A promissory term whereby the insured promises that a given state of affairs existed prior to the inception of an insurance policy amounts to an insurance warranty

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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