Silverstar
Automobiles Limited v Fidelity Shield Insurance Co. Ltd [2014] eKLR
Civil Case No 445 of
2008
Brief Facts
The Plaintiff warehouse owners sought an award of
general damages as against the Defendant, an insurance company as well as
special damages in the amount of Kshs. 12,413,604/- together with interest
thereon at prevailing commercial rates based on a Burglary Policy with the
Defendant taken out by the Plaintiff. The Plaintiff gave details that during
the currency of the Policy, the Plaintiff suffered a burglary at its premises
and the Defendant failed, refused and/or ignored settlement of the Plaintiff’s
claim under the Policy. The Defendant on the other hand maintained that it was
an express term of the Policy that the same would be void and no compensation
was payable there under if the Plaintiff did not keep books showing all
purchases of goods or stock as well as particulars of articles or goods
manufactured or held in trust on commission, for which the Plaintiff was
responsible.
Issues
i.
Whether it was an express term of the Policy that
the Proposal and Declaration were deemed to be the basis of the contract of
insurance and incorporated in the Policy
ii.
Whether the defendant warranted that the Plaintiff
kept and would continue to keep a complete set of books, accounts and all
business transactions, and stock in hand, and that such books, accounts and
stock sheets or stock books would be locked in a fireproof safe or removed from
another building at night and at times when the premises were not actually open
for business and that transfer of goods from one premises to another would be a
business transaction within the meaning of the warranty during the whole of the
currency of the Policy
iii.
Whether the Plaintiff committed breaches of the
terms and conditions of the Policy and if so, was the Defendant entitled to
repudiate liability
iv.
What amounts to a warranty under Insurance Law?
Contract Law-construction
and interpretation of contract-interpretation of insurance policy
clauses-Whether it was an express term of the Policy that the Proposal and
Declaration were deemed to be the basis of the contract of insurance and
incorporated in the Policy-whether keeping of records in relation to a policy
amounted to a warranty.
Insurance law-insurance
policy-interpretation of an insurance contract - insured taking out a burglary
insurance policy-insurer declining to honor a claim for compensation for a
burglary on the ground that the insurance contract did not provide for
indemnity in respect-whether the insurer was liable to compensate the insured.
Insurance law-warranty-
essential characteristics of a warranty-whether a promissory term whereby the
insured promises either that a given state of affairs existed prior to the
inception of the policy amounts to an insurance warranty.
Held
1. The
Proposal and Declaration was the basis of the contract between the plaintiff
and the Defendant which was incorporated in the Policy. In accordance with
condition No 4 (a) of the Policy, it was void and no compensation would have
been payable if books showing all purchase of goods or stock, particulars of
articles or goods manufactured or held in trust or on commission for which the
Plaintiff (Insured) was responsible and of all goods or stock sold or otherwise
disposed of had not been duly and correctly kept during the time the Insured
carried on business.
2. In
accordance with the warranty given by the Plaintiff in relation to clause 3,
the plaintiff would keep complete set of Books and Accounts of all business
transactions, during the currency of the Policy, as well as stock in hand.
Leaving aside that requirement to keep such Books of Account in a fireproof
safe or removing them from another building at night and at times when the
premises were not actually open for business, within the meaning of that
warranty or the transfer of goods from one premises to another amounted to a
business transaction. In that connection, a transfer of stock items from the
go-down to the shop at the Plaintiff’s said premises amounted to a business
transaction. The Plaintiff had the liability to keep proper books of accounts
more particularly in relation to sales and stock transactions.
3. An
insurance Law warranty is a term of the contract of insurance in the nature of
a condition precedent to the liability of the insurer. It is, typically, a
promissory term whereby the insured promised either that a given state of
affairs existed prior to the inception of the policy or that it would continue
to exist during the currency of the same and that the breach of such warranty
discharged the insurer’s liability thereunder. The essential characteristics of
a warranty are:
a). it must be a term
of the contract;
b). the matter
warranted need not be material to the risk;
c). it must be
exactly complied with; and
d). a breach discharges the insurer from liability
of the contract notwithstanding that the loss has no connection with the breach
or that the breach has been remedied before the time of loss. [MacGillivray on
Insurance Law 11th Edition at page 235]
4. There
were two terms of the contract which were described as warranties as well as a
general definition of the words. The terms were warranties in the full sense
and not merely suspensive conditions, such was the meaning contended by the
assured, rather than the insurers. The assured had an arguable case on the
issue of the true construction and application of the warranties.
5. The
inability of the Plaintiff to produce any record of a physical stock taken made
prior to the burglary, as well as records of purchases and sales, amounted to a
breach of a condition of the Policy. Although the Plaintiff was able to produce
sales figures for the period from the October1, 2006 up to the date of the
burglary, there was no relation between those figures and the actual stock on
the shelves. The Plaintiff was in breach of its warranty as contained in the
Proposal and Declaration. As regards clause 3 of the Policy “the Safe and
Books Clause”, there was no evidence of the keeping of stock bin cards or a
physical stock take made every month to reconcile the computer system with the
actual physical position. As a result, the Plaintiff was in breach that Clause.
Claim dismissed.
Costs of suit awarded to the Defendant.
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