Background and pleadings.
1. The background giving rise to this case as gleaned from the Plaint dated 26th June 2014, is that the plaintiff, a cement manufacturing company ,vide a letter dated 31st December 2010 through Aum Insurance Brokers Limited applied to the defendant for an insurance cover in respect to inter alia, all the plaintiff’s machines and equipment, machinery breakdown, loss of profits and various other insurance covers for its plant in Mombasa County. The plaintiff averred that the defendant acceded to the request and after agreeing to pay the premium, the defendant issued a Machinery Insurance Policy No. P/107/021/-223/2010/2/12 and a Loss of Profits following Machinery Breakdown Insurance Policy No. P/107/021/0226/2010/1/12, which were valid from 31st December 2010 to 31st December 2011.
2. The plaintiff’s case is that by virtue of the said policies, the defendant undertook to indemnify and pay the plaintiff up to a maximum sum of Kshs.3 Billion under the Machinery Insurance Policy for machinery damage and Kshs.1.062 Billion for loss of profits. The plaintiff averred that it was a term of the Machinery Insurance Policy that if at any time during the validity of the term of the Policy, any of the items covered under the Policy suffer any unforeseen and sudden physical loss or damage from any cause including, but not limited to, defects in casting and material, faulty design, or from any other causes not specifically excluded, in a manner necessitating repair or replacement, the defendant would indemnify the plaintiff in respect of such loss and damage, by payment of the sum insured.
3. The plaintiff further averred that by a letter dated 24th March 2011, through its Brokers, it notified the defendant that the schedule of plant, machinery and equipment supplied was not all inclusive due to the expansive nature of the plant and requested the defendant to undertake a periodical risk survey to ensure that the risk was properly monitored and covered.
4. The plaintiff asserted that the Machinery Insurance Policy contained a descroiption of the plant, machinery and equipment covered under the Policy, wherein the first item contained equipment described as 3000 TPD clinker grinding plant + accessories (dry process clinkerisation) plant to include raw mill, separator, blending silo, pre-heater, precalciner, rotary kiln, coller, coal mill, separator and all other equipment and accessories associated with the clinker grinding plant. The said equipment was indicated to have been supplied by Thyssenkrupp, India Pvt Ltd and the cost was Kshs.1,599,897,750.00.
5. The plaintiff averred that it was an express term of the provisions of the Machinery Insurance Policy that the sum insured was equal to the cost of replacement of the insured machinery by new machinery of the same kind and capacity, which meant that the cost of replacement, including freight, dues and custom duties and the cost of erection.
6. The plaintiff stated that it was also a term of the Machinery Insurance Policy that in the event the plaintiff’s property was destroyed, the defendant would pay the actual value for them immediately before the occurrence of the loss, including charges of ordinary freight, cost of erection and custom duties. The plaintiff asserted that the defendant agreed to pay for any normal charges for dismounting of the machinery destroyed, but the value of the salvage would be taken into account.
7. The plaintiff averred that it was a further term of the Machinery Insurance Policy that the plaintiff would immediately notify the defendant either by teletype or telephone confirmed in writing within fourteen days, of any occurrence giving rise to a claim, giving indication as to the nature , and extent of the loss or damage. It also averred that the plaintiff was to preserve the affected parts and make them available for inspection to the defendant’s representatives and to furnish all information and documentary evidence as the defendant may require.
8. The plaintiff stated that the Policies covered all plant, machinery and equipment at its facility, including a blending silo that formed an integral part of the clinker production process.
9. The plaintiff further stated that on 1st August 2011, its blending silo collapsed at its premises in Mombasa, and by a letter of the same day, through its Insurance Brokers, it notified the defendant of the industrial accident, indicating that the silo had collapsed and the damage was significant. The said Brokers requested the defendant to appoint loss adjusters to assess the damage.
10. The plaintiff contended that following the incident, it was made to pay additional premiums of Kshs.9,040,500/= under Machinery Insurance Policy and in the sum of Kshs.3,733,727.00 under the Loss of Profits Policy. The plaintiff emphasized that it was made to pay additional premium after the actual list of machines was submitted to the defendants and also after the actual loss occurred.
11. The plaintiff averred that submitting a more comprehensive schedule of machinery and equipment, confirmed that the blending silo was insured under the policies. Subsequently, the plaintiff lodged a claim with the defendant for the loss in the sum of USD 15,446,757.00 (Kshs.1.213,974,345.00), which included a claim for the loss of the silo equipment, local fabrication at site, blending silo construction, strengthening of other structures, cost of clearing debris and other civil foundations, excluding the loss of profit claim. The plaintiff stated that an independent valuation of the total losses by Toplis & Harding International Limited, assessed its loss for Machinery as Kshs.664,765,843.00 and Loss of Profits as Kshs.982,434,033.00 giving a combined total loss of Kshs.1.647,199,876.00.
12. The plaintiff asserted that the aforesaid claim was within the insuring clause as the loss occurred during the period of insurance, on the plaintiff’s premises and in a manner necessitating repair and replacement of the damaged plant, machinery and equipment, and as a result of a cause which was included in the insuring clause. The plaintiff contended that the defendant was liable to indemnify the plaintiff against the said loss.
13. The plaintiff averred that upon being notified of the claim, the defendant appointed loss adjusters, including Milind Bhatawadekar and McLarens Young International Ltd, to conduct loss assessment. The plaintiff averred that by an email dated 9th November 2012, Milind Bhatawadekar issued an interim Report, and undertook to give a final assessment within fifteen (15) days. In the said interim assessment, material damage was assessed at Kshs.506,104,904.00 and business interruption losses was assessed at Kshs.221,337,175.00, giving a total loss assessment of Kshs.727,442,079.00.
14. The plaintiff claimed that despite repeated requests for an interim payment and assurance of payment from the defendant’s CEO in the year 2012, in order to assist in reconstruction of the damaged blending silo, the defendant failed to honour their promises, despite various reminders. The plaintiff further claimed that it was aware that the defendant in 2012 made “cash calls” from their various Re-insurers and on account of the claim and received the same as interim payments but did not remit the money to the plaintiff as required.
15. It stated that it instructed Construction Diagnostic Centre and Development Consultants International Limited to conduct non-destructive testing and investigations of the blending silo failure, and both of them confirmed that the collapse of the silo and the loss ensuing therefrom was occasioned by a combination of factors, including defects to faulty design (sic) and erection, poor materials and bad workmanship. The plaintiff asserted that the said causes were expressly covered under the insuring clauses and that the plaintiff’s claim was fully covered.
16. The plaintiff’s position is that the despite several promises to honour the plaintiff’s claim from August 2011, it was not until 20th September 2013 , when the insurer forwarded a discharge voucher of Ksh.393,018,965.00, to the plaintiff, which voucher failed to includer the amount claimed for the blending silo and the loss of profits. The plaintiff stated that both loss adjusters Milind Bhatawadekar and McLaurens Young International Limited held several meetings with the plaintiff during the loss adjustment process and never indicated to the plaintiff that the blending silo was and the loss of profits claim were not payable, as Milind Bhatawadekar in its interim Report had concluded that the blending silo claim and the loss of profits claim.
17. The plaintiff averred that the defendant’s discharge voucher for the net assessed loss in the sums of Kshs.393,018,965.00 was allegedly based on the findings of the defendant’s loss adjuster and also a Report prepared by McLaurens Young International Limited dated 10th July 2013.
18. The plaintiff contended that the said Reports were incorrect and that they were procured by the defendant for the sole purpose of justifying an unlawful reduction in the amount payable or a refusal to cover the losses suffered by the plaintiff. It alleged that based on the impugned Reports, the defendant purported to disclaim the plaintiff’s claim in respect to the blending silo on the grounds that it was not covered under the Machinery Insurance Policy and consequently, the loss of profits claim was not payable.
19. The plaintiff asserted that the blending silo was fully covered and its claim payable as it was listed as one of the items of the plant, machinery and equipment in respect of which the defendant accepted premium from the plaintiff; the blending silo was a plant as it was an integral part of the clinkerisation process, hence a tool of trade; the blending silo was a machine as it was used together and was fully integrated with other machines with which it worked in unison to ensure an feed of homogenous mix of material to produce clinker. The plaintiff further asserted that the blending silo was not expressly excluded in the cover and the aforesaid policies were drafted exclusively by the defendant who classified the blending silo as a plant, machinery and equipment listed in the schedule.
20. The plaintiff maintained that based on the two policies issued by the defendant, the entire blending silo was duly covered and the plaintiff was entitled to be fully indemnified for the loss incurred following the collapse of the said silo, to the extent of the full amount assessed by Toplis & Harding International Limited.
21. In addition to the foregoing, the plaintiff claimed that the defendant breached the insurance contracts by failing to indemnify the plaintiff in respect of the loss sustained following the collapse of the blending silo, failing to honour the claim for indemnity in the sum of Kshs.1,647,199,876.00, breaching the terms of the Machinery Insurance Policy and the Loss of Profits Policy, failing to honour the plaintiff’s claim within a reasonable period of time, attempting to repudiate the blending silo and loss of profits claims without reasonable basis and by clogging the fair assessment of the loss by colluding with the loss adjusters.
22. The plaintiff stated following the delay occasioned by the defendant in processing the its claim, it lodged a complaint with the Insurance Regulatory Authority and the Commissioner of Insurance vide a letter dated 1st July 2013, and after hearing representations from the parties, recommended that the defendant ought to settle the claim, but despite those recommendations and demands, the defendant failed to make payment.
23. Based on the foregoing circumstances, the plaintiff instituted this suit vide a Plaint dated 26th June 2014, against the defendant, an insurance company, seeking indemnity under a Machinery Insurance Policy and a Loss of Profits Policy issued for its cement plant in Mombasa.
24. The plaintiff seeks entry of judgment against the defendant in terms of a declaration that the blending silo was covered by the Machinery Insurance Policy, the sum of Kshs.664,767,843.00 under the Machinery Insurance Policy arising from the loss occasioned to the blending silo, Kshs.982,434,033.00 under the Loss of Profits following the Machinery Breakdown Insurance Policy being the loss of profit, interest on the above amounts at 18% from 31st December 2012, until payment in full and costs of the suit.
25. In opposition to the plaintiff’s case, the defendant filed a statement of defence dated 1st September 2014, wherein it denied all the averments contained in the plaintiff’s plaint. While admitting that it issued to the plaintiff with various insurance policies following a proposal made in a letter dated 31st December 2010, by its Agent, Aum Insurance Brokers Limited, which included Machinery Breakdown Policy and the Loss of Profits Policy, the defendant contended that the said letter did not provide the description of the machine or plant nor the schedule for which the policies were being effected. It stated that it issued the policies predicated upon reliance on the accuracy of information contained in the plaintiff’s letter. averred that the policies were issued based on information supplied by the plaintiff and were subject to strict terms, conditions, exclusions, and the duty of utmost good faith.
26. The defendant averred that it issued the policies referred to in paragraph 4 of the plaint, but the said policies were issued against payment of provisional premium pending receipt of guidelines on rates from the Insurance Regulatory Authority, and that it was only after receipt of the said guidelines that the full premium was computed and thereafter collected. The defendant also stated that the payment of full premium is a condition precedent to the assessment of any claim under the policies.
27. The defendant averred that the Machinery Insurance Policy contained several exclusions, including loss or damage for which a supplier, contractor, or repairer was either legally or contractually responsible, as well as loss or damage arising out the plaintiff’s or its representative’s willful acts or gross negligence. The defendant further averred that it agreed to indemnify the plaintiff solely in accordance with the terms and conditions of the said policies, which included the plaintiff’s obligation to provide truthful statements and answers to the questionnaire, insurer’s representatives would at any reasonable time have the right to inspect and examine the risk and the insured would provide all details and information necessary for risk assessment, the plaintiff would at its own expense take all reasonable precautions and comply with all reasonable recommendations of the defendant to prevent loss or damage and comply with statutory requirements and manufacturer’s recommendations, accurate information regarding the insured machinery and notify the defendant of any material changes in risk and cause at its own expense.
28. The defendant stated that it was entitled to withhold indemnification if there were doubts regarding the plaintiff’s right to receive the indemnity pending receipt by the defendant of the necessary proof and if the proposal or declaration by the plaintiff was untrue in any material respect, or if any claim made was fraudulent or substantially exaggerated, or if any false statement was made in support thereof, then the policy would be voided and the defendant would not be liable to make any payment under the policy.
29. In regard to the Loss of Profits Policy, the defendant stated that it would not cover any loss resulting from business interruption of or interference with the business directly or indirectly attributable to causes, which included collapse of building and loss of damage to foundations and masonry, unless specifically included and described in the list of machinery and plant insured, and loss of or damage to machinery, mechanical installations and their additional installations or other items which were not listed in the list of machinery and plant insured, even if the consequence of material damage to an item indicated in the list of machinery and plant insured were involved.
30. The defendant emphasized that the Machinery Insurance Policy provided for the indemnification of the plaintiff in respect of defects of material used in the assembly and construction of the machinery itself as well as the design of such machinery and any faults that arise therefrom , but only to the extent that the item was insured under the policy and within its terms and conditions.
31. The defendant contended that through a letter dated 24th March 2011, the plaintiff for the first time and through its agents provided what it purported to be a list and schedule of equipment which had been insured following its proposal dated 3rd December 2010. The defendant further contended that the said list included for the first time the phrase “blending silo”, which the plaintiff claimed had been supplied by Thyssenkrupp India Pvt Ltd. Additionally, that the plaintiff costed the said machinery with accessories at Kshs.1,599,897,750.00, and that the said letter purported to ask the defendant to undertake a “periodical risk survey to ensure that the risk was properly monitored and covered.”
32. The defendant contended that the description to plant, machinery and equipment was introduced by the plaintiff on 24th March 2011, well after the policy had been effected on 31st December 2010, and even then with the representation that the blending silo had been supplied by ThysseKrupp India Pvt Ltd. The defendant averred that it relied on the plaintiff’s utmost good faith and its observance and fulfilment of the terms of the Policy to issue and continue to provide cover under the Policy.
33. The defendant stated that by the questionnaire and proposal form filled by the plaintiff dated 5th January 2011, it was required to give full and exact description of all machines, including the name of the manufacturer, type, output, capacity, speed, load, weight, voltage, amperage, cycles, fuel, pressure, temperature etc., in response to which the plaintiff stated that all machines, hoists, equipment related in the manufacture of cement and related products, and that no further details were provided.
34. The defendant further stated that the form also specifically required the plaintiff to give particulars of any part of the machinery to be insured which has had a breakdown or failure during the last three years, which showed any signs or repair, or which was exposed to any special risk, to which the plaintiff responded, “none-new plant being erected”.
35. In respect to the replacement value, the defendant averred that the said proposal form required the plaintiff to state current costs of replacing the machine by new machinery of the same kind and capacity, plus freight charges, customs duties, costs or erection and also value of foundations, if the latter were to be insured, and the plaintiff responded – “same as replacement cost as machines are brand new”.
36. The defendant denied paragraph 9 of the Plaint and contended that the Machinery Insurance Policy expressly insured all machines and equipment to a total sum of Kshs.3,000,000,000/=
37. The defendant emphasized that the Policy included various exclusions amongst them, loss or damage caused by any faults or defects existing at the time of the commencement of the Policy within the knowledge of the plaintiff or his representative, whether such faults or defects were known to the defendant or not, and loss or damage arising out of wilful act or gross negligence of the insured or his representatives.
38. The defendant stated that upon issuance of the policies, the plaintiff made provisional payment of the premium pending the receipt of guidelines on applicable rates from the Insurance Regulatory Authority, and upon the said receipt, the defendant issued a demand for the balance of the premium, but denied that by so doing, it did not acknowledge the loss.
39. The plaintiff further stated that although by a letter dated 1st August 2011, the plaintiff had generally informed it of the loss, it was not until December 2011 that the plaintiff submitted its claim form, in which it stated that its blending silo had been constructed and that costs had been incurred on “local fabrication at site”, contrary to the representation it made in its proposal dated 31st December 2011, and later upon issuance of the schedule of the list of the machinery insured through the letter from its agent dated 24th March 2011.
40. The defendant averred that the amount claimed by the plaintiff was USD 15,446,757.00, and that the assessment of loss by Toplis & Harding International Limited, was made well after the reports by the Loss Adjusters referred to in the Plaint on 12th February 2014.
41. The defendant contended that contrary to the conditions of the Policy requiring the plaintiffs to provide the truth to the statements in the questionnaire and proposal made to the defendant, the plaintiff represented statements which were untrue in the material respects.
42. The defendant listed in its statement of defence particulars of misrepresentation. It claimed that the plaintiff failed to disclose material facts concerning the silo’s design, construction, supervision, and supply of materials, and that these omissions amounted to material misrepresentation and non-disclosure, thereby entitling the defendant to avoid liability under the Policy.
43. It averred that the collapse of the blending silo was caused by faulty design, poor workmanship, inadequate supervision and substandard construction materials supplied or controlled by the plaintiff and its agents. Relying on the plaintiff’s own expert findings, the defendant contended that the damage of the blending silo was attributable to parties responsible for the silo’s design and construction, and therefore fell within Policy exclusions.
44. It also alleged gross negligence on the part of the plaintiff, citing failures in design, supervision, testing, material selection and construction procedures, and stated that such negligence independently excluded the loss from coverage.
45. With regard to the quantum of loss, the defendant maintained that the assessment conducted by the Loss Adjusters was the proper measure of indemnity under the Policy. It stated that it offered to pay the amount assessed by the Loss Adjusters but that the plaintiff rejected the offer. The defendant denied any collusion with the Loss Adjusters and asserted that the said Adjusters acted strictly in accordance with the terms of the insurance contracts.
46. It also denied allegations that it improperly retained funds received from Reinsurers and stated that the funds received were placed in a fixed deposit and refunded to them with interest earned, pending determination of the claim were h and later refunded pending determination of the claim.
47. The defendant additionally denied liability for the loss of profits claim, asserting that the Loss of Profits Policy expressly excluded losses arising from causes such as collapse of buildings, losses attributable to suppliers or contractors, damage to foundations and masonry, and damage to items not specifically listed as insured machinery.
48. The defendant contended that since the blending silo was not covered under the Machinery Breakdown Policy and the loss claimed arose from excluded causes, the claim for loss of profits is not payable.
49. The defendant maintained that any payments offered were consistent with the Policy terms. It denied the plaintiff’s cause of action in its entirety and prayed for dismissal of the suit with costs.
50. The plaintiff filed a Reply to defence on 18th September 2014. It averred that the defendant did not seek the description of the machine, plant or a schedule before issuance of the Policies. It denied that the premium made as consideration for issuance of the said Policies was accepted as provisional premium pending receipt of guidelines from the Insurance Regulatory Authority, and put the defendant to strict proof thereof.
51. The plaintiff averred that the letter dated 24th March 2011 was issued in utmost good faith as a reminder to the defendant as it was its obligation to obtain full particulars of the plant, machinery and equipment covered under the said Policies.
52. The plaintiff contended that in the event that the description given by the plaintiff was not sufficient, the defendant ought to have rejected the plaintiff’s application for cover or sought further and better particulars, and that having accepted particulars furnished by the plaintiff, the defendant is estopped from contending that the details provided were not all encompassing of the machines, plant and equipment, including the blending silo.
53. The plaintiff denied making representations to the defendant of statements which were untrue in material respects or in any other respects or in any other respects at all and put the defendant to strict proof thereof. The plaintiff denied the particulars of misrepresentations set out in the plaint.
54. It also denied that the contents of paragraph 18 of the plaint was an admission and reiterated that the said damage and resultant loss was insured loss within the terms of the Machinery Insurance Policy.
55. The plaintiff denied that the loss or damage occurred out of gross negligence of the plaintiff, its servants or agencies (sic) contrary to the conditions of the Policy. It denied the particulars of gross negligence as set out in paragraph 22 of the statement of defence.
56. The plaintiff denied that it failed to disclose to the defendant that the civil structure of the blending silo was constructed by the defendant using various means including procuring and design, supervising the same and appointing of Engineers and supplying part of the materials, as alleged.
57. The plaintiff denied the averments in paragraph 27(4) of the statement of defence and making the false representations as alleged, in the said paragraph. It further denied the defendant’s assertion that the blending silo was only civil works not capable of being covered under the Machinery Insurance Policy and that it was loss caused by gross negligence of the plaintiff.
58. In response to paragraph 27(6) of the statement of defence, the plaintiff averred that the defendant had failed and/or refused to comply with the Insurance Regulatory Authority’s directions for the defendant to settle on account to the tune of Kshs.393,018,965.00, as per the Loss Adjuster’s Report.
59. In further response to paragraph 27(6) of the statement of defence, the plaintiff stated that the loss of profits which was as a result of the collapse of the blending silo was fully covered under the Loss of Profits Policy and was therefore payable by the defendant. The plaintiff put the defendant to strict proof of any allegations to the contrary.
60. This matter proceeded to main hearing. The case was partly heard by Hon. Lady Justice M. Kasango (Retired) and by myself. The plaintiff called three witnesses and the defendant called two witnesses to support their cases.
PLAINTIFF’S CASE.
61. Mr. Hasmukh K. Patel, a Director of the plaintiff company testified as PW1. He adopted his witness statement dated 26th June 2014 as his evidence-in-chief and produced the documents in the plaintiff’s lists and bundles of documents dated 25th June 2014 and 9th February 2016, as plaintiff exhibit Nos. 1 & 2. He testified that the plaintiff’s case is founded on two Insurance Policies issued by the defendant in respect of its clinkerisation plant at Vipingo, Mombasa, namely a Machinery Insurance Policy at insured sum of Kshs.3 Billion and a Loss of Profits following Machinery Breakdown Policy, at an insured sum of Kshs.1.062 Billion. He stated that through the plaintiff’s Insurance Broker, Aum Insurance Brokers Limited, the plaintiff procured the said insurance covers in December 2010, to insure the plant, machinery and equipment used in its cement manufacturing operations.
62. PW1 stated that the clinkerisation process involved blending limestone, iron ore and other additives before the mixture was fed into a kiln to produce clinker, the principal ingredient in cement manufacture. He testified that the Insurance Policies were intended to cover all machinery, equipment, accessories and associated structures forming part of the 3000 TPD clinkerisation plant, including the blending silo, which was specifically listed in the policy schedule. PW1 further testified that the plaintiff had maintained an insurance relationship with the defendant for approximately forty (40) years and that prior to commencement of operations, the plaintiff had obtained an erection all-risks cover from the defendant. He stated that thereafter, upon completion and commissioning of the clinkerisation plant, the plaintiff procured the Machinery (Insurance Policy) and Loss of Profits Policies that are the subject of this dispute.
63. Mr. Patel contended that the Machinery Insurance Policy covered sudden and unforeseen physical loss or damage arising from causes such as faulty design, defects in materials, bad workmanship, erection faults and other non-excluded causes requiring repair or replacement. He further maintained that the said Policy provided indemnity based on replacement costs, including freight, customs duties, erection and dismantling expenses. He asserted that the said provisions demonstrated that the Policy extended beyond movable machinery components and encompassed structures necessary for the operation of the insured plant. PW1 testified that construction of the clinkerisation plant commenced in 2009 and took approximately three (3) years to complete. He stated that after commissioning, the plant operated for about eight (
[...truncated]
1. The background giving rise to this case as gleaned from the Plaint dated 26th June 2014, is that the plaintiff, a cement manufacturing company ,vide a letter dated 31st December 2010 through Aum Insurance Brokers Limited applied to the defendant for an insurance cover in respect to inter alia, all the plaintiff’s machines and equipment, machinery breakdown, loss of profits and various other insurance covers for its plant in Mombasa County. The plaintiff averred that the defendant acceded to the request and after agreeing to pay the premium, the defendant issued a Machinery Insurance Policy No. P/107/021/-223/2010/2/12 and a Loss of Profits following Machinery Breakdown Insurance Policy No. P/107/021/0226/2010/1/12, which were valid from 31st December 2010 to 31st December 2011.
2. The plaintiff’s case is that by virtue of the said policies, the defendant undertook to indemnify and pay the plaintiff up to a maximum sum of Kshs.3 Billion under the Machinery Insurance Policy for machinery damage and Kshs.1.062 Billion for loss of profits. The plaintiff averred that it was a term of the Machinery Insurance Policy that if at any time during the validity of the term of the Policy, any of the items covered under the Policy suffer any unforeseen and sudden physical loss or damage from any cause including, but not limited to, defects in casting and material, faulty design, or from any other causes not specifically excluded, in a manner necessitating repair or replacement, the defendant would indemnify the plaintiff in respect of such loss and damage, by payment of the sum insured.
3. The plaintiff further averred that by a letter dated 24th March 2011, through its Brokers, it notified the defendant that the schedule of plant, machinery and equipment supplied was not all inclusive due to the expansive nature of the plant and requested the defendant to undertake a periodical risk survey to ensure that the risk was properly monitored and covered.
4. The plaintiff asserted that the Machinery Insurance Policy contained a descroiption of the plant, machinery and equipment covered under the Policy, wherein the first item contained equipment described as 3000 TPD clinker grinding plant + accessories (dry process clinkerisation) plant to include raw mill, separator, blending silo, pre-heater, precalciner, rotary kiln, coller, coal mill, separator and all other equipment and accessories associated with the clinker grinding plant. The said equipment was indicated to have been supplied by Thyssenkrupp, India Pvt Ltd and the cost was Kshs.1,599,897,750.00.
5. The plaintiff averred that it was an express term of the provisions of the Machinery Insurance Policy that the sum insured was equal to the cost of replacement of the insured machinery by new machinery of the same kind and capacity, which meant that the cost of replacement, including freight, dues and custom duties and the cost of erection.
6. The plaintiff stated that it was also a term of the Machinery Insurance Policy that in the event the plaintiff’s property was destroyed, the defendant would pay the actual value for them immediately before the occurrence of the loss, including charges of ordinary freight, cost of erection and custom duties. The plaintiff asserted that the defendant agreed to pay for any normal charges for dismounting of the machinery destroyed, but the value of the salvage would be taken into account.
7. The plaintiff averred that it was a further term of the Machinery Insurance Policy that the plaintiff would immediately notify the defendant either by teletype or telephone confirmed in writing within fourteen days, of any occurrence giving rise to a claim, giving indication as to the nature , and extent of the loss or damage. It also averred that the plaintiff was to preserve the affected parts and make them available for inspection to the defendant’s representatives and to furnish all information and documentary evidence as the defendant may require.
8. The plaintiff stated that the Policies covered all plant, machinery and equipment at its facility, including a blending silo that formed an integral part of the clinker production process.
9. The plaintiff further stated that on 1st August 2011, its blending silo collapsed at its premises in Mombasa, and by a letter of the same day, through its Insurance Brokers, it notified the defendant of the industrial accident, indicating that the silo had collapsed and the damage was significant. The said Brokers requested the defendant to appoint loss adjusters to assess the damage.
10. The plaintiff contended that following the incident, it was made to pay additional premiums of Kshs.9,040,500/= under Machinery Insurance Policy and in the sum of Kshs.3,733,727.00 under the Loss of Profits Policy. The plaintiff emphasized that it was made to pay additional premium after the actual list of machines was submitted to the defendants and also after the actual loss occurred.
11. The plaintiff averred that submitting a more comprehensive schedule of machinery and equipment, confirmed that the blending silo was insured under the policies. Subsequently, the plaintiff lodged a claim with the defendant for the loss in the sum of USD 15,446,757.00 (Kshs.1.213,974,345.00), which included a claim for the loss of the silo equipment, local fabrication at site, blending silo construction, strengthening of other structures, cost of clearing debris and other civil foundations, excluding the loss of profit claim. The plaintiff stated that an independent valuation of the total losses by Toplis & Harding International Limited, assessed its loss for Machinery as Kshs.664,765,843.00 and Loss of Profits as Kshs.982,434,033.00 giving a combined total loss of Kshs.1.647,199,876.00.
12. The plaintiff asserted that the aforesaid claim was within the insuring clause as the loss occurred during the period of insurance, on the plaintiff’s premises and in a manner necessitating repair and replacement of the damaged plant, machinery and equipment, and as a result of a cause which was included in the insuring clause. The plaintiff contended that the defendant was liable to indemnify the plaintiff against the said loss.
13. The plaintiff averred that upon being notified of the claim, the defendant appointed loss adjusters, including Milind Bhatawadekar and McLarens Young International Ltd, to conduct loss assessment. The plaintiff averred that by an email dated 9th November 2012, Milind Bhatawadekar issued an interim Report, and undertook to give a final assessment within fifteen (15) days. In the said interim assessment, material damage was assessed at Kshs.506,104,904.00 and business interruption losses was assessed at Kshs.221,337,175.00, giving a total loss assessment of Kshs.727,442,079.00.
14. The plaintiff claimed that despite repeated requests for an interim payment and assurance of payment from the defendant’s CEO in the year 2012, in order to assist in reconstruction of the damaged blending silo, the defendant failed to honour their promises, despite various reminders. The plaintiff further claimed that it was aware that the defendant in 2012 made “cash calls” from their various Re-insurers and on account of the claim and received the same as interim payments but did not remit the money to the plaintiff as required.
15. It stated that it instructed Construction Diagnostic Centre and Development Consultants International Limited to conduct non-destructive testing and investigations of the blending silo failure, and both of them confirmed that the collapse of the silo and the loss ensuing therefrom was occasioned by a combination of factors, including defects to faulty design (sic) and erection, poor materials and bad workmanship. The plaintiff asserted that the said causes were expressly covered under the insuring clauses and that the plaintiff’s claim was fully covered.
16. The plaintiff’s position is that the despite several promises to honour the plaintiff’s claim from August 2011, it was not until 20th September 2013 , when the insurer forwarded a discharge voucher of Ksh.393,018,965.00, to the plaintiff, which voucher failed to includer the amount claimed for the blending silo and the loss of profits. The plaintiff stated that both loss adjusters Milind Bhatawadekar and McLaurens Young International Limited held several meetings with the plaintiff during the loss adjustment process and never indicated to the plaintiff that the blending silo was and the loss of profits claim were not payable, as Milind Bhatawadekar in its interim Report had concluded that the blending silo claim and the loss of profits claim.
17. The plaintiff averred that the defendant’s discharge voucher for the net assessed loss in the sums of Kshs.393,018,965.00 was allegedly based on the findings of the defendant’s loss adjuster and also a Report prepared by McLaurens Young International Limited dated 10th July 2013.
18. The plaintiff contended that the said Reports were incorrect and that they were procured by the defendant for the sole purpose of justifying an unlawful reduction in the amount payable or a refusal to cover the losses suffered by the plaintiff. It alleged that based on the impugned Reports, the defendant purported to disclaim the plaintiff’s claim in respect to the blending silo on the grounds that it was not covered under the Machinery Insurance Policy and consequently, the loss of profits claim was not payable.
19. The plaintiff asserted that the blending silo was fully covered and its claim payable as it was listed as one of the items of the plant, machinery and equipment in respect of which the defendant accepted premium from the plaintiff; the blending silo was a plant as it was an integral part of the clinkerisation process, hence a tool of trade; the blending silo was a machine as it was used together and was fully integrated with other machines with which it worked in unison to ensure an feed of homogenous mix of material to produce clinker. The plaintiff further asserted that the blending silo was not expressly excluded in the cover and the aforesaid policies were drafted exclusively by the defendant who classified the blending silo as a plant, machinery and equipment listed in the schedule.
20. The plaintiff maintained that based on the two policies issued by the defendant, the entire blending silo was duly covered and the plaintiff was entitled to be fully indemnified for the loss incurred following the collapse of the said silo, to the extent of the full amount assessed by Toplis & Harding International Limited.
21. In addition to the foregoing, the plaintiff claimed that the defendant breached the insurance contracts by failing to indemnify the plaintiff in respect of the loss sustained following the collapse of the blending silo, failing to honour the claim for indemnity in the sum of Kshs.1,647,199,876.00, breaching the terms of the Machinery Insurance Policy and the Loss of Profits Policy, failing to honour the plaintiff’s claim within a reasonable period of time, attempting to repudiate the blending silo and loss of profits claims without reasonable basis and by clogging the fair assessment of the loss by colluding with the loss adjusters.
22. The plaintiff stated following the delay occasioned by the defendant in processing the its claim, it lodged a complaint with the Insurance Regulatory Authority and the Commissioner of Insurance vide a letter dated 1st July 2013, and after hearing representations from the parties, recommended that the defendant ought to settle the claim, but despite those recommendations and demands, the defendant failed to make payment.
23. Based on the foregoing circumstances, the plaintiff instituted this suit vide a Plaint dated 26th June 2014, against the defendant, an insurance company, seeking indemnity under a Machinery Insurance Policy and a Loss of Profits Policy issued for its cement plant in Mombasa.
24. The plaintiff seeks entry of judgment against the defendant in terms of a declaration that the blending silo was covered by the Machinery Insurance Policy, the sum of Kshs.664,767,843.00 under the Machinery Insurance Policy arising from the loss occasioned to the blending silo, Kshs.982,434,033.00 under the Loss of Profits following the Machinery Breakdown Insurance Policy being the loss of profit, interest on the above amounts at 18% from 31st December 2012, until payment in full and costs of the suit.
25. In opposition to the plaintiff’s case, the defendant filed a statement of defence dated 1st September 2014, wherein it denied all the averments contained in the plaintiff’s plaint. While admitting that it issued to the plaintiff with various insurance policies following a proposal made in a letter dated 31st December 2010, by its Agent, Aum Insurance Brokers Limited, which included Machinery Breakdown Policy and the Loss of Profits Policy, the defendant contended that the said letter did not provide the description of the machine or plant nor the schedule for which the policies were being effected. It stated that it issued the policies predicated upon reliance on the accuracy of information contained in the plaintiff’s letter. averred that the policies were issued based on information supplied by the plaintiff and were subject to strict terms, conditions, exclusions, and the duty of utmost good faith.
26. The defendant averred that it issued the policies referred to in paragraph 4 of the plaint, but the said policies were issued against payment of provisional premium pending receipt of guidelines on rates from the Insurance Regulatory Authority, and that it was only after receipt of the said guidelines that the full premium was computed and thereafter collected. The defendant also stated that the payment of full premium is a condition precedent to the assessment of any claim under the policies.
27. The defendant averred that the Machinery Insurance Policy contained several exclusions, including loss or damage for which a supplier, contractor, or repairer was either legally or contractually responsible, as well as loss or damage arising out the plaintiff’s or its representative’s willful acts or gross negligence. The defendant further averred that it agreed to indemnify the plaintiff solely in accordance with the terms and conditions of the said policies, which included the plaintiff’s obligation to provide truthful statements and answers to the questionnaire, insurer’s representatives would at any reasonable time have the right to inspect and examine the risk and the insured would provide all details and information necessary for risk assessment, the plaintiff would at its own expense take all reasonable precautions and comply with all reasonable recommendations of the defendant to prevent loss or damage and comply with statutory requirements and manufacturer’s recommendations, accurate information regarding the insured machinery and notify the defendant of any material changes in risk and cause at its own expense.
28. The defendant stated that it was entitled to withhold indemnification if there were doubts regarding the plaintiff’s right to receive the indemnity pending receipt by the defendant of the necessary proof and if the proposal or declaration by the plaintiff was untrue in any material respect, or if any claim made was fraudulent or substantially exaggerated, or if any false statement was made in support thereof, then the policy would be voided and the defendant would not be liable to make any payment under the policy.
29. In regard to the Loss of Profits Policy, the defendant stated that it would not cover any loss resulting from business interruption of or interference with the business directly or indirectly attributable to causes, which included collapse of building and loss of damage to foundations and masonry, unless specifically included and described in the list of machinery and plant insured, and loss of or damage to machinery, mechanical installations and their additional installations or other items which were not listed in the list of machinery and plant insured, even if the consequence of material damage to an item indicated in the list of machinery and plant insured were involved.
30. The defendant emphasized that the Machinery Insurance Policy provided for the indemnification of the plaintiff in respect of defects of material used in the assembly and construction of the machinery itself as well as the design of such machinery and any faults that arise therefrom , but only to the extent that the item was insured under the policy and within its terms and conditions.
31. The defendant contended that through a letter dated 24th March 2011, the plaintiff for the first time and through its agents provided what it purported to be a list and schedule of equipment which had been insured following its proposal dated 3rd December 2010. The defendant further contended that the said list included for the first time the phrase “blending silo”, which the plaintiff claimed had been supplied by Thyssenkrupp India Pvt Ltd. Additionally, that the plaintiff costed the said machinery with accessories at Kshs.1,599,897,750.00, and that the said letter purported to ask the defendant to undertake a “periodical risk survey to ensure that the risk was properly monitored and covered.”
32. The defendant contended that the description to plant, machinery and equipment was introduced by the plaintiff on 24th March 2011, well after the policy had been effected on 31st December 2010, and even then with the representation that the blending silo had been supplied by ThysseKrupp India Pvt Ltd. The defendant averred that it relied on the plaintiff’s utmost good faith and its observance and fulfilment of the terms of the Policy to issue and continue to provide cover under the Policy.
33. The defendant stated that by the questionnaire and proposal form filled by the plaintiff dated 5th January 2011, it was required to give full and exact description of all machines, including the name of the manufacturer, type, output, capacity, speed, load, weight, voltage, amperage, cycles, fuel, pressure, temperature etc., in response to which the plaintiff stated that all machines, hoists, equipment related in the manufacture of cement and related products, and that no further details were provided.
34. The defendant further stated that the form also specifically required the plaintiff to give particulars of any part of the machinery to be insured which has had a breakdown or failure during the last three years, which showed any signs or repair, or which was exposed to any special risk, to which the plaintiff responded, “none-new plant being erected”.
35. In respect to the replacement value, the defendant averred that the said proposal form required the plaintiff to state current costs of replacing the machine by new machinery of the same kind and capacity, plus freight charges, customs duties, costs or erection and also value of foundations, if the latter were to be insured, and the plaintiff responded – “same as replacement cost as machines are brand new”.
36. The defendant denied paragraph 9 of the Plaint and contended that the Machinery Insurance Policy expressly insured all machines and equipment to a total sum of Kshs.3,000,000,000/=
37. The defendant emphasized that the Policy included various exclusions amongst them, loss or damage caused by any faults or defects existing at the time of the commencement of the Policy within the knowledge of the plaintiff or his representative, whether such faults or defects were known to the defendant or not, and loss or damage arising out of wilful act or gross negligence of the insured or his representatives.
38. The defendant stated that upon issuance of the policies, the plaintiff made provisional payment of the premium pending the receipt of guidelines on applicable rates from the Insurance Regulatory Authority, and upon the said receipt, the defendant issued a demand for the balance of the premium, but denied that by so doing, it did not acknowledge the loss.
39. The plaintiff further stated that although by a letter dated 1st August 2011, the plaintiff had generally informed it of the loss, it was not until December 2011 that the plaintiff submitted its claim form, in which it stated that its blending silo had been constructed and that costs had been incurred on “local fabrication at site”, contrary to the representation it made in its proposal dated 31st December 2011, and later upon issuance of the schedule of the list of the machinery insured through the letter from its agent dated 24th March 2011.
40. The defendant averred that the amount claimed by the plaintiff was USD 15,446,757.00, and that the assessment of loss by Toplis & Harding International Limited, was made well after the reports by the Loss Adjusters referred to in the Plaint on 12th February 2014.
41. The defendant contended that contrary to the conditions of the Policy requiring the plaintiffs to provide the truth to the statements in the questionnaire and proposal made to the defendant, the plaintiff represented statements which were untrue in the material respects.
42. The defendant listed in its statement of defence particulars of misrepresentation. It claimed that the plaintiff failed to disclose material facts concerning the silo’s design, construction, supervision, and supply of materials, and that these omissions amounted to material misrepresentation and non-disclosure, thereby entitling the defendant to avoid liability under the Policy.
43. It averred that the collapse of the blending silo was caused by faulty design, poor workmanship, inadequate supervision and substandard construction materials supplied or controlled by the plaintiff and its agents. Relying on the plaintiff’s own expert findings, the defendant contended that the damage of the blending silo was attributable to parties responsible for the silo’s design and construction, and therefore fell within Policy exclusions.
44. It also alleged gross negligence on the part of the plaintiff, citing failures in design, supervision, testing, material selection and construction procedures, and stated that such negligence independently excluded the loss from coverage.
45. With regard to the quantum of loss, the defendant maintained that the assessment conducted by the Loss Adjusters was the proper measure of indemnity under the Policy. It stated that it offered to pay the amount assessed by the Loss Adjusters but that the plaintiff rejected the offer. The defendant denied any collusion with the Loss Adjusters and asserted that the said Adjusters acted strictly in accordance with the terms of the insurance contracts.
46. It also denied allegations that it improperly retained funds received from Reinsurers and stated that the funds received were placed in a fixed deposit and refunded to them with interest earned, pending determination of the claim were h and later refunded pending determination of the claim.
47. The defendant additionally denied liability for the loss of profits claim, asserting that the Loss of Profits Policy expressly excluded losses arising from causes such as collapse of buildings, losses attributable to suppliers or contractors, damage to foundations and masonry, and damage to items not specifically listed as insured machinery.
48. The defendant contended that since the blending silo was not covered under the Machinery Breakdown Policy and the loss claimed arose from excluded causes, the claim for loss of profits is not payable.
49. The defendant maintained that any payments offered were consistent with the Policy terms. It denied the plaintiff’s cause of action in its entirety and prayed for dismissal of the suit with costs.
50. The plaintiff filed a Reply to defence on 18th September 2014. It averred that the defendant did not seek the description of the machine, plant or a schedule before issuance of the Policies. It denied that the premium made as consideration for issuance of the said Policies was accepted as provisional premium pending receipt of guidelines from the Insurance Regulatory Authority, and put the defendant to strict proof thereof.
51. The plaintiff averred that the letter dated 24th March 2011 was issued in utmost good faith as a reminder to the defendant as it was its obligation to obtain full particulars of the plant, machinery and equipment covered under the said Policies.
52. The plaintiff contended that in the event that the description given by the plaintiff was not sufficient, the defendant ought to have rejected the plaintiff’s application for cover or sought further and better particulars, and that having accepted particulars furnished by the plaintiff, the defendant is estopped from contending that the details provided were not all encompassing of the machines, plant and equipment, including the blending silo.
53. The plaintiff denied making representations to the defendant of statements which were untrue in material respects or in any other respects or in any other respects at all and put the defendant to strict proof thereof. The plaintiff denied the particulars of misrepresentations set out in the plaint.
54. It also denied that the contents of paragraph 18 of the plaint was an admission and reiterated that the said damage and resultant loss was insured loss within the terms of the Machinery Insurance Policy.
55. The plaintiff denied that the loss or damage occurred out of gross negligence of the plaintiff, its servants or agencies (sic) contrary to the conditions of the Policy. It denied the particulars of gross negligence as set out in paragraph 22 of the statement of defence.
56. The plaintiff denied that it failed to disclose to the defendant that the civil structure of the blending silo was constructed by the defendant using various means including procuring and design, supervising the same and appointing of Engineers and supplying part of the materials, as alleged.
57. The plaintiff denied the averments in paragraph 27(4) of the statement of defence and making the false representations as alleged, in the said paragraph. It further denied the defendant’s assertion that the blending silo was only civil works not capable of being covered under the Machinery Insurance Policy and that it was loss caused by gross negligence of the plaintiff.
58. In response to paragraph 27(6) of the statement of defence, the plaintiff averred that the defendant had failed and/or refused to comply with the Insurance Regulatory Authority’s directions for the defendant to settle on account to the tune of Kshs.393,018,965.00, as per the Loss Adjuster’s Report.
59. In further response to paragraph 27(6) of the statement of defence, the plaintiff stated that the loss of profits which was as a result of the collapse of the blending silo was fully covered under the Loss of Profits Policy and was therefore payable by the defendant. The plaintiff put the defendant to strict proof of any allegations to the contrary.
60. This matter proceeded to main hearing. The case was partly heard by Hon. Lady Justice M. Kasango (Retired) and by myself. The plaintiff called three witnesses and the defendant called two witnesses to support their cases.
PLAINTIFF’S CASE.
61. Mr. Hasmukh K. Patel, a Director of the plaintiff company testified as PW1. He adopted his witness statement dated 26th June 2014 as his evidence-in-chief and produced the documents in the plaintiff’s lists and bundles of documents dated 25th June 2014 and 9th February 2016, as plaintiff exhibit Nos. 1 & 2. He testified that the plaintiff’s case is founded on two Insurance Policies issued by the defendant in respect of its clinkerisation plant at Vipingo, Mombasa, namely a Machinery Insurance Policy at insured sum of Kshs.3 Billion and a Loss of Profits following Machinery Breakdown Policy, at an insured sum of Kshs.1.062 Billion. He stated that through the plaintiff’s Insurance Broker, Aum Insurance Brokers Limited, the plaintiff procured the said insurance covers in December 2010, to insure the plant, machinery and equipment used in its cement manufacturing operations.
62. PW1 stated that the clinkerisation process involved blending limestone, iron ore and other additives before the mixture was fed into a kiln to produce clinker, the principal ingredient in cement manufacture. He testified that the Insurance Policies were intended to cover all machinery, equipment, accessories and associated structures forming part of the 3000 TPD clinkerisation plant, including the blending silo, which was specifically listed in the policy schedule. PW1 further testified that the plaintiff had maintained an insurance relationship with the defendant for approximately forty (40) years and that prior to commencement of operations, the plaintiff had obtained an erection all-risks cover from the defendant. He stated that thereafter, upon completion and commissioning of the clinkerisation plant, the plaintiff procured the Machinery (Insurance Policy) and Loss of Profits Policies that are the subject of this dispute.
63. Mr. Patel contended that the Machinery Insurance Policy covered sudden and unforeseen physical loss or damage arising from causes such as faulty design, defects in materials, bad workmanship, erection faults and other non-excluded causes requiring repair or replacement. He further maintained that the said Policy provided indemnity based on replacement costs, including freight, customs duties, erection and dismantling expenses. He asserted that the said provisions demonstrated that the Policy extended beyond movable machinery components and encompassed structures necessary for the operation of the insured plant. PW1 testified that construction of the clinkerisation plant commenced in 2009 and took approximately three (3) years to complete. He stated that after commissioning, the plant operated for about eight (
[...truncated]