https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/12250

**REPUBLIC OF KENYA** **IN THE HIGH COURT OF KENYA AT NAIROBI** **MILIMANI LAW COURTS** **COMMERCIAL AND TAX DIVISION** **COMM CASE NO. 289 OF 2017** **BETWEEN** **EUNICE NDATHI WAMUYU....................................................................PLAINTIFF** **AND** **AIG KENYA INSURANCE COMPANY LIMITED.............................1ST DEFENDANT** **ONLINE INSURANCE BROKERS LIMITED…………………….....2ND DEFENDANT** **JUDGMENT** **Introduction and Background** 1. By a Plaint dated 27th June 2017, the Plaintiff filed the present suit against the Defendants seeking the following reliefs: - 2. *A* ***declaration that the Defendants are in breach of contract.*** 3. ***The sum of Kshs.50,000,000/= being the full sum assured payable by the Defendants.*** 4. ***The sum of Kshs.180,000/= per month from August 2016 to the date of conclusion of the suit.*** 5. ***The sum of Kshs.69,600/= being the cost of fire brigade.*** 6. ***General damages for breach of contract*** 7. ***Exemplary damages for being subjected to mental anguish*** 8. ***Cost of the suit.*** 9. ***Interests from (b) to (g) above at court rates until payment in full.*** 10. The Plaintiff’s case is that she took out a bouquet insurance policy in December 2013 from the 1st Defendant (“AIG”) through the 2nd Defendant (“the Broker”) and that the bouquet covered her motor vehicles and properties, including a fire risk cover limit of Kshs.50,000,000.00/- for her property L.R. 21984/14 located in Karen Nairobi County. The Plaintiff claims that on 20th August 2016, a fire damaged the suit property and upon making a claim, AIG refused to indemnify her, asserting that the policy had lapsed or had been cancelled for non-payment of premiums. The Plaintiff asserts she had fully paid the premiums to the Broker via cheques dated December 2015 and February 2016 for the 2015–2016 coverage period. 11. The Plaintiff contends that she informed both Defendants of the fire and requested they send assessors, but they refused. That she then hired her own professionals who estimated the repair cost at Kshs.14,715,900/=, that she diligently paid the premiums to the Insurance Broker and was never notified of any cancellation by AIG. The Plaintiff accuses AIG of negligence and breach of contract for failing to indemnify her, failing to acknowledge the loss and failing to inform her of the policy's cancellation. She also accuses the Broker of negligence and fraud for receiving premiums but failing to remit them to AIG and misappropriating her funds. She claims to have suffered the loss of her house, loss of rental income as the house was rented for Kshs.180,000.00/- per month since August 2016 and; mental anguish. 1. AIG responded through the statement of defence dated 22nd September 2017. It states that the policy was a short-term insurance cover, valid only for 12 months from 20th December 2013 to 19th December 2014 and it was subject to annual renewal and would automatically lapse if not renewed. AIG claims that it issued a Renewal Notice in November 2014 to the Broker but no renewal instructions were received from the Plaintiff or Insurance Broker and no renewal premium was paid. Therefore, the policy lapsed on 20th December 2014 and was never in force again. 2. AIG denies that the Insurance Broker was its agent but rather, the Plaintiff's agent, acting on her behalf and that she dealt exclusively with the Broker, not directly with AIG. AIG claims that on 22nd August 2016, 2 days after the fire, the Broker tried to deliver two cheques to pay for premiums covering the period 20th October 2014 to 19th December 2015 and 20th December 2015 to 19th December 2016. AIG avers that it rejected the cheques because the policy had already lapsed and no cover existed and the cheques were returned to the Broker. 3. AIG claims that the Broker received premiums from the Plaintiff but failed to remit them to AIG and the Broker later cancelled the cheques and issued new ones refunding the Plaintiff directly, confirming they had misappropriated her funds. That the Broker’s owner, Mr. Harrison Chege Kariuki, was criminally charged with stealing Kshs.826,212/- from the Plaintiff and in May 2016, AIG cancelled several policies including the Broker’s own Professional Indemnity cover due to non-payment of premiums. However, the Plaintiff's policy was not among those cancelled because it had already lapsed in 2014. 4. AIG advances that since no policy existed at the time of the fire, it is not liable to pay any claim and that it was under no obligation to notify the Plaintiff of non-remittance of premiums, as the contract had already ended. AIG denies negligence, breach of contract, or contempt of the Insurance Regulatory Authority's directives and that the Plaintiff's only recourse is against the Broker for fraud and misappropriation of funds. For these reasons, AIG prays that the suit against it be dismissed with costs. 5. The Broker filed a statement of defence dated 12th October 2017 admitting it was the Plaintiff's agent but also claims to have been an agent of AIG, not solely the Plaintiff's agent. It avers that it had a long-standing business relationship with AIG based on a trade custom where it marketed AIG’s policies and received commissions and that premiums were paid “on account” and reconciled periodically. The Broker could renew policies on behalf of clients with payment on account and it claims it duly instructed AIG to renew the Plaintiff's policy, with payment on account Therefore, that the policy was valid and in force until 19th December 2016 meaning it was active on 20th August 2016, the date of the fire. 6. The Broker claims to have promptly notified AIG of the fire and AIG initially instructed a loss adjuster but later recalled them. That on 23rd August 2016, the Broker forwarded a cheque for Kshs.184,279.00/= to AIG for premiums due, but AIG returned it. The Broker states that it had a Professional Indemnity(PI) policy with AIG and claims the PI cover was valid and in force at the material time. AIG alleged it cancelled the PI cover on 26th May 2016, but the Broker states that the cancellation notice was never communicated to it and was not issued in the proper legal form and is therefore invalid. 7. The Broker denies all allegations of negligence and fraud made by the Plaintiff and states it fully performed its contractual obligations and cooperated with the Plaintiff. That if any breach or negligence occurred, AIG is wholly and solely responsible. It accuses AIG of failing to honour the policy without lawful justification, failing to renew the policy despite renewal instructions, returning the premium cheque without justification and unlawfully cancelling its PI cover. Alternatively, the Broker argues on a without prejudice basis that if it is found liable it claims it is indemnified by AIG under its PI policy. For these reasons, the Broker prays that the Plaintiff's suit against it be dismissed with costs. 8. The matter was set down for hearing where the Plaintiff testified on her own behalf (PW1) adopting her witness statement dated 27th June 2017 as her evidence and producing the List and Bundle of Documents dated 27th June 2017(PExhibit 1-12) and Supplementary List and Bundle of Documents dated 30th November 2017. She also called Peter Chege Njoroge (PW2), a Quantity Surveyor who relied on his witness statement dated 9th July 2018 and produced the Further List and Bundle of Documents dated 10th July 2018(PExhibit 13-16). On its part, AIG presented two witnesses; Daniel Musyoka Wambua (DW 1), AIG’s Credit Control Manager who relied on his witness statement dated 25th October 2019 and he produced the List and Bundle of Documents dated 22nd September 2017(DExhibit 1-55) and the Supplementary List and Bundle of Documents dated 26th November 2020(DExhibit 56). 1. AIG also called its Underwriting Manager, Agnes Mukami who relied on her witness statement dated 18th December 2024 and produced the List and Bundle of Documents dated 25th October 2019 (DExhibit 57-61). The Broker called its director, Harrison Kariuki Chege (DW 3) and he relied on his witness statement dated 18th March 2019 and he produced the List and Bundle of Documents dated 12th October 2017. 2. After the hearing, the parties were directed to file written submissions which are now on record and the parties’ counsel were able to orally highlight them and together with the pleadings and evidence, I will be making relevant references to them in my analysis and determination below. **Analysis and Determination** 1. Noting that the present proceedings are civil in nature, it is not lost that the court’s determination of this matter is on a balance of probabilities and is guided by the principle that he who alleges must prove. Denning J., in **Miller v Minister Of Pensions [1947]2 All ER 372** discussed the burden of proof and he stated as follows: - *“That degree is well settled. It must carry a reasonable degree of probability, but not so high as is required in a criminal case. If the evidence is such that the tribunal can say: ‘we think it more probable than not’, the burden is discharged, but, if the probabilities are equal, it is not. Thus, proof on a balance or preponderance of probabilities means a win, however narrow. A draw is not enough. So, in any case in which the tribunal cannot decide one way or the other which evidence to accept, where both parties’ explanations are equally (un) convincing, the party bearing the burden of proof will lose, because the requisite standard will not have been attained.”* 1. The aforementioned position has now been espoused by our superior courts and finds statutory comfort in **sections 107 and 108** of the ***Evidence Act(Chapter 80 of the Laws of Kenya)*** which provide as follows:- ***107. Burden of proof.*** *(1) Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist.* *(2) When a person is bound to prove the existence of any fact it is said that the burden of proof lies on that person.* ***108. Incidence of burden.*** *The burden of proof in a suit or proceeding lies on that person who would fail if no evidence at all were given on either side.* (Also see **Ignatius Makau Mutisya v Reuben Musyoki Muli [2015] KECA 612 (KLR**) 1. In her submissions, the Plaintiff is urging the court to determine the following issues: - 2. *Whether the Broker was indeed an agent of both the Plaintiff and AIG.* 3. *Whether there existed an insurance cover for the suit property at the time of the fire incident.* 4. *Whether AIG ought to have indemnified the Plaintiff from the fire incident and accordingly settled the claim by the Plaintiff.* 5. *Whether the Plaintiff is entitled to the rent from the Defendants* 6. *Whether the Plaintiff is entitled to damages.* 7. *Who should bear the costs of the suit.* **Agency of the Broker** 1. The Plaintiff submitted that while the general principle dictates that an insurance broker is an agent of the insured, a broker can act as a double agent with explicit or implied authorization. The Plaintiff submitted that the Broker was authorized by AIG to collect premiums, issue risk notes/stickers, and reconcile balances against earned commissions and that by issuing quotations through the Broker and issuing risk notes, the Broker possessed ostensible or apparent authority as an agent binding AIG. On its part, AIG submitted that an insurance broker acts as an agent of the insured not the insurer and therefore, payment to the broker does not constitute payment to AIG. The Broker stated that it acted for both AIG and the Plaintiff and was thus a double agent for the both of them. 2. The parties agree that generally, an insurance broker acts as an agent of the insured unless there is the explicit, informed and consent of both parties for the broker to act as a double agent (see **Universal Marketing Insurance Agencies Limited v CFC Assurance Limited & another [2018] KEHC 3437 (KLR)].** There is no evidence that AIG ever gave explicit, informed consent to the Broker to act as its agent for the receipt of premiums. Indeed, from the various premium debit notes and such documents from AIG, the Broker was consistently designated as "Producer" or “broker” and never an "agent." I find that the Plaintiff’s reliance on the decision of **Total Kenya Limited v D Pasacon General Construction & Electri Cal Services [2022] KECA 593 (KLR)** is misplaced as that case concerned a construction contract where the principal held out its engineer as having authority to give oral instructions. It has no application to the mandatory statutory framework governing insurance premium receipt under **section 156(2)** of the ***Insurance Act*** which provides that “*An intermediary shall not receive any premiums on behalf of an insurer.”* 3. The Plaintiff also relied on **section 156(1), (2) and (3)** of the ***Insurance Act*** before its amendment by the ***Insurance (Amendment) Act, 2019*** where it provided that:- 4. *No insurer shall assume a risk in Kenya in respect of insurance* 5. *business on which a premium is not ordinarily payable outside Kenya unless and until the premium payable thereon in received by him or is guaranteed to be paid by such person in such manner and within such time as may be prescribed, or unless and until a deposit, of a prescribed amount, is made in advance in the prescribed manner.* *(2) Where a risk is placed with an insurer by a broker which the insurer has directly or by implication accepted, the insurer shall, for purposes of subsection (1) be deemed to have received the premium thereon on the date on which the risk is so placed with tat insure, but notwithstanding this subsection, the broker shall remit the amount of premium to the insurer before the last day of the month next following that in which the risk commences.* *(3) No agent shall collect premium of a policy of insurance canvassed or solicited by him, and no agent shall signify acceptance of the risk on a policy of insurance canvassed or solicited by him except in so far and to the extent that he has been authorized by an insurer to collect the premium or to issue cover notes, as the case may be; but nothing in this section shall prohibit an agent from collecting and transmitting to an insurer a cheque drawn in favour of an insurer.* 1. The above aligns perfectly with established insurance law that a broker is the agent of the insured, not the insurer and it decisively undermines the Broker’s argument that it was AIG's agent authorized to receive premiums. It is therefore my finding that the Broker was not an agent of AIG and that it was solely the Plaintiff's agent. **Existence of the insurance at the time of the fire** 1. The Plaintiff submitted she paid renewal premiums via cheques dated December 2015 and February 2016 to the Broker for the 2015–2016 coverage period and that under the previous **section 156(2)** of the ***Insurance Act,*** where a risk is placed through a broker, the insurer is deemed to have received the premium on the date the risk was placed, regardless of when the broker remits it to the insurer. That failure by a broker to remit funds does not invalidate an insurance policy and non-payment/non-remittance of premiums does not vitiate a policy unless the policy expressly states that non-payment avoids liability. Furthermore, AIG dispatched a loss adjuster immediately after the incident, showing implied recognition of the cover. 2. On its part, AIG submitted that the policy ran from 20th December 2013 to 19th December 2014 only and upon expiry, it lapsed passively due to non-payment of renewal premiums. That it was not "cancelled" by AIG as there was simply no active policy to cancel and that under **section 156(1)** of the ***Insurance Act*** and the express condition precedent on the face of the policy document, cover commences only after payment is receipted by AIG. The Broker stated that the policy was in place as it gave renewal instructions on an "on-account" basis. 3. I am in agreement with AIG that section **156(1)** of the ***Insurance Act*** is mandatory and not directory and embodies the statutory principle that an insurer is placed on risk only when the premium has actually been received. **Section 156(2)** provides a limited exception that if the risk is placed through a broker, the insurer is deemed to have received the premium on the date the risk is placed. However, this deeming provision operates only if the broker actually placed the risk with the insurer. From the evidence, the *Home Safe* Policy was issued for 20th December 2013 to 19th December 2014 and it expired at the end of that period. There is no express evidence that it was ever renewed and AIG's internal records show no renewal premium was ever received for the subsequent periods. The policy does not appear in any of AIG's 2016 statements of account or demand letters because it appears to have ceased to exist. 4. The Broker’s assertion of an on-account arrangement is unsupported by any contemporaneous document. It first appeared in PW 3’s email on 22nd August 2016, minutes after AIG rejected the cheque after the loss. In its letter of 31st August 2016, the Broker admitted an omission on its part and forwarded the cheques for the premiums after the loss. The Broker also admitted this omission before the IRA on 2nd November 2016 and PW3 refunded the Plaintiff Kshs.246,092.00/- specifically referable to the *Home Safe* Policy, confirming the money had been in his possession and was never remitted. Further, in **Milimani CMCC No. 1947 of 2016**, PW3 was convicted of theft by agent for misappropriating the Plaintiff's premiums. Under **section 47A** of the ***Evidence Act***, this conviction constitutes conclusive evidence of the commission of the offence unless the contrary is proved and no contrary proof was adduced. 5. Whereas I agree with the Plaintiff that the Court of Appeal, in **Virani t/a Kisumu Beach Resort v Phoenix of East Africa Assurance Company Limited [2004] KECA 145 (KLR)**non-payment of premiums does not vitiate an insurance contract, the appellate court quoted and agreed with **MacGillivray & Parkington on Insurance Law**, **7th Edition** paragraph 861 which states as follows: - *There is no rule of law to the effect that there cannot be a complete contract of insurance concluded until the premium is paid, and it has been held in several jurisdictions that the courts will not imply a condition that the insurance is not to attach until payment. It would seem to follow that, if credit has been given for the premium, the insurer is liable to pay in the event of a loss before payment, although, as has been held in a South African decision, the insurer would be entitled to deduct the amount of the premium from the loss payable, at least where the period of credit had expired by that time, since the assured could not insist on payment when in breach of any obligation assumed on his part under the contract.* 1. In my understanding, the case does not set out a hard and fast rule that failure to pay premium does not invalidate the policy but underpins the general contract principle that parties are bound by their obligations recorded in the agreement. It means that if the parties do not make provision for the effect of non-payment of the premium, the court will not necessarily imply that the policy is invalid. The effect of non-payment of premium on the policy depends on the intention of the parties expressed in the contract (see the late Majanja J., in **Insurance Company of East Africa v Marwa Distributors Limited [2015] KEHC 4512 (KLR)**]. 2. In this case, I am in agreement with AIG that on the face of the face of the Home Safe Policy documents, there is a prominently boxed condition precedent that: *"Insurance cover will commence only after payment has been receipted by AIG Kenya Insurance Co. Ltd."* Since no o renewal premium was ever received by AIG and the Broker’s assertion of an on-account arrangement is unsupported, the court can only conclude that the statutory and contractual condition precedent was never met and no valid insurance contract existed on 20th August 2016 on the day of the fire. **Indemnification of the Plaintiff** 1. Since no valid contract of insurance existed on 20th August 2016, it follows that AIG had no contractual obligation to indemnify the Plaintiff and the Plaintiff's claim against AIG fails in limine. However, I am in agreement with AIG that the Plaintiff is not without a remedy. Her loss was caused solely by the deliberate and dishonest conduct of the Broker and its principal, DW 3. The Plaintiff's own documents including her handwritten police complaint, her IRA affidavit, and her own Advocate's correspondence all identify the Broker as solely responsible. 2. The Broker’s PI Policy with AIG does not assist the Broker because it was cancelled on 23rd June 2016, nearly two months before the fire and it was not in force on 20th August 2016. Even if it had been in force, the fraud and dishonesty exclusion clause would apply as DW3’s conduct of deliberate collection of premiums, the selective non-remittance, the post-loss attempt of paying the premiums constitutes fraud and dishonesty established on the civil evidence independently of the criminal conviction. I am also in agreement with AIG that the commingling exclusion would also apply, as the Broker’s own explanation of an "on-account" arrangement necessarily implies commingling of client funds. 3. In the end, I find that AIG had no obligation to indemnify the Plaintiff and that it is the Broker that bears sole responsibility for the Plaintiff's loss. **Loss of Rent** 1. The Plaintiff claimed she was earning rent from the property but admitted in her testimony that she did not prove the tenancies. She did not produce any tenancy agreements, rent receipts, or bank statements to substantiate the claim. Even if the court were to find in the Plaintiff's favour on liability, the claim for lost rent would fail for lack of proof as such a claim is in the nature of special damages where a party must present actual receipts of payments made to substantiate loss or economic injury (see **Total (Kenya) Limited Formally Caltex Oil (Kenya) Limited v Janevams Limited [2015] KECA 822 (KLR)].** 2. However, I will award the sum of Kshs.15,504,934.00/- as per PW 2’s estimated cost of repair. **General and Exemplary Damages** 1. The Plaintiff agrees that the general rule is that general damages are not awardable for breach of contract but the exception is where the defendant's conduct is oppressive, high-handed, outrageous, insolent, or vindictive (see **Capital Fish Kenya Limited v The Kenya Power & Lighting Company Limited [2016] KECA 56 (KLR).** In this case, AIG’s conduct was not oppressive or high-handed as it consistently and correctly maintained that no policy existed. It reversed the loss adjuster instructions within hours once its records confirmed the lapse and it engaged with the Plaintiff and the IRA throughout. The Broker’s conduct, however, was fraudulent and dishonest and I find that general damages will suffice in this case and I would award a sum of Kshs.2,000,000.00/-. 1. On exemplary damages, also known as punitive damages, the same are awarded in Kenya to punish and deter egregious conduct, rather than to compensate for loss. They are rare and typically limited to specific circumstances including in cases of oppressive, arbitrary or unconstitutional action by the servants of the government, cases in which the defendant’s conduct has been calculated to make a profit for himself which may well exceed the compensation payable to the plaintiff and where exemplary damages are expressly authorized by statute (see (see **Rookes v Barnard [1964] AC 1129** and **Godfrey Julius Ndumba Mbogori & another v Nairobi City County [2018] KECA 702 (KLR)]** 2. The Broker’s conduct of collecting premiums, deliberately withholding them, fabricating an "on-account" arrangement, attempting a post-loss payment, and subsequently being convicted of theft by agent falls squarely within conduct calculated to make a profit that may well exceed the compensation payable to the Plaintiff. I will award the Plaintiff exemplary damages of Kshs.1,000,000.00/- to punish the Defendant and to show that the law will not tolerate such conduct. **Conclusion and Disposition** 1. In the upshot, I now issue the following dispositive orders: 2. **The Plaintiff's claim against the 1st Defendant is hereby dismissed in its entirety.** 3. **The 2nd Defendant shall pay to the Plaintiff the sum of Kshs.15,504,934.00/- being special damages for the reinstatement of the suit property.** 4. **The 2nd Defendant shall pay to the Plaintiff the sum of Kshs.2,000,000.00/- being general damages.** 5. **The 2nd Defendant shall pay to the Plaintiff the sum of Kshs.1,000,000.00/- being exemplary damages.** 6. **The aforementioned sums shall attract interest at court rates from the date of this judgment until payment in full.** 7. **The Plaintiff and the 1st Defendant awarded costs of this suit to be paid by the 2nd Defendant.** **DATED SIGNED and DELIVERED virtually at MACHAKOS this 27TH DAY of JULY 2026** **............................................................................** **J.W.W. MONGARE** **JUDGE** **IN THE PRESENCE OF** 1. Mr. Aira Godfrey for the Plaintiff. 2. N/A for the 1st Defendant. 3. N/A for the 2nd Defendant. 4. Amos/Godfrey - Court Assistant