusual
or specifically hazardous purpose” are apt to exclude a deliberate
blowing up of the vehicle. They relate to the use of the vehicle as
a vehicle and in a manner which causes it to run some unusual or
specifically hazardous risk. They do not refer to the use of the
vehicle, but as some form of bomb or land mine.

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I consider that this defense fails. The last defense is based on

general expectation 5 which, inter alia, excludes loss due to “act
of foreign enemy hostilities or warlike operations (whether war
be declared or not). Counsel for the plaintiff has made the point
that this defense is not raised on the pleadings. I agree that those
words are not specifically directed to the defense which only
refers in general terms to General Expectation 5. Also the
particulars are no their face confusing as they refer to paragraphs
of the original defense and not given before the amended defense
was filed. I consider in context, however, that it was clear to
plaintiff that the defense related to the words quoted from
exception 5 and I do not consider that the point raised by counsel
for the plaintiff is valid.

[5] I have already held that the explosion was caused by some
organized body with intent in damaging or destroying the
Luangwa Bridge. I have been unable to draw a definite
conclusion as to that particular body was responsible. If the act
were done by Government forces of Mozambique whether
officially or unofficially, that clearly would be warlike act of one
Government against another. If it were done by guerilla or
freedom fighters with the aim of disrupting relations between
Zambia and Portugal, it was done as an act in the fight carried on
by such persons against the Government in Mozambique.
Although the act was outside Mozambique and was against
innocent third party, I consider that it was a warlike act. I
consider, therefore, that in context of the struggle for freedom in
Mozambique this attempt to damage or destroy the Luangwa
bridge comes fairly within the word “hostilities or warlike
operations” I consider that this is positively so. General exception
5, moreover, places upon the Plaintiff the onus of providing that a
loss was not to due to any of the causes referred to in General
Expectation 5. The plaintiff has in any case in my view failed to
discharge this onus.

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I consider, therefore, that the claim fails and that there must be
judgment for the defendant.

I could have decided the case solely on the last ground, but have
dealt with all defenses in case there is an appeal. I would add that
had I found in favour of the Plaintiff I would have valued the
vehicle at K4000.

A number of authorities were cited by counsel on both sides.

That I have not thought it necessary to refer to them is due to my
view of the facts and is no reflection on counsel. There will be
judgment for the defendant with costs.

The Motor Union Insurance Co. Ltd. v A K D

Damba (Uganda) 1963 E.A.L.R. 271.
The plaintiff an insurance company, filed a suit against the
defendant insured, under S. 104 (4) of the Traffic Ordinance,
1951, for a declaration that the company was entitled to avoid a
motor insurance policy issued to him on the grounds that the
same was obtained by non-disclosure of material facts/and or by
representation of facts where were false in some particulars. For
the defendant it was contended that the proceedings were
incompetent until a judgment has been given in a case brought
against the defendant as a result of which the defendant could
chain to be indemnified under the policy of insurance. It was
common ground that no action had been stated against the
defendant under the policy. The proposal firm had been filed in
by the plaintiffs agent and it was alleged that full and accurate
disclosures were made orally to him by the defendant.

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Held: The proviso to Sub – S. (4) of S. 104 of the Traffic

Ordinance, 1951, was not applicable as no action hed been stated
against the defendant under the policy.
the action was competent. The defendant’s evidence was not
truthful the plaintiff company’s agent had no information other
than that disclosed in the proposal form, but even if the had, that
information could not be imputed to the plaintiff company.

It is well established that a contract of insurance is uberrimae

fidei and therefore requires utmost good faith from both parties
during the making of it. Non disclosure of a material fact or a
representation of a false fact in some material particular renders
the contract avoidable. Non disclosure of a material fact as such
may not by it self be a ground for damages, the only remedy
available would appear to be the avoidance of the contract. The
contract being uberrimae fidei the insurer is entitled to be put in
possession of all material information possessed by the insured”
“Up 240 the plaintiff company is entitled to the declaration
sought because it has satisfactorily discharged the anus which is
upon it of stabilizing that the certificate were obtained by the
defendant by the non disclosure of a material fact”.

Jubilee Insurance Co. Ltd. v John Sematengo

(1965) E.A.l.R 233 (Uganda)

The plaintiff an insurance company, filed a suit against the

defendant insured for a declaration that the company was entitled
to avoid a motor insurance policy issued to him on the grounds
that the same was obtained by non disclosure of material facts
and by misrepresentation of facts which were false in some
material particular. It was common ground that there was no
action commenced and pending or a judgment obtained against
the defendant. For the defendant it was submitted that having

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regard to the provisions of S. 104 (4) of the Traffic Ordinance

1951 the action was not maintainable in law because action had
been taken nor judgment obtained against the defendant which
the defendant Gold claim to be indemnified by the plaintiff
company. The judge found that the insurance policy was
obtained by the non disclosure of a material fact and by a
representation of fact which was false in some particular.

Held (1) the purpose and intent of the provisions of S 104 (4) of
the Traffic Ordinance 1951 is to enable an insurance company to
avoid an insurance policy on the ground of non disclosure of a
material fact or misrepresentation of fact which is false in some
material particular, regardless of any provisions in the insurance
policy.

(2) it is not necessary that before an action for declaration can be

maintained in law, an action must have been commenced and
pending or a judgment obtained against the insured and
accordingly the action was maintainable in Law.
Declaration as prayed

Sir UDO UDOMA CJ: “Unless the policy has been cancelled
before liability to a third party is incurred and the certificate of
insurance has been surrendered by the insured, insured are not
intended to rely upon non-disclosure or misrepresentation by the
assured as ground upon which to avoid liability to that third party
who has obtained judgment against the insured in respect of
death or bodily injury arising cut of the use of the assured motor
vehicle on the road. In order to avoid such liability to a third
party the insurer to avoid such liability to a third party the insurer
most go further and commence proceedings within a specified
line, for a declaration that he is or was entitled to avoid the
assured policy upon the ground of non disclosure or in is

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representation of a material fact, apart from the terms of the

policy”
________________________

Even if a proposer gives a seemingly true answer to a question in

a proposal form he is not necessarily protected if the statement is
false when taken in relation to other relevant facts which are not
stated.
.
South British Insurance Co. Ltd v Samiullah
(1967) EALR 659

The respondent had a motor policy with the appellant insurance

company covering his car against theft, which policy expired on
November 7, 1964. On November 20 1964 the respondent learnt
that his car had been stolen, and later that day he went to the
offices of the appellant and handed over a cheque for the renewal
of premium, which he had been told, would be a condition
precedent to the issue to him of a new policy valid from
November 7. Still later on November 20 the respondent having
collected his new policy, notified the appellant that he wanted to
make a claim as his car had been stolen. A Mr. Hicks, the
manager of the appellant’s motor insurance department there and
then concluded from what he was told by the respondent that the
respondent must have known that the car had been stolen before
receiving the new policy. Instead of repudiating the policy,
however, the appellant later wrote to the respondent rejecting the
claim as not coming within the policy; and later still the appellant
cashed the respondent’s cheque for the premium and after further
lapse of time on May 10, 1965, it paid the respondent the amount
of his claim. The appellant then, on May 20 1965 sued the
respondent in the High Court claiming the return of the amount

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paid. The plaint as originally framed alleged that no theft had in

fact occurred and that the money was paid over on a fraudulent
representation by the respondent that the car had been lost by
theft. But in November 1965 the Plaint was amended to allege in
the alternative that the appellant was entitled to avoid the policy
because it had been obtained by the respondent wrongfully
concealing that the car had been stolen before the insurance had
been effected. At the trial the appellant conceded that the car had
in fact been stolen. The trial judge found that at the time. The
trial judge found that at the time he got the policy the respondent
knew of the theft which would have entitled the appellant to
repudiate, but in the circumstances the appellant had waived its
right to repudiate, relying inter alia on the delay in amending the
plaint. The appellant appealed and the respondent cross-
appealed. One of the points argued by the appellant was that the
amended plaint related back to the date of the original plaint so
that the judge should not have found that there was a delay in
repudiating the policy amounting to a waiver.

Held: (i) even if an amended plaint does relate back to the date of
the original plaint for some purpose, such relation cannot
generate so as to preclude a judge from taking note of the date of
the amendment if such date is material to the issues for decision
(as it was in this case);

(ii) on the facts the trial judge should have found that the
appellant had knowledge on the day when the insurance was
effected that the respondent had concealed a material fact before
the contract of insurance was effected;

(iii) that from that moment, or a reasonable time thereafter, the

appellant should have repudiated the policy;

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(iv) that when it paid the claim the appellant had constructive
notice (through Hicks) of the facts and could not recover the
money (Bilbie v. Lumley (1802) 2 East 469)

Appeal dismissed. Cross-appeal allowed

_________________________________________

6.9. The Principle of Indemnity

All contracts of insurance except life insurance, personal
accident and sickness insurance are contracts of indemnity. In
this class of insurance the amount that is recoverable is measured
by the extent of the pecuniary loss sustained through the
happening of the event upon which the insurer’s liability arises.

When an insurance contract is said to be a contract indemnity, it

means that in the event of a loss resulting from a risk insured
against, the insured t shall be placed in the same position that he
was in immediately before the happening of the event insured
against. The insured is not, under any circumstances, to recover
more than his actual financial loss.

As long as the object of the contract is indemnification the

contract remains one of indemnity even if the value of the
potential loss is higher than the actual loss.

In the leading case of Castellain v Preston1, the principle of

indemnity was described by the English Court of Appeal in
which was stated, among other things, as follows:

1
(1883) 11 QBD 380

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“The very foundation, in my opinion, of every rule which

has been applied to insurance law is this, namely, that
the contract of insurance contained in a marine or fire
policy (and that equally applies to accident policy other
than personal accident) is a contract of indemnity and of
indemnity only, and that this contract means that the
insured, in case of a loss against which the policy has
been made, shall be fully indemnified, but shall never be
more than fully indemnified. This is the fundamental
principle of insurance law and even a proposition
brought forward which is at variance with it, that is to
say, which either will prevent the insured from obtaining
a full indemnity, or which will give the assured more
than a full indemnity, that proposition must certainly be
wrong.”

Although in practice is it possible for the insured to recover less

than complete indemnity, for example, where he under insurers,
it is illegal and against public policy for the insured to recover
more than his actual loss. The law takes the position that it is in
the overall interest of the public that an insured should forbidden
from making a profit from what is essentially a misfortune. It is
easy to appreciate why this should be so. If the insured were
allowed to gain by the loss or destruction of his insured property
there would, understandably be a temptation to destroy it and
this would be injurious to the interest of the public generally.

Insurance contract such as those of life insurance and some

accident insurance policies which provide that the insured will be
paid a specified sum of money on the happening of a specified
event are clearly not indemnity insurance contracts.

Valued polices provided an exception to the general principle of

indemnity. Under a valued policy the insurer and the insured

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agreed before hand on the sum payable in the event of a loss, so

that in the event of a total loss the agreed sum or value is
recoverable by the insured even though it may exceed his actual
loss.

In the case of Darrel v Tibbits1 a landlord let out a property to a

tenant under a lease agreement which obliged the tenant to repair
the property in the event of damage by fire. The property was
also insured by the landlord against fire. In due course a fire
occurred and occasioned considerable damage to the property.
The Landlord successfully claimed under the fire insurance
policy. Later on the tenant repaired the property. It was held that
the insurer could recover the monies paid to the landlord under
the policy since the landlord had not suffered any loss.

Practical Application of the Principle of Indemnity

In motor insurance, where there is a total loss ie. the insured’s

vehicle is damaged beyond economic repair, the insured is paid
the market value of the vehicle immediately after the accident.
The sum insured is the maximum liability of the insurer. Where
there is only partial loss to the insured’s vehicle, the insurer
indemnifies the insured by paying for the cost of repairing the
damage, where the vehicle is reparable. In some cases the
damaged vehicle is still repairable but because the estimated cost
of repair would exceed the market value of the vehicle after it has
been repaired, the insurer might decide to deal with the claim as
constructive total loss. In that case the insurer indemnifies the
assured by paying him the pre accident market value of the
vehicle or the value of a vehicle of similar make, type, age and
condition.

1
(1880) 5QBD 560

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Once an insurer settles a claim either as a total loss or as

constructive total loss, and provided the insured has been fully
indemnified, the insurer automatically becomes entitle to the
salvage or remains of the insured vehicle and may deal with it as
he deems fit. The principle of indemnity would be defied if the
insured retained the salvage after being indemnified.

In general, the test adopted by insurers as a guide in determining

the amount that would suffice to indemnify the insured is the
“market value” test, ie., the market value of lost or damaged
property at the time and place of the event resulting in the loss or
damage.

As already pointed out, the law does not regard personal accident
and life assurance policies as contracts of indemnity because of
the obvious difficulties that would arise in any attempt to fix and
monetary value on human life and limb. In relation to life
assurance the effect of this position is that there is legally no limit
on the number of life policies that a person may take out on his
own life.

The maximum is that the insured must not take with both hands.
This means that if the insured has been indemnified by his insurer
to the full extent of his loss, he is bound to transfer to the insurer
any rights which he may have against a third party in respect of
the loss.

If the insured parts with or ceases to have any interest in the

subject matter of the insurance then the insurance comes to an
end. Insurance law takes the position that in the event of a loss or
damage arising after the insured has sold or parted with the
property insured, he cannot be said to have suffered any loss for
which he must be indemnified. Besides an insurance contract is
a personal contract in the sense that it is personal to the particular

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insured and the particular insurer. In Rogerson v Scottish Auto

Mobile & General Insurance Company,1 the plaintiff owner
insured his motor vehicle for twelve months. A few months later,
he exchanged the car for another one. The new car was involved
in an accident and the insured put in a claim in respect of the
damage to the new car. The claim was rejected by the insurers on
the ground that they did not insure the new car. It was held that
the insurance company was not liable to meet the claim because
the subject matter of the insurance had been changed.

Zambia State Insurance Corporation v Serios

Farms Ltd (1987) ZR 93
The respondent took out with the appellant three insurance
policies in respect of their maize crop covering the risk, inter
alia, of reduced yields due to drought. It was in evidence that the
effect of the drought depended on, among other things, that stage
of the growth of the crop when the deficiency in the rainfall
occurs. The respondent had a number of fields under cultivation,
some of which did quiet well and exceeded the insured harvests.
Other fields did rather poorly. A clause in the policies required
expeditious notification of any possible claim by telex, telephone,
or any fastest means. On 13th January 1983 and 7th March
1983,the appellant’ agricultural inspector was informed orally by
the respondent’s farm manager- while the two were engaged in
inspecting the fields- of a possible claim due to drought. The
dispute on this matter, that is to say whether such conversation
took place or not, was resolved on an issue of credibility. The
respondent did notify the appellant’s representatives and
followed this up with correspondence. The respondent later
claimed indemnity under the policies in the sum of K245,867.33

1
(1931) 48 TLR 17

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as extra damages over the amount due under the policies for
consequential loss suffered as a result of the appellant’s refusal to
pay the claim. In addition the trial court awarded K100,000
general damages for inconvenience. Interest was awarded at the
rate of 13%. The appellant appealed against the award of extra
sums over and above the drought-loss. The respondent has been
kept out of his money, and a fair average rate of interest should
be applicable.

Held: It would be unrealistic to ignore the fluctuations in the rate

of interest when the respondent has been kept out of his money
and a fair average rate of interest should be applicable.
An insurance policy only covers the losses which were the
subject matter of the insurance itself and that any consequential
losses cannot be claimed under the policy unless expressly
stipulated in the contract. Non-pecuniary losses may be covered
if they were within the contemplation of the parties as not
unlikely to result from the breach. In the case of inconvenience,
the damages have normally regarded as equivalent to an award of
damages for detention of debt.

NGULUBE, D.C.J., The major part of the appeal is concerned

with some extra sums of money which were awarded as damages
over and above the amount due as indemnity under the policies.
The respondents had pleaded and claimed in the case additional
sums, namely, K177,170.28n allegedly lost because they planted
a smaller hectarage of maize in the next season allegedly because
of the appellant’s refusal to pay the claims. . .

The Plaintiff had by July 1983 budgeted to crop 780 hectares of

maize but due to the Defendant’s deliberate refusal to pay as
aforesaid the plaintiff had to reduce planting by 249.36 hectares
and the plaintiff therefore, claims from the defendant
K177,170.28 expected income 249.36 hectares of maize not

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planted due to the defendant’s negligence in refusing to pay the

plaintiff’s claim.”

According to the evidence the appellant’s refusal to pay in the

respondent’s failure to plant their full hectarage of maize due to
financial difficulties such as inability to fulfill their obligations to
their bankers who had previously provided overdraft facilities.
The respondents had also had claimed general damages which the
learned trial commissioner assessed at K100,000. The appellant
has appealed against the award of these extra sums over and
above the drought loss.

The ground of appeal against the general damages is that the

learned trial commissioner misdirected himself in law by
awarding K100,00 as general damages because on a contract of
insurance the loss is confined to the loss or damage to the subject
matter of the insurance but does not extend to consequential loss.
The ground against the award of special damages was that the
learned trial commissioner misdirected himself in law in
awarding to the respondent K177,170.28 special damages
because this claim was speculative and not based on what the
respondent had actually lost. The upshot of Mr. Mwamba’s
arguments was against these awards was that these general and
other special damages were alien to the policies and that it was,
therefore, a misdirection in law on the part of the learned trial
commissioner to have made these awards. He submitted that
there was no authority to support the payment of damages on
account of non-payment or late payment of money under an
insurance policy. He relies, inter alios, on paragraph 3 of vol.25
4th Edition, of Halsbury‘s Laws of England which discusses the
principles of indemnity and reads:

“3. The principle of indemnity. Most contracts of insurance

belong to the general category of contracts of indemnity in the

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sense that the insurer’s liability is limited the actual loss which is
in fact proved. The happening of the event does not of itself
entitle the assured to payment of the sum stipulated in the policy;
the event must infact result in pecuniary loss to the assured, who
then becomes entitled to be indemnified subject to the limitations
of his contract. He can not recover more than the sum insured,
for that sum is all he has stipulated for by his premiums and it
fixes
the maximum liability of the insurers. Even within that limit,
however, he cannot recover more than what he establishes to be
the actual amount of the loss. The contract being on of indemnity,
and indemnity only, he recover the actual amount of his loss and
no more, whatever may have been his estimate of what his loss
would be likely to be and whatever the premiums he may have
paid, calculated on the basis of that estimate.”

Mr. Mwamba also relied on paragraph 3683 of Chitty on

contracts, 25th Edition, in particular the following:

“Nature of loss. Contracts of insurance providing cover for loss

or damage are constructed so as to extend only to loss of or
damage to the subject-matter of the insurance itself. The loss of
profits and other consequential losses, such as loss of salary after
an accident, or loss in value of uninjured goods due to damage
to other goods, are not covered unless expressly stipulated.”

. . . it is obvious that the principles applicable to a contract of

insurance, and as discussed in the passages we have quoted, are
not in dispute. An insurance policy only covers the loss which
were the subject matter of the insurance itself and that any
consequential losses cannot be claimed under the policy unless
expressly stipulated in the contract. There was no such stipulation
suggested in this case and the awards complained of cloud not

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possibly be supported on the basis that the contract of insurance

in questions provided for them.. . .

In our considered view, the award of general damages for

inconvenience in the present case was not within the principles
for the award of such damages and the award must be set aside.

As we see it, what the contract of insurance entitled the

respondents to be paid the amount of loss due to drought, which
was one of the events insured against. Because payment was not
made at the proper time, the respondents have been adequately
compensated by an award of interest for being kept out of their
money. The further award of K100, 000 as general damages for
inconvenience was without legal support and could not be made
in such a case. In sum, the appeal succeeds on the two major
points taken up by Mr. Mwamba. The awards of K177, 170.28
and K100, 000 are set aside. The costs of this appeal follow the
outcome and are to be taxed in default of agreement.
_______________________

A contract of fire insurance is an indemnity insurance

Castellain v Preston (1881-5) ALL ER Rep. 493

Preston had signed a contract to sell a house. It was damaged by
fire before the sale had been completed, and the insurance
company, in ignorance of the sale, paid him £330 due under the
policy. Afterwards the sale was completed, and he received the
full purchase price for the house from the buyer. The insurance
company claimed that the contract of fire insurance was one of
indemnity, and that the amount of the purchase price, which
Preston had received, should be taken into account in calculating
the loss he had suffered.

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Held, by Court of Appeal, that this contention succeeded.

BRETT, L.J. (at page 495) Every contract of marine or fire

insurance is a contract of indemnity, and of indemnity only, the
meaning of which is that the assured in case of a loss is to receive
a full indemnity, but is never to receive more. Every rule of
insurance law is adopted in order to carry out this fundamental
rule, and if ever any propositions is brought forward, the effect of
which is opposed to this fundamental rule, it will be found to be
wrong. There are many propositions bearing on the question, and
many rules may be glanced at which are well known in insurance
law. The doctrine in order to carry out the fundamental rule. It is
a doctrine which is in favour of the assured, because where the
loss is not an actual total loss, but is what as a matter of business,
is treated as equivalent to a total loss, this rule is adopted to carry
out the fundamental doctrine and give the assured a full
indemnity. Grafted on that doctrine came the doctrine of
abandonment, which is only applicable to cases of constructive
total loss, and is introduced in favour of the underwriters, so that
they may have to pay no more than an indemnity. So it appears
that these two doctrines were introduced in order to carry out the
two limits of the fundamental doctrine to which I have referred,
namely, that the assured shall get a full indemnity, and that he
shall get no more.
_____________________________________________

6.10. The doctrines of Subrogation and

Contribution
Subrogation

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Subrogation in insurance law refers to the right of one person to

stand in the place of another in order to avail himself of that
other’s rights and remedies. In the American case of Anold v
Green 1, subrogation was defined as “the mode which equity
adopts to compel the ultimate payment of a debt by one who in
justice, equity are good conscious ought to pay it.”

It is the right of the insurer who has granted indemnity by paying

the insured’s claim to receive the advantage of every right of the
insured against the third parties which may reduce or
extinguishes the insurer’s loss. In this sense therefore,
subrogation vindicates the principle of indemnity. Subrogation is
a corollary to the principle of indemnity and its purpose is to
protect the more fundamental principle of indemnity by making
impossible for the insured to make a profit from his insured loss
as would have been the case if he were allowed to collect his loss
from the third party responsible for the loss. For example, where
an insured motor vehicle is involved in an accident through the
fault of a third party, the insured car owner would have a cause of
action for recovery for the loss suffered. Yet, if he successfully
claims on the policy of insurance, he must subrogate his rights
against the third party to the insurer. An insurer becomes entitled
to exercise subrogation rights once a claim is settled and the
insured is indemnified.

The insured is in bound in equity to lend his name to any

proceeding that the insurer may chose to take against the third
party.

One theory on the origin and basis of the doctrine of subrogation

is that it stems from equity. Clearly that is the school of thought
which the court in Anold v Green (supra) subscribed to. Another

1
161 NY 566

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theory is that it is based on implied terms in the contract of

insurance.1

The doctrine of subrogation applies to indemnity insurance and

has no application to life assurance.

In John Edwards & Co. v Motor Union Insurance Co.2 it was

held that the right of an insured person to claim compensation
from a third party in tort or contract is not in any way affected or
diminished by the fact of his having received an indemnity from
his insurers. Such an insured person having been indemnified by
his insurers may still claim from the third party, but whatever
monies he recovers from the third party must be held by him in
trust for the insurers to the extent of their outlay.

Extent of Subrogation

In exercising his subrogation rights, the insurer is entitled to an

amount equal to what he has paid to the insured. Any recovery
over and above or in excess of the insurer’s outlay must be
handed over to the insured. For example, Hampande buys a
motor vehicle for K100million. He insures it for K50m. In an
accident that occurs as a result of Kasheta’s negligence, the
vehicle is damaged beyond economic repair. All that Hampande
can claim from his insurer is the sum insured of K50 million. If
the insurers in exercising their subrogation rights against Kasheta
succeed in recovering the full value of the car, namely K100
million, they are only entitled to keep the sum of K50 million and
the balance of K50 million must be handed over to Hampande. In
this regard it is not far fetched to argue that Hampande in fact is
being unjustly enriched.

1
See for example Orakpo v Manson Investments Ltd. (1978) AC 95
2
(1922) 2UB 243

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What is perhaps interesting is how the courts have dealt with the
issue of interest. Where the insured recovers interest from the
third party, the part of the interest which corresponds to the
period since the indemnification of the insured by the insurer can
be claimed by the insurer. In the case of H Cousins &
Company v D & C Carriers Limited 1 the insured’s goods in
transit disappeared in December 1965. The insured was
indemnified for the loss by the insurer in August 1966. Later that
year in November 1966, the insured recovered the value of the
goods from the carries. On the issue of interest, the Court of
Appeal held that interest was recoverable, and that in order to
give business efficacy to the contract of insurance and to ensure
that the plaintiff owner were not over compensated it was
necessary to imply a term into the contract of insurance, that the
insured could retain any interest awarded for the period before
August 1966 but the interest awarded for the period after that
date should go to the insurer.

Contractual Exemption or Limitation of subrogation

Where the insured agrees with a third party that the liability of
the third party shall be excluded or limited, the rights enforceable
through the principle of subrogation by the insurer are restricted
to the same extent..2

Alteration of the Principle of Subrogation by Conditions in a

Policy.

Under the general law the right of subrogation is vested in the

insures after they have paid the claim made against them by the

1
(1971) 2QB 230
2
See Lister v Romfold Ice & Cold Storage (1957) AC 555

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insured, not before. It is however not uncommon to embody in a

policy of insurance a clause or condition providing that the
insurer may exercise his subrogation rights before payment has
been made to the insured for the loss covered by the policy of
insurance. The effect of such clause is to modify the common law
doctrine of subrogation to the extent that the insurer may be
subrogated to the insured’s rights and remedies even before
payment has been made.

It is the insured’s duty to assist the insurer to exercise his rights

of subrogation. Such a duty is implied in law and is usually
amplified by the contract of insurance. The answered is under a
duty to do nothing which prejudices the insurer’s rights, e. g if he
releases or compromises with persons who are under the liability
to him in respect of the loss insured against, he will be liable to
the insurer for the full value of the rights compromised.

Contribution

A person may take out as many insurance policies as he chooses

against the same risks and in the event of loss he may claim
payment from any insurer as he desires. The term contribution in
insurance law has been described as the right of an insurer who
has paid under a policy to call upon other insurers equally or
otherwise liable for the same loss to contribute to the payment to
the insured.

As a legal doctrine contribution has its origins in the English

Courts of equity where it was first developed as a means of
ensuring the equitable distribution of liability amongst joint or
debtors or joint wrong doers. For example if Mandona and
Chileshe both motorists, by their contributory negligence cause
damage to Kubota’s wall fence, their collective acts of
negligence make them jointly and severally liable to Kubota, and

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Kubota may claim damages from either Mandona or Chileshe or

from both of them. If he claims in full from Mandona, Mandona
having paid Kubota in full, is entitled to obtain contribution from
Chileshe, the joint tortfeaser.

In insurance law, contribution arises where there is one or more

insurance polices in force at the same time coving the same
subject matter, the same interest and the same risk. As stated
above, nothing can prevent a person from effecting more than
one policy of insurance in respect of the same risk. However, the
principle of indemnity insists that the sum total of his recoveries
under all polices must not exceed his actual financial loss.

A person may, for example, insure his vehicle comprehensively

with Professional Insurance company and Madison Insurance
Company for the same period and against the same risks, but in
the event of loss, he can only recover the exact amount of his loss
i.e. a full indemnity and no more from either Professional
Insurance Company or Madison Insurance Company. The
principle of contribution allows the insurer who has paid in full in
these circumstances to recover a proportionate contribution from
the other insurer.

There is secondary meaning of contribution in insurance law i.e.

the participation of the insured himself in remedying a wrong.
_______________________________________

The doctrine of subrogation will prevent the assured from

recovering more than full indemnity.

Castellain v Preston (1881-5) ALL ER 493

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BRETT, L.J. (at page 495) . . .The doctrine of subrogation is

another proposition which has been introduced in order to carry
out the fundamental rule. It was introduced in favour of the
underwriters, in order to prevent their having to pay more than a
full indemnity, not on the ground that the underwriters were
sureties, for they are not so always, although their rights are
sometimes similar to those of sureties, but in order to prevent the
assured recovering more than a full indemnity.

The question is whether the doctrine as applied in insurance law

can be limited. Can it be limited to putting the underwriters in the
place of the assured in order to enable them to enforce a contract
or a right of action? Why should we limit it to this, if the effect of
so doing would be to entitle the assured to more than a full
indemnity? In order to apply the doctrine properly we must go
into the full meaning of subrogation, which is the placing of the
assurance in the position of the assured. In order fully to carry out
the fundamental principle we must carry out the doctrine of
subrogation so far as to say that, as between the underwriter and
the assured, the underwriter is entitled to every right, whether of
contract fulfilled or unfulfilled, or in tort, enforced or capable of
being enforced, or to any other right, legal or equitable, which
has accrued to the assured, whereby the loss can be has been
diminished. That is the largest form in which I can put the rule. I
use the words “every right” because I think the doctrine requires
to be carried to that extent.

Hunts Travel Services Ltd v Pioneer General

Insurance Ltd (1973) EALR 559
(Uganda)

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The appellant was held to be soughtly liable with one Okoti to a

claimant in respect of a satisfy the judgment in full and then sued
the respondents the insurers of Okoti. The high court held that
the appellant was a stranger to any contract between Okoti and
the respondent and that subrogation could not apply.
The appellant appealed contending that subrogation did not only
arise out of contract but also out of interest enrichment and that it
was the rights of the claimant to which the appellant sought to be
subrogated. For the respondent it was contended that while the
respondent would have had to defense to an action by the
claimant it would have had a defense to a claim by Okoti to an
indemnity.

Held the appellant paid a debt owed by it (E) not by another.

The appellant could not succeed to the rights of claimant as she
had no subsisting rights. The appellant had no claim against the
respondent

Appeal dismissed

Spry J at page 560 . . .Hunts could in theory recover Sh 30 000/-

from Okoti by way of contribution ….Hunts can have no right of
action against pioneer in contract since there is no privity of
contract between them, and there is no statutory right of action.
There can be no question of succeeding to the rights of Mrs.
Mamheimer as she has no subsisting right.

6.11. Construction of Insurance Policies

The terms construction of polices refers to the rules that the
courts would apply in the event of their being called upon to
interpret the terms of insurances polices. The object of all
interpretation of the document is to ascertain and give effect to

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the intention of the parties to the transaction, and the intention of

the parties is to be ascertained from the document itself.

Ordinary words

An insurance policy is interpreted like any other contract or

written instrument. This means that terms, words and phrases
used in the policy are to be understood in their natural, ordinary
and popular sense unless the context shows that a different
meaning was intended, or unless by usage of a particular trade,
they have acquired a different meaning.

Thompson v Equity Fire Insurance Co. (1910) AC

592

A shopkeeper took out a fire policy which exempted the insurer

from liability for loss or damage occasioned while “gasoline is
stored or kept in the building insured” The shopkeeper had a
small quantity of gasoline for cooking only. A fire occurred and
caused considerable damage.

Held that the insurer was liable for the loss. The words “stored or
kept” in their ordinary meaning implied a significant quantity and
brought up the notion of warehousing or keeping in stock for
trading.

Gordon Leslie Ltd. v General Accident Fire &

Life Assurance Corporation plc (1998) SLT 391
A haulage contracting company insured its lorries and loads
against theft, unless a lorry was locked and the keys removed

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when it was unattended. The company had a long standing

practice whereby the drivers would leave the keys in the ignition
when the locked the lorries in the insured’s premises. This was to
facilitate removal in the event of fire. Over a weekend, one driver
left the key in the ignition of lorry at the insured’s premises. The
lorry and its load of vodka was stolen.

Held, that the exception applied only when the vehicle was
actually physically attended by the driver whilst goods were in
transit When the lorry was parked over night, there was no
question of it being unattended in the meaning of the exception.

Technical words.

The general rule that words are to be given their popular ordinary
meaning is subject to certain qualifications. Technical words or
legal words are to be given their technical or legal meaning. For
example, where the word “riot” appears in an insurance policy it
must be given its meaning in criminal law.1 Any ambiguity in the
meaning the words will be construed contra proferentem against
the person who inserted them. This rule is not really intended to
give any special advantage to the insured as such but is meant to
deprive the insurer of any undue advantage he might gain from

1
In London & Lancashire Fire v Boland (1924) AC 836. A policy on a
baker’s shop against loss by burglary, housebreaking and theft provided
exemption to the insurer from loss by, or happening through, or in
consequence of among other things, “riot” Armed men entered the shop
and stole money from the shop. There was no actual violence used, and
no other disturbance. It was held that incident constituted a riot and
therefore the insured could not recover. The court held that the term
‘riot’ was a technical term which in criminal law required only three
people executing a disturbance such as might cause alarm to a
reasonable person.

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his position as the maker of the policy. In Houghton v

Trafalger Insurance Co.1a four seater motor vehicle was
covered by a policy that excluded liability if it was used to
carrying a load in excess of that for while it was constructed. On
the day of the accident, the car was carrying two extra
passengers. The court considered the meaning of the word
“loads” in the policy and held that it was intended to cover lorries
built to carry specified load and did not apply to carriage of
passengers.

Whole Policy

In interpreting the terms of a policy the whole policy must be

read in order to ascertain the real intention of the parties. Where
the proposal from is expressly incorporated in the policy it must
be read with the policy as part of the contract of insurance. In
practice, virtually all proposal forms used by insurers contain a
declaration to the effect that the information contained in the
proposal form has been incorporated in the policy and will form
the basis of the the contract.

6.12. The Nature of Cover and Loss

It is not every loss that will bring about the insurer’s liability to
settle the claim. The loss must be covered by the policy. Cover in
this context refers to the insurer’s promise and obligation to pay
or make good the loss in certain circumstances. These
circumstances may be referred to as the event insured against
and are always defined by the insurance contract. The nature of
the event, the time and place of its occurrence and the nature of

1
(1954) 1 QB 247

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the loss suffered in the case of indemnity insurance must be

within the contractual definition.

Insurance business is not a gambling business. Insurance

contracts cover events which are uncertain either as to their
occurrence or as to the time of the occurrence. An insured will
therefore not recover for certain loses such as those arising in the
ordinary course of affairs, for example, depreciation and wear
and tear unless there is an express stipulation in the contract
allowing him to do so. Even the so called “all risk cover”
policies do not mean cover literally against all risks. In British
and Foreign Marine Insurance v Grant1 Lord Summer stated
that all risk insurance is not cover against all causes of loss but
against all risk of loss: it covers a risk and not a certainty. Lord
Bikenhead added that all risk “cannot of course be held to cover
all damage however caused, for some damage is inevitable from
ordinary wear and tear and inevitable depreciation is not within
the policies.”2

English law imposes conceptual limits as part of the definition of

all risk covers. These limits are sometimes referred to as implied
exceptions are that the loss must be fortuitous (accidental) and
lawful to insure. As regard to fortuity, the rule is that loss is
fortuitous unless it was inevitable at the beginning of cover or at
the time the contract was made or it was caused by the willful
misconduct of the insured.

Ordinary wear and tear is generally excluded. Inherent vice, i.e.,

a defect in the subject matter tending to its loss (some defect
latent in the thing itself) present at the time of the insurance
cover commenced and materializing during period of cover is not

1
(1921) AC 41
2
Ibid p 46

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eligible for cover. In such instances the event lacks fortuity in

the sense that it is bound to happen sooner or later during the
period of cover.1

By their very nature, certain contracts cover instances of inherent

vice. Life assurance, for example, covers arising death from
disease as well as accident.

6.13. Public Policy

It has been the general policy of the courts to declare contracts
with a tendency to lead to crime, immorality or other effects
prejudicial to the public as void on grounds of public policy.
Public policy as Burrough J remarked in that famous dictum in
Richardson v Mellish2 is indeed an ‘unruly horse.’ In insurance
law, it is important to consider the public policy dimensions of
any insurance policy or any claim made under a policy of
insurance. A cardinal guiding principle is summed up in the
maxim ex turpi causa non actio ( no action can arise from a
wrongful cause). Secondly it is a fundamental principle of the
common law that a man may not profit from his own crime or
wrongful conduct. Since insurance contracts are understood as
intended to protect the insured against misfortune and not
against own willful misconduct, the insured who intentionally
and without lawful justification brings about the event insured
against will not generally be allowed to recover. This includes
the willful act of the insured’s agents

1
See Taylor v Dumbar (1869) LR 4 CP 206, Noten v Harding (1990) 2
Lloyd’s Rep. 283
2
(1824) 2 Bing. 229 at 252

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These rules reflects public policy that cover should not extend to
loss or damage deliberately caused by the insured. The rule
contrasts with the general presumption that cover does extend to
loss caused by the negligence of the insured.

Geinsmar v Sun Alliace and London Insurance

(1977) 2 Lloyd’s Rep. 62

The insured smuggled certain items of jewellery into Britain

without declaring them and paying the applicable taxes as
prescribed by law. For this reason, these goods were liable to be
forfeited. The insured these together with other goods with the
defendant insurers. The goods were later stolen.

Held that the insured could not recover in respect of the

jewellery, as to allow recovery in those circumstances would
enable the insured to benefit from his deliberate criminal act,
even though the profit was sought indirectly under the policy of
insurance.

Bresford v Royal Insurance (1938) AC 586

The decease insured his life. With a view to benefiting his
personal representative, he shot himself. At the time the insured
shot himself, he was sane, and his act amounted to a crime since
suicide was a crime then. His personal representative sought to
claim under the policy.

Held, that he could not recover. Public policy did not allow a
person to benefit from his criminal act. “The absolute rule is that
the courts will not recognize a benefit accruing to a criminal from
his crime. His executor or administrator claims as his

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representative, and , as his representative, fails under the same

ban.”

MacMillan LJ. ( at page 605) I feel the force of the view that to
increase the estate which a criminal leaves behind him is to
benefit him. . . And no criminal can be allowed to benefit in any
way by his crime.

Gray v Barr ( 1970) 2KB 554

The insured’s wife had been having an affair with the claimant’s
husband. On the fateful day, the insured returned home and did
not find his wife. He suspected that she was with Gray, the
claimant’s husband. He picked up his loaded gun and headed for
Gray house with a view to frightening him. At Gray’s house, the
insured and Gray were then involved in a scuffle on the stairs. In
the course of the struggle, two shots went off the gun, the second
one killing Gray. The insured was prosecuted but was acquitted
of both murder and manslaughter. The deceased’s wife then
brought a civil action in tort against the insured. The latter joined
the insurer, claiming that they were liable to indemnify him under
the policy which provided that he would be indemnified if the
loss was “caused by accident.”

Held by the Court of Appeal, that the insured was in fact guilty
of manslaughter. Public policy required that he could not recover
from his insurers the damages he was liable to pay to the
claimant in tort. The act of carrying a loaded gun and threatening
violence with it was a willful and culpable act.
_________________________

The rule against recovery for willful misconduct is confined to

the misconduct of the insured or his agent. Other assured persons

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with separate interest in the same subject matter may recover to

the extent of their interest unless their interest is so inseparably
connected with that of the wrong doer that his loss or gain
necessarily affects all of them.

Cases involving third party policies rain peculiar considerations.

An insured who deliberately commit a wrong against athird party
for which the insured is liable in damages in tort would generally
not be covered by the insured’s liability insurance. Ther appears
to be a conflict in public policy considerations here. While the
deliberate wrongful act of the insured should be discouraged,
there is the important public policy consideration in attempting to
deny a third party victim from receiving damages.

Tinline v White Cross Insurance Association

(1921) 3 KB 327
The insured took out a third party cover in respect of death or
injury arising out of the use of his motor vehicle. The insured was
involved in an accident which resulted in the death of the a
pedestrian. The insured was at the time of the accident driving at
an excessive speed. He was prosecuted and convicted of
manslaughter. The question was whether the insures were liable
to indemnify the insured against the damages he was liable to pay
in tort.

Held that the insurers were liable to indemnify the insured in

spite of the fact that the insured was in essence benefiting from
his criminal action.

James v British General Insurance Co. (1927) 1

KB 311

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The insured took out cover against liability for death or injury to
third parties arising from the use of his car. While in a state of
intoxication, the insured so negligently drove his vehicle as to
cause an accident in which a pedestrian was killed. The insured
was convicted of manslaughter.

Held that the insured was nonetheless obliged to indemnify the

insured for liability in tort to the third party.

Haseldine v Hosken (1933) 1 KB 822

A solicitor had a professional indemnity policy. He suffered loss
by entering into a champertous agreement and sought to enforce
his professional indemnity policy. He pleaded that he did not
know that he was committing the common law misdemeanor at
the time of the agreement.

Held by the Court of Appeal, that he could not recover.

SCRUTTON LJ “It is clearly contrary to public policy to insure

against the commission of an act, knowing what act is being
committed, which is a crime, although the person committing it
may not at the time know it to be so.”
____________________

6.14. Causation

The doctrine of Proximate Cause.

This is concerned with the rules which are employed in the
insurance industry to determine whether or not a loss which is the
subject matter of a claim was covered by an insured peril. In

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order to make the insurer liable to indemnify the insured, the loss
must be a direct consequence of a peril insured against. In other
words, the insured will not be allowed to recover from the insurer
unless the loss is caused by an event covered by the insurance
contract.

In Pawsey v Scottish Union & National Insurance1 proximate

cause was defined as follows:

“ Proximate cause means the active efficient cause that sets in

motion a train of events which brings about a result, without the
intervention of any force started or working actively from a new
or independent source.”

The proximate cause of the loss insured against is not necessarily

the latest cause. The courts will seek the direct, dominant,
effective and efficient cause of loss, In determining what the
proximate cause of a loss is, the courts have consistently declared
that the guide is common sense, and causation is to be understood
as the man in the street would understand it. Thus, in Becker
Gray& Co. v London Assurance Corporation2 Lord Summer
stated inter alia.

“… cause and effect are the same for underwriters as for other
people. Proximate cause is not a device to avoid the trouble of
discovering the real cause or the common sense cause, and
though it has been and always should be rigorously applied in
insurance cases, it helps the one side no oftener than it helps the
other. I believe it to be nothing more nor less than the real
meaning of the parties to a contract of insurance…”

1
“ The Times” 17th October 1908
2
(1918) AC 101. See also Wayne Tank and Pump v Employer’s
Liability Co. (1973) 2 Lloyds Rep. 237 per Lord Denning .

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In Marsden v City and County Insurance1 a shopkeeper

insured his plate-glass against loss or damage arising from any
cause except fire. In due course, fire broke out in the insured’s
neighbor’s property, prompting a mob to gather. The mob then
rioted and in consequence, broke the plate- glass. The court had
no difficulty in holding that the riot and not the fire was the cause
of the loss and that therefore the insured could recover. Like wise
in Winicofsky v Army and Navy Insurance2 insured goods
were stolen from some premises during an air raid. The court
held that the theft, and not the air raid was the cause ofr the loss.

Although in theory, the doctrine of proximate cause and the rules

applied in determining the proximate cause are clear, in practice,
difficult cases do arise when it is not so easy to determine the
proximate cause of loss, especially where the loss is caused by a
series of events one of which might be a peril or perils excepted
by the policy.

An insured peril is the risk or danger insured against e.g. in a fire

policy, fire is the insured peril. An excepted peril, on the other
hand, is one specifically excluded by the wording of the policy. It
differs from an insured peril which is not specially mentioned in
the policy. For example, most comprehensive motor polices
issued in Zambia today specifically state under General
Exception that the insurer shall not be liable in respect of damage
to the insured’s vehicle caused by strikers and rioters. In this case
strikers and rioters are expected perils under ordinary Zambian
motor policy.

1
(1865) LR 1 CP 232
2
(1919) 88 LJKB 111

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The English Court for many years adopted a rule that considered
the last cause in point of time as being the proximate cause.

Thus in Lawrence v Accidental Insurance Co. Ltd1 the

deceased had taken out an insurance policy that covered death in
case of personal injury caused by accidental means but not death
from injury caused by fits. While standing on a platform at a train
station had a fit, fell under a passing train and was killed. The
court held that the proximate cause was the impact of the train
(peril) and not the fit (exception).

The court’s reasoning was simply that if a man has a fit on a

station platform, it is likely that he will fall under a train. If he
does fall under the train, injury is probable and death is not
unlikely.

Similarly in Winspear v Accident Insurance Association2, the

deceased was insured against personal injury or death “caused
by accidental, external and visible means”, but excluding such an
accident if caused by or arising from natural disease. While
fording a steam, the insured suffered an epileptic fit, fell into the
stream and drowned. The court held that the cause of death was
accidental, namely the drowning and not the fit. The loss was
therefore caused by the peril insured against.

The decision of the House of Lords in Leyland Shipping Co.

Ltd. v Norwich Union3 changed the perception of looking at
causation in terms of the last cause in point of time. In that case,
An insured ship was torpedoed by an enemy boat during the
hostilities of first world war. It was then towed to a quay in the

1
(1881) 7 QB 216
2
(1880) 6QBD 42
3
(1918) AC 350

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outer harbour at Le Havre and moored in the harbour were it was

relatively safe, but owing to low levels of water, she could not be
brought safely in the inner harbour. The weather deteriorated and
caused the ship to bump the quay. The port authorities feared that
the ship would sink there and obstruct the quay which was
required for Red Cross embarkation. They accordingly ordered
the ship out. She was taken out to a breakwater, where the master
hoped to continue to take off cargo but, buffeted by the heavy
seas, she soon sank. The ship owner contented that this was a loss
by perils of sea (peril). The insurer argued that this loss was a
consequence of hostilities (exception). The House of Lords held
that the proximate cause was the torpedo and therefore that the
claim failed. Loss by explosion and incoming seawater was the
inevitable consequence of the torpedo. In Jason v Batten1 the
insured took out a policy that provided benefits to the insured if
he suffered “in any accident bodily injury resulting in and being-
independently of all other causes- the exclusive, direct and
immediate cause of the injury or disablement”. The exception in
the policy was with respect to “death, injury or disablement
directly caused by or arising or resulting from or traceable to. . .
any defect or infirmity which existed prior to the accident.”
Following a motor accident, the insured suffered a a coronary
thrombosis. Apparently, the coronary artery which had been
blocked by a clot had been narrowed by disease existing before
the accident. The court held that the insurers were not liable. The
pre-existing disease was an efficient cause of the loss, though
clearly the stress brought about by the accident precipitated the
thrombosis. Assuming that the clot was an injury arising from the
accident, it was not independently of all other causes the the
exclusive cause of the insured’s disablement.

Rules and guidelines in determining causation.

1
(1969) 1 Lloyd’s Rep 281

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There are several guideline designed to assist the process of

determing the proximate cause, particularly where there is a
dispute between the insured and the insurer as to whether the loss
occurred by reason of the peril, or the exception.

If there is a single cause, and that single cause is an insured peril,

then the proximate cause of the loss is an insured peril and there
is a valid claim under the policy. The difficulty, however, lies in
determining the proximate cause where there are concurrent and
interdependent cause.

Where there are several concurrent causes and no excepted perils

are involved, provided one of the causes is an insured peril, the
loss is recoverable. If however, there are excepted perils involved
and it is not possible to separate the damage caused by the
insured peril from that caused by the excepted peril, then the
insurers are not liable. Where it is possible to separate the causes,
insurer will be liable for that part of the loss caused by the
insured peril but not for that part caused by the excepted peril.

Thus in Wayne Tank & Pump Ltd v Employers’ Liability

Assurance1 new equipment was installed by Wayne Tank under
contract for Harbutt’s Plastcine. It was switched on to warm up
overnight prior to trial run and was left unattended, so that
nobody noticed that the piping part of the equipment and wholly
unsuitable for the use to which it was put. It melted and ignited.
But for that kind of piping (exception cause No.1) there would
have been no fire. But for the absence of proper supervision
overnight (peril cause No.2) the fire would have not occurred as
the melting would have been observed in time to prevent the fire.

1
(1974) QB 57

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 102

Wayne Tank was insured by the defendants under a public

liability policy which excluded liability arising from damage
caused by the nature or condition of any goods supplied by the
insured. There were two concurrent causes, one covered the
other excepted. The two causes were dependent in that one did
not lead to the other but also interdependent in that neither would
have led to the fire but for the other.

The Court of Appeal unanimously held that the cause of the loss
was the defective nature of the equipment. This decision clearly
accorded with authority such as the Leyland Shipping case,
whereby the original cause predominates unless it can be
established that it merely facilitated the subsequent cause which
totally changes the situation to bring about the loss.

Concurrent and Independent causes.

Where there are two or more concurrent and proximate causes-

one a peril and the other an exception, and these two are
independent in the sense that each one would have caused the
loss without the other, the insured may recover only that part of
the entire loss attributable to peril. However where it is not
possible to separate the damage caused by the insured peril from
that caused by the excepted peril the insurer are not liable.

In Ford Motor Co. of Canada -v- Prudential Assurance Co.1

the insured took cover against property damage and business
interruption resulting from among other things, riot but excepting
loss “caused by cessation of work or by change in temperature.
Some workers were dismissed and this led to industrial action
including a riot. In the course of a riot, the rioters cut off the
electrical power in the Ford plant. As soon as the riot broke off or

1
(1958) 14 DLR 7

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soon thereafter, there was a cessation of work and lack of

maintenance, with damage immediately caused by a fall in the
temperature a day or two later. Some loss to the plant was caused
by both the riot (peril) and cessation of work (exception),
operating concurrently and independently. Each would have
caused the part of the loss( property damage and business
interruption) without the operation of the other. The Supreme
Court of Canada held that the insured could recover only in
respect of the part of the total loss which would have been caused
by the riot alone.

The position in the United States contrasts sharply with that

obtaining in Canada. Thus in Guaranty National Insurance
Co. v North River Insurance Co.1 the insured hospital had
taken out cover against loss resulting from failure to maintain the
windows in a secure state but not failure to keep patients under
proper observation. A psychiatric patient jumped to death from
the window of her room on the fourth floor of the hospital. The
hospital was held liable for the death. Each of the two causes
operating alone ie. ,failure to maintain the windows in a secure
state and failure to keep the patient under proper observation
would have been a sufficient cause of liability. The United States
Federal Court held under the law of Texas, that the insurer was
liable in full.

In English law the decision would probably have been different

because English contract law hold the position that where a
person fails to perform a contract as a result of a cause for which
he is liable and (b) a cause for which he is not liable, each being
sufficient to cause non-performance, that person is not liable.

Successive connected causes: peril- exception – loss

1
909 Fd 132

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Where an insured peril leads inevitable to an exception and then

to loss, the proximate cause us the peril In Mardorf v Accident
Insurance Co.1 the insured had taken out a policy that covered
death by accident and not “death caused by or arising wholly or
in part from diseases or other intervening cause even though the
disease or other intervening cause may either directly or
otherwise be brought on or result from accident.” The insured
arrived home from work. While removing his socks, he scratched
his leg with his thumb nail. Nearly a week later, a doctor
indicated that the wound was septic. Septicemia set in by the
tenth day and, in spite of the doctors’ efforts he died of septic
pneumonia on the twentieth day. It was held that the insurers
were liable. Once the germ had been introduced at the time of
the accidental scratch, death was in the circumstances, including
the current state of medicine, inevitable.

In Re Etherington & Lancashire & Yorkshire Accident

Insurance Co.2 the deceased had taken out a personal accident
insurance policy from the insurers. The policy covered the
deceased (or his dependants) against death or disability arising
from accidents, but not a result of sickness. The deceased went
hunting and fell from his horse into a ditch. The accidental fall
was not enough to kill him, but owing to the long exposure to the
rain and cold, he caught pneumonia from which he died. The
dependants of the deceased sought to claim from the insurers on
the ground that the deceased had died as a result of the injuries
sustained from the accident fall. The insurers rejected the claim
on grounds that the cause of death was sickness i.e., pneumonia
and that the injury sustained from the fall was only a remote
cause. The court held that the death was due to accident.

1
(1903) 1 KB 584
2
(1909) 1 KB 591

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Reasonable Effort to Avoid or Minimize loss

A question may be asked as to whether loss which occurs as a

result of an attempt to mitigate greater loss will be excepted. In
Canada Rice Mills Ltd v Union Marine & General Insurance
Company1, the master of a ship which was carrying rice in the
heavy seas, ordered the ventilators to the holds to be closed to
prevent the incursion of sea water. The lack of ventilation in the
holds led to damage to the rice. The Privy Council held that this
was a loss though perils of the sea and that it was covered by
insurance and that the closing of the ventilators was not a
separate or independent cause but a direct result of a peril.
In Stanley v The Western Insurance Co.2 the court stated:

“Any loss resulting from an apparently necessary bona

fide effort to put out a fire, whether it be by spoiling the
goods by water, or throwing articles of furniture out of
the window, or even the destroying of a neighbors house
by an explosion for the purpose of checking the progress
of the flames, in a word, every loss that clearly and
proximately results, whether directly or indirectly from
the fire, is within the policy”

Nemchand Premchand Shah & Another v South

British Insurance Co. Ltd. (1965) E A L R 679
(Kenya)

The appellants were insured with the respondent against loss of

good as a result of house breaking causing actual visible damage

1
( 1941) AC 55
2
(1868) LR 3 EX 71 at 74

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to the premises or part thereof. The appellant made a claim in

respect of the value of certain goods, which had disappeared from
the premises. The respondents rejected the claim and the
appellants brought these proceedings contending that the
premises had been broken into and the good stolen. Evidence
called by the respondent at the trial showed that it was highly
improbable that the premises had been broken into. The trial
judge found that the appellants had failed to satisfy him that the
loss resulted from the house breaking and dismissed the action.

On appeal the appellant argued that it was not for them to prove
how their shop was broken into and that on evidence the burden
of proving that the theft had taken place was shifted to the
respondent and that the trial judge had wrongly rejected their
contention that a theft and a breaking out would be covered by
the policy.

Held an assured need only prove that loss was caused by some
event covered by the policy, but of this case is that the loss was
caused by a breaking in or a breaking out then his avoidance
most prove it, which the appellant here had failed to do, not
having satisfied the court that there was wither a breaking in or a
breaking out.

Nasser Mohamed Omer v Prudential Assurance

Co. Ltd (1966) E A L R 79 (Kenya)
The appellant claimed that he was entitled to indemnity from the
respondent company against the loss of his motor car, which the
trial judge indicated had been driven deliberately into the sea by
an employee of the appellant. The insurance policy provided that
the respondent would indemnity the appellant against loss or
damage to the motor vehicle by accidental collusion. The basis

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of the appellant’s claim was that the car accidentally went into
the sea and was damaged. It was common ground that the driver
was acting in the course of his employment. The trial judge
dismissed the case on the ground that the appellant had failed to
prove that the loss or damage was due to accidental collusion.

On appeal it was argued that there had been collusion, that it had
been accidental and that the damage the car had suffered from
immersion in salt water was a direct result of the collusion.

Held; the entry of the car into the sea was not an ‘accidental
collusion’ and accordingly under the terms of the policy the
appellant was not entitled to claim any indemnity for the loss of
the car. The entry of the car into the sea was not accidental as it
had been driven deliberately by the employee of the appellant
even though the appellant had no knowledge of it.

Kanti & Co. Ltd British Traders Insurance Co.

Ltd (1965) EALR 108 (Kenya)
The appellant company insured seven cases of enamelware
during transit from Liverpool to Nairobi with the Respondent
Insurance Co. The insurance cover was against “All risks of loss
or damage subject to the Institute cargo clauses (All risks). By cl.
1 of these clauses the insurance attached from the warehouse of
the place of commencement of transit to the final warehouse at
destination and by cl. 6 the insurance was against all risks of loss
or damage to the subject matter insured but did not extend to loss,
damage or expense proximately caused by delay or inherent vice
or nature of the matter. It was not in dispute that the enamelware
started the journey undamaged but on arrival in Nairobi though
the cases appeared to be in good condition a very high percentage
of the enamelware inside was found to be badly chipped. The

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appellant company therefore filed an action in the resident

magistrate’s court claiming Shs. 1505/50 as estimated damage.
At the hearing an insurance surveyor stated in evidence that the
main cause of the damage was motor transport as, due to the
continual jolting, the packing had settled or become loose. He
also stated that in his opinion the packing was probably sufficient
for rail transport but insufficient for road transport. The trial
magistrate found as a fact that transport by road between
Mombassa-Nairobi was not contrary to the terms of the insurance
policy, that the packing was reasonably adequate, that the
appellant company had proved that some fortuitous circumstance
had occurred to the goods and that it was not for it to show how
the goods were damaged, that the respondent company had failed
to prove that the damage was caused by inherent vice in the
packing and accordingly gave judgment for the amount claimed.
On appeal, the Supreme Court reversed the trial magistrate’s
decision on the ground that the appellant had failed to discharged
the light onus that lay on it to prove that a casualty had occurred
which resulted in the damage. On appeal to the Court of Appeal,
it was argued for the appellant company that having regard to the
facts found by the trial magistrate, the approach of the Supreme
Court was wrong in law in that it placed upon the appellant
company an onus, which did not lie upon it.

Held: From the extent of the damage the court had no doubt that
in law the appellant company had discharged the onus of proving
that the damage had resulted from a casualty;

(i)In this case, as damage from inherent vice was damage from an
excepted risk, if respondent company could have shown that the
damage was directly caused by inadequate packing it would have
been entitled to judgment; this was precisely what the respondent

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company sought to do before the trial magistrate but on the

balance of probabilities, was rejected.

(ii)The Supreme Court had erred in law in placing on the

appellant company any onus of showing that the damage did not
arise from inadequate packing Appeal allowed.

Appeal allowed

Zambia State Insurance Corporation Ltd v

Northern Breweries Ltd (2000) ZR 42 (Supreme Court
of Zambia)

This is an appeal and cross-appeal against a decision of the High

Court in which the learned trial judge ordered the appellant,
Zambia State Insurance Corporation Limited to pay the full
insured sum of K50,000,000 together with interest at current
bank deposit rate from the date of the writ of summons up to the
date of judgment and thereafter at 6% until full payment made.
The learned trial judge dismissed the respondent claim for
consequential loss.

Briefly the facts which are that the Respondent, Northern

Breweries, took up an insurance policy generally known as the
Boiler and Pressure Vessel Insurance Policy. The policy was to
indemnify the respondent against:-

“(a) damage to the boiler and other apparatus in the

schedule of the policy and to other property of the insured
.
(b) liability of the insured at law for damage to property not
belonging to the insured;

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(c)liability of the insured at law on account of fatal or non-

fatal injuries sustained by any person except where such
injuries arises out of and in the course of employment of such
person by the insured caused by Explosion or collapse as
defined in the Policy of any boiler or other apparatus
described in the schedule of the policy occurring either in the
course of ordinary working or as a result of external impact
or fire, “Explosion” is defined in the policy a sudden and
violent rending or tearing apart of the permanent structure of
a boiler of or other apparatus by force of internal steam or
fluid pressure causing bodily displacement of the structure or
any parts thereof and accompanied by the forcible ejectment
of its content. Except in the case of a steam test at a pressure
not exceeding the maximum pressure permitted by the
inspecting Authority, the term “Explosion” shall not mean
failure under any test. “Collapse” is defined as the sudden
and dangerous distortion of any part of a boiler or other
apparatus by bending or crashing caused by steam or fluid
pressure whether attended by rapture or not, it shall not
mean slowly developing deformation due to any cause.

Except in case of a steam test at a pressure not exceeding the

maximum pressure permitted by the Inspecting Authority the
term “Collapse” shall not mean failure under any test. The
boiler in question is described in the scheduled as “one
Babcock Wilcox steam boiler” – chain grale stocker
No.50630”

The incidents leading to the calamity are that on the 2nd August
1994, the main boiler at the Respondents’ plant was shut and the
light fuel oil boiler (LFO) in issue was switched on. On being
switched on it was discovered that it was cutting off and the low

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water audible alarm could come on. A check was conducted and
it was found that there was sufficient water and the feed water
pump was running. As there appeared to have been an electrical
fault an electrician by the name of Mkhalipi was called who
temporarily repaired the fault by bridging it not on the connecting
block in the panel and the boiler continued operating without
giving false low water level alarms.

Hours later after the boiler was running under the temporary
repair the whole boiler exceedingly hot indicating that there was
no water. Another electrician attended to it and he unabridged the
temporary connection done by Mkhalipi and immediately the low
water alarms came on. The boiler was switched off. Because of
the bridging done by Mkhalipi the low water level controls could
not operate and as such operators could not detect the low water
level condition in the boiler and kept running even when there
was no water inside. As a result of the absence of the water in the
boiler, the fire furnace and tubes overheated and subsequently
collapsed. The respondents’ made a claim under a policy; but the
respondent repudiated the claim. The appellants issued summons
claiming K50,000,000-00 (fifty million kwacha) under the
Policy; also damages for consequential loss and interest. The
consequential loss calculated as special damages came to
K115,966,062 (one hundred and fifteen million, nine hundred
and sixty six thousand, and sixty two kwacha.) The learned trial
judge found that the damage to the boiler did not amount to
“collapse” as defined under the policy. He found that the boiler
was damaged as a result of Mkhalipi’s negligence in bridging the
connection and forgetting to unbridge it when knocking off.
Despite the finding of negligence on the part of Mkhalipi the
learned trial judge held that the respondent insured their
machinery in order to protect itself against the conduct of the
likes of Mkhalipi and that was why insurance companies are

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there for and therefore the damage fell within the confines of the
policy and gave judgment in favour of the respondent. On appeal,

Held, that the learned trial judge having found that collapse of the
boiler was not a collapse as defined in the policy misdirected
himself in holding that insurance companies are there to cover
negligent acts. Negligence was specifically excepted in the
policy.

CHIRWA JS . . .The result of the appeal will depend on the

interpretation of the insurance policy. The term “collapse” is said
to mean the sudden and dangerous distortion of any part of the
boiler or other apparatus by bending or crushing caused by
steam or fluid pressure whether attended by rapture or not, it
shall not mean slowly developing deformation due to any cause.
Except in the case of a team test at a pressure not exceeding the
maximum pressure permitted by the Inspecting Authority the term
“collapse” shall not mean failure under any test”.

The learned trial judge found that what happened to the boiler
was not “collapse” within the definition given in the policy. The
crushing was not caused by steam or fluid pressure. All the
reports show that there was breakdown in the boiler because of
low water level caused by non-switching on of the warning alarm
controls caused by the bridging to the circuit done by one
Mkhalipi. The judge was on firm ground in finding that the boiler
did not collapse. Having so found, can the appellant be ordered to
pay under the policy?

. . . Insurance policies covering mobile chattels such as ships and

motor vehicles do anticipate a negligent operation of chattels. It
is doubtful with static chattels such as boilers. In our present
case, there was a willful act by Mkhalipi in bridging the circuit.

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He never unabridged it. There is no evidence that he told

anybody when knocking off that he had bridged the circuit. The
policy specifically states that it does not cover “(4) damage
and/or liability caused by the willful act or willful neglect of the
insured”. It is common cause that the insured is a company and
acts through its servants and it becomes vicariously liable for its
servants actions. . . In the present case, the trial judge, having
found that the collapse of the boiler was not a collapse as defined
in the policy misdirected himself in holding that the collapse was
caused by the negligent act of Mkhalipi, that insurance
companies are there to cover such acts of Mkhalipi; that they are
there to cover such acts and that the Respondents having taken up
the Policy, negligence was covered. These situations were
specifically excepted in the Policy. We therefore allow this
appeal, the policy was repudiated by the appellant as the damage
was not covered by the Policy. The cross-appeal automatically
falls away. The appellant will have his costs here and in the court
below, in default of agreement to be taxed.
_______________________

Jupiter General Insurance Co. v Rajabali

Hasham & Sons (1960) EALR 592
A motor insurance policy indemnified the insured against loss or
damage to his vehicle occasioned inter alia by accidental
collision, theft or malicious act but had a clause excluding loss or
damage occurring whilst the vehicle was being driven by any
person other than the insured or someone authorized by him.
There was also an endorsement on the back of the policy
warranting that the insurers should not be liable if the vehicle at
the time of the accident was being driven by a person who was
not sober. The insured instructed his driver to take the car to the
garage and leave it there for the night but the driver ignoring this

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order took the car for a private frolic became drunk and had an
accident, which damaged the car beyond repair. In an action by
the insured for the value of the vehicle the defense of the
insurance company pleaded that the driver was not at the material
time an authorized driver but omitted to plead the endorsed
warranty. The trial judge found for the Plaintiffs whereupon the
insurance company appealed and at the opening of the appeal
moved for leave to amend the defense by pleading the warranty.
Since the omission to plead the warranty was shown to be due to
inadvertence and, had the warranty been pleaded originally, no
further evidence would have been needed nor would the course
of trial have been altered. The amendment was allowed.
Counsel for the Appellant insurers then abandoned all grounds of
appeal save that related to the warranty. The Respondents’ main
contention was that the driver had converted the car to his own
use when he took the car on a private frolic, that this was a
malicious act and that the drunkenness of the driver at the time of
the accident was immaterial.

Held: by taking the vehicle unlawfully the driver had committed

an act of conversion contrary to s. 284 of the Penal Code which
was a malicious act; the malicious act was an insured risk
materializing at the time of conversion when neither the warranty
nor any other exception applied; it was also a continuing act and
included the acts of the driver in pursuance thereof and the
Respondents who had lost the vehicle were entitled to recover
under the policy.

Appeal dismissed.

There is a loss by “fire” even where the property insured is

destroyed or damaged by fire in a sitting-room grate.

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Harris v Poland (1941) 1 ALL R 204

A woman insured her jewellery under a comprehensive policy

insuring her (inter alia) against loss by fire. She was nervous
about its safety, so she hid it in the sitting-room grate. Later,
forgetting about the jewellery, she lighted the fire, and the
jewellery was damaged. The insurers contended that there was no
loss by “fire”, since the damage had been caused by a fire in a
place where the fire was intended to be, i.e. in the grate.

Held, by the King’s Bench Division, that it was a loss by “fire”.

ATKINSON, J. (at page 208) I can see no reason whatever for

limiting the indemnity given by the police in the way claimed by
the defendant. In my judgment, the risks against which the
plaintiff is insured include the risk of insured property coming
unintentionally in contact with fire and being thereby destroyed
or damaged, and it matters not whether that fire comes to the
insured property or the insured property comes to the fire. The
words of the policy are just as descriptive of one as they are of
the other, and I cannot read into the contract a limitation which is
not there. To enable me to accept the contention of the
underwriters, I should have to read something into the contract,
some such words as, “unless the insured property is burned by
coming in contact with fire in place where fire is intended to why
be” Why should I ? What justification can there be for so doing?
To what absurdities would it lead? A red hot cinder jumps from
the fire and sets on fire some paper of value. Admittedly, there is
liability. A draught from the window blows the same paper into
the same fire. Are the words in the policy any less applicable to
latter than they are to the former? A draught blows the flame of a
candle against a curtain. Admittedly, there is liability. What if the

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curtain is blown against the flame of candle, however? Surely the

result must be the same. If it is not the same, the result is an
absurdity. If it is the same, why should the result be different if
one substitutes: a fire in a grate for the lighted candle in a
candlestick? Unless I am bound by authority to the contrary, or
unless I can fine a consensus of opinion to the contrary among
textbook writers indicating a generally accepted interpretation of
these words, I must give effect to the view I have formed.

Kantilal Motich v Eagle Star Insurance Co. Ltd

Kenya ( 1971) EALR 24
The plaintiff brought an action against the defendant for a
declaration that the defendant was liable to pay him the amount
of a judgment recovered by him against a person insured by the
defendant under a policy of compulsory vehicle insurance.

The defendant company insured a motor vehicle owner in respect

of any liability for damages which might be incurred by him in
respect of the death of or bodily injury to any person caused by or
arising out of the use of the vehicle. By the covered exceptions
in the policy the defendant was not to be liable in respect of any
liability incurred whilst the vehicle was being used otherwise
than by the insured. While the vehicle was being used for
business purports and was being driven by the insured employee,
it was involved in a collision which the plaintiff sustains injuries
in respect of which he recovered judgment against the insured for
damages. The judgment was not satisfied and the plaintiff
instituted the present proceedings for a declaration that under S.
10 of the insurance (Motor Vehicle Third Party Risks) Act (cap
405) the defendant was liable to pay him the amount, and for
payment of the amount to him.

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The plaintiff contended that the policy exceptions were

conditions within the meaning of S. 18 of the Act and were
ineffective because of the provisions of the section, since the
policy in compliance with the provisions of S. 5 (b). Insured the
use of the vehicle by the insured irrespective of the person who
was actually drawing it and the purpose for which it was being
used. The defendant contended that the policy exceptions merely
laid down the extent of the cover, by defining the insured use.

Held that the plaintiff was not precluded by the policy exceptions
from recovering the amount of the judgment, and gave judgment
for the plaintiff for the declaration sought.
____________________________________

Interpretation of an insurance policy follows the general rules of

interpretation of contracts. Where a phrase in an insurance policy
is ambiguous, the court may apply the contra proferentem rule,
i.e. it will be construed against the insurers.

English v Western (1940) 2AII E.R. 515

A 17 year- old boy took out a motor insurance policy covering
his liability for injury to all persons except, inter alia, in respect
of “death or injury to any member of the assured’s household”
traveling in the insured’s car with the insured. He and his sister
both lived with their father. His sister was injured in a motor
accident caused by the negligent driving of the insured. The
insures claimed that they were not liable because the exception in
the policy excluded liability for “death of or injury to any
member of the assured’s household”, and that these words meant
death of or injury to any member of the same household of which
the insured was a member.

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Held, by a majority of Court of Appeal, that the words could

mean “any member of a household of which the assured was the
head”. Since there was a doubt, the words should be construed
against the insurers. Consequently they were liable on the policy.

CLAUSON, L.J. (at page 519) . . . A man may be related to a

household in two ways, he may be member of the household or
he may be the head of the household. The insurance company,
while insuring the insured against his liability to passengers,
excepts in its own favour his liability to a passenger who is a
member of the insured’s household. The question is, accordingly,
whether or not, on the true construction of the policy, the
exception covers not only the narrower class of members of a
household of which the plaintiff is the head, but also the wider
class of members of a household of which the plaintiff is a
member. BRANSON, J., took the view that the more natural
meaning of phrase is covering the wider class- namely, members
of the household of which the plaintiff is member.

The question seems to me to be the relationship connoted in this

phrase by the possessive pronoun which, in the actual clause, is
concealed beneath an apostrophe “s”. It appears to me that the
word “his” may equally well connoted the one relation which I
have stated as the other. In other words, in my judgment, either of
the two competing meanings of the

SLESSER AND CLAUSON, L.JJ.; GODDARD, L.J., dissenting.

The phrase “a member of the assured’s household” is possible

and natural, and, accordingly, there is, in the truest sense, an
ambiguity in the phrase. There is no doubt that, if the phrase used
in the policy is in this sense ambiguous, that meaning which is
less favourable to the insurance company which has put forward

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the policy must be chosen. It may well be that one would have
expected the insurance company, possibly for very good reasons,
to have intended the phase to carry the wider connotation, but
that seems to me to be quite immaterial if one once reaches the
conclusion that the phrase is ambiguous. If the insurance
company desired the wider meaning to be placed upon it, it was
their duty to make that desire clear by using unambiguous
language.

For these reasons, I find myself bound to hold that the phrase
exception covers only the narrower class, the members of a
household of which the plaintiff is head, and, accordingly, the
case is a case outside the exception, and the company is liable.
____________________

South British Insurance Co. Ltd. v Samiullah

(1967) EALR 659

The respondent had a motor policy with the appellant insurance

company covering his car against theft, which policy expired on
November 7, 1964. On November 20 1964 the respondent learnt
that his car had been stolen, and later that day he went to the
offices of the appellant and handed over a cheque for the renewal
of premium, which he had been told, would be a condition
precedent to the issue to him of a new policy valid from
November 7. Still later on November 20 the respondent having
collected his new policy, notified the appellant that he wanted to
make a claim as his car had been stolen. A Mr. Hicks, the
manager of the appellant’s motor insurance department there and
then concluded from what he was told by the respondent that the
respondent must have known that the car had been stolen before
receiving the new policy. Instead of repudiating the policy,

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however, the appellant later wrote to the respondent rejecting the

claim as not coming within the policy; and later still the appellant
cashed the respondent’s cheque for the premium and after further
lapse of time on May 10, 1965, it paid the respondent the amount
of his claim. The appellant then, on May 20 1965 sued the
respondent in the High Court claiming the return of the amount
paid. The plaint as originally framed alleged that no theft had in
fact occurred and that the money was paid over on a fraudulent
representation by the respondent that the car had been lost by
theft. But in November 1965 the Plaint was amended to allege in
the alternative that the appellant was entitled to avoid the policy
because it had been obtained by the respondent wrongfully
concealing that the car had been stolen before the insurance had
been effected. At the trial the appellant conceded that the car had
in fact been stolen. The trial judge found that at the time. The
trial judge found that at the time he got the policy the respondent
knew of the theft which would have entitled the appellant to
repudiate, but in the circumstances the appellant had waived its
right to repudiate, relying inter alia on the delay in amending the
plaint. The appellant appealed and the respondent cross-
appealed. One of the points argued by the appellant was that the
amended plaint related back to the date of the original plaint so
that the judge should not have found that there was a delay in
repudiating the policy amounting to a waiver.

Held: (i) even if an amended plaint does relate back to the date of
the original plaint for some purpose, such relation cannot
generate so as to preclude a judge from taking note of the date of
the amendment if such date is material to the issues for decision
(as it was in this case);

(ii) on the facts the trial judge should have found that the
appellant had knowledge on the day when the insurance was

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effected that the respondent had concealed a material fact before

the contract of insurance was effected;

(iii) that from that moment, or a reasonable time thereafter, the

appellant should have repudiated the policy;

(iv) that when it paid the claim the appellant had constructive
notice (through Hicks) of the facts and could not recover the
money (Bilbie v. Lumley (1802) 2 East 469)

Appeal dismissed. Cross-appeal allowed.

6.14. Premiums
In Lewis v Norwich Union Fire Insurance Co.1 a premium was
defined as the consideration required of the assured in return for
which the insurer undertakes his obligations under the contract of
insurance.

The premium is the price for which the insurer undertakes his
liability. It is the price for which the policy is bought. Premium
may be consideration other that money payment, for example, in
mutual insurance it may consist of a liability to contribute to the
losses of other members of the mutual society. The members in a
mutual society are both insured and insurers. What they offer as
premium is their liability to contribute to the losses of other
members and as insurers they receive as premium the right to
have their own loss paid when ever it happens. If a policy of
insurance is under seal, and hence does not require consideration
to support it, no premium is strictly speaking, necessary.

1
(1916) AC 519

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Time of Payment

Prepayment of the premium is not in law, a condition precedent

to the making of a complete contract of insurance. Premium
must be paid at the time stipulated in the contract of insurance. If
no time has been stipulated, the premium must be paid within a
reasonable time.

Where the insured has allowed the insured credit for the
premium, the insurer is liable to pay in the event of loss before
payment. Non payment will not avoid the policy and is no
defense to an action on the policy. In which event the insurer is
entitled to deduct the amount of the premium from the loss
payable.

It is almost universal practice for insurance other than marine

insurance, to provide that the contract shall not take effect until
the premium has bee paid. In such cases the courts will not give
effect to the insurer unless the premium has been paid.

The Zambia Insurance Act provides in section 76 (1) that ;

“A contract of general insurance shall cease to operate if a

premium is not paid within sixty days after the due date of the
premium, or within such period as the contract may stipulate.”

The Act has addressed previous concerns by the insuring public

who would pay the premium to brokers who failed to remit the
same to the insurer. Difficulties arose when the loss insured
against occurred, and in the process of claiming, it was then
established that the broker never remitted the premium to the
insurer. Given the general position that a broker is the agent of

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the insured, the insured stood in a relatively weak position.

Section 76(2) of the Insurance Act now provides that;

“For the purposes of this section, a premium paid to a broker

who arranged the contract shall be deemed to have been paid to
the insurer.”

The import of this provision is not very easy to ascertain. It is

unclear whether for all other purposes other determining the
validity of the contract of insurance under section 76 payment of
premiums to a broker is not to be regarded as payment to the
insurer. The provision of the Insurance Act do not as yet, appear
to have been a subject of serious judicial determination in
Zambia.

Payment to Agent

Payment must be to the insurer or to an agent with actual or

apparent authority to receive payment of premium for the insurer.
Brokers have a statutory obligation under the Act to transmit
premiums. Under section 21 of the Act;

“(1) Where any premium on a policy is paid to a broker by a

client, the broker shall, within sixty days of due date of the
premium, transmit the premium, less any agreed commission or
other charges payable by the insurer to the broker, to the insurer
who is the issuer of the policy concerned.

(2) If the broker contravenes this section, the amount of any

claim payable by the insurer under the policy in respect of an
event occurring after the expiry of the period of sixty days
referred to in subsection (1) and before transmission of the
premium as required by this section (I), shall be a debt due to the
insurer from the broker.

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(3) Notwithstanding sub clause (2) any broker who contravenes

this section shall be guilty of an offence and be liable, on
conviction, to a fine not exceeding twenty thousand penalty units.

It is possible for insurance cover to be provided at a rate of

premium to be established later. KIRBY v CONSINDIT SPA
(1969) I Lloyds Re.75

Days of Grace

Days of grace refer to an extra period of time to pay premium

allowed to the insured by the contract. Many polices invariably
provide for a number of extra days within which a renewal
premium may be paid.

In a life policy the contract remains in force during the days of

grace although the premium has not been paid on time; time is
not of the essence of the contract until the days of grace have
expired. Where the assured dies during the days of grace and
before the next premium is paid, there is cover1.

In other classes of insurance the insurer’s liability will depend on

the wording of the policy. If the unpaid premium is for renewal
of cover, the days of grace may be one of the two kinds: (a) there
is no cover but an offer to renew cover, which starts if and when
the offeree accepts the offer and pays premium. The offer lapses
after the days of grace have passed and (b) there is interim cover
until the offeree insured decides to contract for the full period or
not- this is the usual interpretation in the case of motor insurance.

1
Stuart v Freeman (1903) KB 47

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Recovery of Premium

Premiums paid to the insurer are recoverable in a number of

instances. Where premiums are paid for a consideration which
has wholly failed they are recoverable under the general law of
contract1 and action to recover it would be in restitution, or qusi
contract for money had and received.

Where the policy is void abinitio without any fault attributable to

the insured, the position is that the policy has never attached and
therefore, the insurer has never been placed on risk (no liability).
The premium is returnable.

Where a policy is illegal and the parties are in pari delicto the
premiums paid under such contract cannot be recovered.2

The insured will however recover premiums paid if he can show

that the insurer is more in the wrong than the insured- that they
are not in pari delicto.

Where fraud can be proved against the insurer the insured can
repudiate the contract rescind it and recover the premium3

Premiums may also be returned by mutual agreement in certain

events.
_____________________
6.15. Third Party Rights – Motor Vehicle
Insurance

1
Tyrie v Fletcher (1777) 2 Cowp. 666
2
See Harse v Peal Life Assurance Co (1904) 1 KB 558
3
See Refuge Assurance Co. v Kettlewell (1909) AC 243

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Regina v Chunga (1962) A L R. 247

The accused was charged in a magistrate’s court with driving

without valid insurance. The accused had an insurance policy
which contained a condition excluding the insurer’s liability if
the vehicle was being driven by a person other than one who,
inter alia, held a driving license. He was convicted.

On affirmation, the court considered the burder of proof relating

to the accused to holding a driving license and went on to
consider whether the condition in question was repugnant to S.
829 the Motor Traffic Ordinance (Cap. 146) thus making the
insurance valid.
Section 82 “save as in this ordinance expressly provided, any
condition in a policy of insurance providing that no liability shall
arise under the policy, or that any liability so arising shall cease
in the event of some specified thing being done or would to be
done after the happening of the event giving rise to a claim under
the policy shall be of no effect connection with such claim’ as are
mentioned in Section 78 and not excluded by Section 179 of this
ordinance.

Held: A certificate of insurance is merely evidence that there is a

policy in existence and its terms is merely evidence that there is a
policy in existence and its terms in no way affect the limitations
imposed in the policy, which remains the only document creating
any liability on the insurances.

Conclusions in a motor vehicle insurance policy descriptive of

the scope of the insurance merely set out the risks covered as
conditions precedent to the accident; they are unaffected by the
terms of Section 82 of the Motor Traffic Ordinance (cap. 146)
which only invalidates conditions relating the insurers from

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liability by reason of some act or omission occurring after an

accident which in the absence of such conditions would be
covered by the policy.

A provision in a motor vehicle insurance excluding liability of

the driver of the vehicle is unlicensed will validly exclude the
insurers liability and be unaffected by section 82 of the Motor
Traffic Ordinance.

Conviction upheld.

The insurer’s obligations to indemnify is not an absolute

obligation

Regina v Mangana (1963) ALR 498

The appellant was charged in the subordinate court of the third

class in Lilongwe, with permitting a person to drive a motor
vehicle on the road without disqualified from driving contrary to
section 17 of the Motor Traffic Ordinance (cap 146) and with
permitting a person to drive a motor vehicle on the road without
being covered by insurance contrary to section 77 of the
Ordinance.

The appellants’ vehicle was driven by one of his employees who,

unknown to the appellant was charged with the two offences
indicated above and convicted. It was argued on appeal that the
convictions should be set wide in the ground of the appellant’s
lack of “mens rea”, that the insurance policy created an absolute
liability on the insurance company in spite of breach of condition
of user; and that the contract of insurance was not voided by such
breach as it was unknown to the policy holder.

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Held: Permitting a disqualified person to drive a motor vehicle

contrary to section 17 as the Motor Traffic Ordinance is an
offence of absolute liability and may be convicted even though
they occurred is unaware of the disqualification.
Permitting the use of a motor vehicle while not insured, contrary
section 77 of the Motor Traffic Ordinance (cap 146) is an offence
of absolute liability and may be committed even though the
accused is ignorant of the fact there is no policy of insurance
covering the vehicle, or that one of the conditions of the user has
been broken

An endorsement to the policy of motor insurance that nothing

contained in the policy shall affect the right of any person to
recover an amount due by virtue of the motor vehicle ordinance
does not create an absolute liability on the insurer but merely
refers to his obligation under section 82 of the ordinance to
accept liability in spite of certain breaches of the terms of the
contract of insurance by the accused. section77(1) subject to the
provisions of this part6v it shall not be lawful for any person to
use ,or to cause or permit any other person to use a motor vehicle
… on a road unless there is in force in relation to the user of the
vehicle by that person or that other person as the case may be
such a policy of insurance or such a security in respect of third
party risks as complies with the requirements of this part “
Order accordingly
________________________________

Zambia State Insurance Corporation Ltd v

Musutu & African National Congress &
Msangala (1993-1994) ZR 133

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In a road traffic accident, the vehicle of the first respondent was

in collision with a vehicle belonging to the second respondent
driven by its servant, the third respondent. The appellant was
joined as defendant under the terms of the Roads and Road
Traffic Act, cap 766 and in its defense claimed firstly that if it did
not insure the second respondent’s motor vehicle as alleged, and
in the alternative, that it should notify the appellant of any claims
brought against it. The trial Court held that the appellant was
liable to pay the first defendant for the damages caused to the
motor vehicle, under s 137 of the Act. The appellant appealed,
arguing that its liability under s 137 was only for damages arising
out of personal injury or death as set out in s 135.

Held: From the wording of s 135, the purpose of IX of the Act is

to provide for compulsory third party insurance in respect of
death or bodily injury only. A policy giving insurance in respect
of damages to property is not a policy issued for the purposes of
part IX of the Act and therefore no direct claim against an
insurance company in respect of such damage can arise under s
137 or otherwise.

Gardner JS, delivered the judgment of the court

This is an appeal against the judgment of High Court judge
holding that the appellant was statutorily liable to compensate the
first respondent for damage to a motor vehicle and resulting
damages.
The facts of case were that in road traffic accident the vehicle of
the first respondent was in collision with a vehicle belonging to
the second respondent driven by its servant, the third respondent,
in the course of his duties. The appellant was joined as defendant
under the terms of the Roads and Road Traffic Act, cap 766, and
its defense claimed firstly that it did not insure the second
respondent’s motor vehicle as alleged, and in the alternative, that

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it should notify the appellant of any claim brought against it. At

the trial little or no defense a to the liability was put forward, and
the learned trial judge found that the accident had occurred solely
due to the negligence of the third respondent while driving in the
course of hi duties on the business of the second respondent. The
appellant did not press its denial of the existence of an insurance
policy, and the learned trial judge found that under s 137 of the
Act, the appellant was liable to pay the first respondent for the
damages arising out of the damage to his motor vehicle. It was
specifically held by the learned trial judge that the appellant’s
liability under s 137 was not limited solely to damages for bodily
injury or death.

The appellant now appeals against that finding on its behalf. Mr.
Mundashi has urged us to find that s 137 make an insurance
company directly liable to a third party only for damages arising
out of personal injury or death as set out in s 135.
Mr. Makato, on behalf of the second and third respondents,
argued that the appellant should have entered a condition
appearance if it were right in the contention that it was not liable
for damage which occurred to the first respondent’s motor
vehicle and ensuing loss as claimed in the writ, and further that
the appellant should have raised a preliminary issue to the same
effect at the trial. As to the merits of the case Mr. Kakoma
adopted the arguments of Mr. Maketo. In its defense the
appellant put the first respondent to proof that there was an
insurance policy in existence to support the claim, but no
insurance policy was produced. It appears to have been accepted
by the Court and the parties that there was some form of
comprehensive insurance that which insured the second
respondent against liability for damage to third parties’ property.
There was no doubt that the appellant maintained its argument at
the trial that although there may have been an insurance policy,
the terms of s 137 of the Act did not make the appellant liable for

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damage to the first respondents motor vehicle. There is no rule of

practice which makes it mandatory for conditional appearance to
be entered or for preliminary point to be taken before the trial.,
and Mr. Kokoma’s argument in this respect cannot succeed.
The essential question in this appeal is whether a third party who
has suffered damage solely to property, in this case a motor
vehicle, has the right to recover the damages from an insurance
company which has legitimate ground to repudiate liability to a
policy holder because such a policy holder did not give notice of
the claim in accordance with terms of the policy

This situation is dealt with in s 138 of the Act, which reads as

follows:-
‘Any condition in a policy given under this part
providing that, in the event of some specified thing being
done or omitted to be done no liability shall arise under
the contract , or connection with any claim in respect of
which policy holder is required to be insured by virtue of
the provisions of this party:

Claims for which a policy holder is required to be insured are set

out in s 135 which read, in part as follows:
In order to comply with the requirements of this part, a policy of
insurance must be a policy which –
(b) insures such person, person or classes of persons as may be
specified in the policy in respect of any liability which may be
incurred by him or them in respect of the death of , or bodily
injury to any person caused by, or arising out of the use of the
motor vehicle or trailer on a road; It follows, therefore, that a
condition that enables an insurance company to avoid liability is
only of no effect in connection with claims in respect of bodily
injury or death,. So far as claims in respect of damage are
concerned, any breach of condition by a policy holder will

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effectively prevent a third party from claiming from the insurance

company.

In view of the fact that the effect of s137 was dealt with in the
Court below we should comment that, in constructing the
meaning of that section, all the words must be taken into account
and given effect to because no words in a statute maybe regarded
as otiose. Section 137 reads as follows;

Any person having a claim against a person insured in respect of

any liability in regard to which policy of insurance has been
issued for the purpose of this part shall be entitled in his own
name to cover directly from the insurer any amount not
exceeding the amount recovered by the policy, for which the
person insured is liable to the said person having claim.

The words for the purpose this part govern the claim and the
policy, and such purposes must be ascertained in order to
construe the meaning of the section. Its clear from the wording of
s 135 set out above that the purpose of part IX of the Act is to
provide for compulsory third party insurance in respect of death
or bodily injury only. A policy giving insurance in respect of
damage of property is not a policy issued for the purpose of part
IX of the Act and therefore no direct claim against an insurance
company in respect of such damage can arise under s 137 or
otherwise. For the reasons we have given we confirm that, where
the only damage suffered by the third party is damage to
property, no action lies directly against an insurance company
under s137 of the Roads and Road Traffic Act, nor in view of the
fact that there is no privity of contract, doses any such action lie
otherwise. We also confirm that, where damage to property is the
only damage suffered, a breach of condition by a policy holder, if
proved, effectively bar a claim under the policy.

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The question of whether or not there was an effective breach of

any condition by the second respondent was not dealt with in
Court judge for that issue to be resolved.
The appeal is allowed with costs to the appellant in this Court
and in the Court below.
_______________________

Allanson Njugi v British India General

Insurance Co; Ltd (1965) E.A.L.R p. 58 Kenya.
The defendant insurance company operated in Kenya through it,
chief agents and the chief agents had a number of sub agents, one
of which was a firm called U.M.C. U.M.C in turn had as agent
one who and through him the plaintiff obtained a motor insurance
policy with the defendant. In the chief agents office there was a
representative who was referred to in the correspondence as the
branch manager of the defendant. The policy was issued for a
period of 12 months to October 16, 1963. The premium was Shs.
2, 285 175 of which Shs. 600 – was paid but an April 4, 1963
(N). wrote a registered letter to the plaintiff threatening to cancel
the policy if the sum of Shs. 487/75 was not paid within seven
days. In the meantime (N). did not hand over the policy or
certificate of insurance but issued cover notes from time to time
as they were registered by plaintiff. As no payment was received
within the specified time (N) in April 16 1963 returned the policy
and certificate of insurance to U.M.C with a request to cancel the
policy. U.M.C. in turn passed this request to the “branch
manager” and the policy was cancelled by an endorsement to the
policy dated May 15, and expressed to take effect from April 15.
The plaintiff had called an (N) an April 23 and had given him a
post acted cheque for the balance of the premium and the cheque
was duly paid in May 17. On recent of the cheque (N) requested
the “branch manage” through U.M.C not to cancel the policy and

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to reinstate it. On May 18 this request was refused and U.M.C

was informed that the policy had already been cancelled.
Nevertheless efforts were made by (N) and U.M.C to have the
policy reinstated issued a cover note in June and in July a further
cover note was issued by U.M.C who sent a copy to the branch
manager and informed him that they were arranging to obtain the
completed proposal form. On Ay 24 (N). asked the plaintiff
submitted a claim under the policy claims Shs 15,000/ - in
respect of damage to the vehicle and a declaration that the
defendant was not entitled to rejodiate in respect of pendis chains
by third parties. The defendant’s defense was that the policy was
cancelled with effect from April 16, under conclusion 7 of the
policy which provided that the defendant must cancel the policy
by sending seven days notice by registered letter to the plaintiff
and that the plaintiff having signed a fresh proposal on August 24
was estopped from denying the cancellation of the original
policy.

Held the letter of April 4, was not a notice of cancellation as

contemplated by the parties when they agreed to the condition
because the letter in its terms was conditional when it should
have been clear and unambiguous and because it was not within
the authority of (N) to cancel the policy.
Us the letter was in no sense a cancellation by notice in
accordance with condition 7 of the policy and should be
construed as a warning rather than a notice intended to have
operative effect.
W (N) had no authority, express or implied to procure the
cancellation of the policy on behalf of the plaintiff & in
purporting to cancel it the defendants did not comply with the
condition by giving the requisite notice E accordingly the
cancellation was ineffective (W) the alleged estoppel had not
been leaded with sufficient particularity to entitle the defendants

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to rely on it, and in any case no valid estoppel had been

established by evidence Judgment for plaintiff.

6.16. Illegal contracts

In certain situations an insurance contract may be void for
illegality. An insurance contract may be illegal void for for one
of the following reasons:

(a) It was entered into to achieve a purpose which is illegal and

contrary to public policy. For example a contract entered into
with an insurer who has no insurance license issued under the
Insurance Act would be illegal.

(b) Where property is used unlawfully, for example, where the

property insured is used for an unlawful purpose.

House of Manji Ltd v Liverpool Marine

Insurance Co. Ltd (Kenya) E.A.L.R. p.693
The plaintiffs were manufacturers of biscuits which they
distributed for sale through out East Africa. In 1958 they
arranged with the defendants to insure their products whilst in
transit to their customers by road, rail or air by means of a marine
insurance ‘open cover” contract by which the plaintiffs are bound
to declare each (E) every elipment of goods to the defendants and
in respect of each of which the defendants would issue a policy.
In practice the defendants used to issue a certificate of insurance
for each shipment which it was agreed had the same effect as a
policy. In May, 1961, the plaintiffs dispatched a consignment of
biscuits from Nairobi to Kampala by a contractors hours. It was

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common ground that the transporters had no “B” license for the
vehicle as required by S. 4 of the Transport licensing Act [k] and
in their declaration the plaintiffs did not specify the vehicle as
they should have done. The defendants duly issued a certificate
as insurance for the consignment. Before it reached its
destination the lorry was involved in an accident as a result of
which a portion of the consignment was damaged and a number
of cartons and tins of biscuits disappeared. The plaintiffs claimed
damages of which the defendants said they were not liable on the
grounds that the carriage was illegal and that the plaintiffs failure
to inform the defendants that unlicensed transport would be used
was no disclosure of a material fact.

Held (i) the plaintiffs were well aware that unlicensed transport
was being normally employed by them and they were aware of it
in the particular case with which the suit was concerned.

(ii) the breach of statutory requirement contained in S. 4 of the

Transport Licensing Act (K) went to the knout of the enterprise
and adventure and was not merely collateral to it.

(iii) the defendants were not liable to pay damages to the

plaintiffs once an unlicensed lorry was used to transport the
goods.

(iv) there was sufficient evidence to show that the employment a

unlicensed transport involved any substantial increase in the risk;
accordingly the defendants had failed to show that the failure of
the plaintiffs to inform them that unlicensed transport would be
used as non-disclosure of a material fact.

Action dismissed.

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Mac Gillvary on Insurance Law 5th Edn vol. 1 Para. 508,

states the principle thus:

“If the interest of the assured is tainted with illegality he cannot

recover on his policy. The law will not admit the validity of an
insurance which assists or encourages the insurers or assured in
the commission of an unlawful act.

Every breach of statutory duty on the part of the ship-owner does

not avoid the insurance. The illegality must go to the root of the
enterprise and a lot merely collateral to its prosecution.”

\
6.17. Repudiation of Policies and Liability
An insurer faced with a claim from the insured may in certain
circumstances be justified to refuse to settle the claim.
Repudiation may be sanctioned by the law for various reasons.
For example, the loss may not be covered in the policy, or the
insured may not have insurable interest in the subject matter of
the contract, or public policy dictates that the claim be declined.
The range of situations that will justify repudiation of a claim
include ;

(a) The contract being void for illegality

(b) Non disclosure , misrepresentation and fraud.

(c) Breach of other terms of the insurance contract.

Most of these situations have been covered in detail in various

topics discussed.

137