Agriculture Finance Corporation & Another V Kenya Alliance Insurance Company Ltd & Another  EKLR
|Civil Case 1882 of 1999||17 Dec 2002|
Aaron Gitonga Ringera
High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)
Agriculture Finance Corporation & another v Kenya Alliance Insurance Company Ltd & Pan African Insurance Company Limited
Agriculture Finance Corporation & another v Kenya Alliance Insurance Company Ltd & another  eKLR
Agriculture Finance Corporation & another v Kenya Alliance Insurance Company Ltd & another
High Court, at Nairobi
December 17, 2002
Civil Case No 1882 of 1999
Contract - insurance contract – application of law of contract to insurance contracts – validity of contractual limitation periods in a policy of insurance – interpretation of section 3(1) of the Law of Contract Act (cap 23) – whether a party can be estopped from relying on contractual limitation clauses if estoppel is not pleaded – whether contractual limitation clauses are unfair, unreasonable and unconscionable.
Insurance – contracts of insurance – application of the law of contract on insurance contracts – validity of contractual limitation periods in policy of insurance.
Estoppel - raising estoppel in suit - party seeking to rely on estoppel must plead it.
The plaintiffs were the joint owners of certain premises in Nairobi which was insured under a co-insurance policy involving three insurance companies, two of them being the defendants.
Clause 19 of the policy provided that the insurer would not be liable for any loss after the expiration of twelve months from the happening of the loss unless the claim was the subject of pending action or arbitration. In addition, clause 13 provided that if a claim was rejected and a suit was not commenced within three months after such rejection, all the benefits of the policy would be forfeited.
The insured premises was damaged by a bomb explosion and the defendants failed to meet the plaintiffs’ claim for compensation. The plaintiffs then filed this suit. The parties asked the court to determine the twin issues of whether the suit was incompetent and whether the plaintiffs had forfeited their claims by virtue of clauses 19 and 13 of the policy.
The plaintiffs argued that the document in which the clauses were contained was not a contract within the meaning of section 3 of the Law of Contract Act (cap 23) and alternatively, that the clauses were unfair, unreasonable and unconscionable and should not be enforced as a matter of public policy. They also sought to raise estoppel against the defendants.
1. The Law of Contract Act (cap 23) section 3 (1) applied to suits founded on a contract of guarantee or surety and it has no application to the contract of insurance in this case.
2. A party cannot raise a preliminary issue which is not part of its pleadings. There was no pleading by the plaintiffs that the subject clauses were unfair, unreasonable or capricious.
3.On whether clauses 13 and 19 were unfair, unreasonable or unconscionable, firstly, there was no pleading to the effect and the issue did not therefore arise for determination. Secondly, this Court did not see anything unreasonable, unfair or unconscionable in clauses limiting the time within which parties must make their claims on the contract between them or file suit as the case may be.
4. The clauses could not be stigmatized as unfair, unreasonable or unconscinable on the basis of the magnitude of the claim or the risk that had materialized. Legal principles are for application in insurance contracts irrespective of the nature of the risk or the magnitude of the loss.
5. The Limitations of Actions Act (cap 22) section 39 (1) (b) and (2) does not apply to contractual limitation periods. It applies only to periods prescribed by the Act itself.
6. A party who seeks to rely on estoppel must plead it. The plaintiffs here did not plead estoppel in their reply to the defence, and should have if they intended to safeguard their position against the defendants’ invocation of conditions 13 and 19 of the policy.
7. The argument by the plaintiffs that the defendants had not repudiated liability, was not an issue canvassed in pleadings or framed at trial.
Plaintiff’s suit struck out.
1. Atlantic Shipping and Trading Co Ltd v Louis Dreyfus & Co  2 AC 250;  All ER 559 HL
2. Century Automobiles Ltd v Hutchings Biemer Ltd  EA 304
Guest, A G, (1994) (Ed) Chitty on Contracts London: Sweet & Maxwell 27th Edn pp 1366-1367 para 28-084
1. Law of Contract Act (cap 23) section 3
2. Limitation of Actions Act (cap 22) sections 2; 39(1)(b)
3. Civil Procedure Act (cap 21) section 3A
Mr Kembi-Gitura for the Plaintiffs.
Mr Deverell for the Defendants.