November 16, 2021

LAW OF INSURANCE NATURE OF THE CONTRACT Insurance is an important part of modern life. Individuals and businesses take out insurance to protect themselves from loss that may occur due to damage to property or loss of life. What is insurance? This is a contract whereby a party known as the insurer undertakes, in consideration for a sum of money known as premium paid by the insured, to pay a sum of money or its equivalent on the happening of a specified future event. The insurance contract is a contract like any other, but with particular peculiar principles. The insurable interest should be beyond the control of either party and there must be an element of negligence or that there is uncertainty. Contracts dealing with uncertain future events are either alieatory, contingent or speculative. In insurance risk exists in priori, whether or not we insure. However in a wager/stake/ gamble there is no insurable interest. Parties to the contract Insurer: This is the person who undertakes to pay the sum assured or indemnity when the insured event occurs. To carry on insurance business in Kenya, a person must be a body corporate (company) licensed by the Commissioner of insurance to do business. Insured: This is the person who takes out insurance cover, he is the person who pays the premium and may be a natural or artificial person. The insured must have an insurable interest in the subject matter of insurance. ESSENTIALS OF AN INSURANCE CONTRACT Agreement For a contract of insurance to exist, there must be an agreement under which the insurer is legally bound to compensate the other party or pay the sum assured [premium]. This is the consideration that passes between the parties to support the transaction. It is asserted that premium is the considerations which the insurers receive from the insured in exchange for their undertaking to pay the sum assured in the occurrence of the event insured against. Any consideration sufficient to support a simple contract may constitute a premium in a contract of insurance. Uncertainty The insurance contract is aleatory, contingent or speculative as it deals with uncertain future events. For an event to be Insurable it must be characterized by some uncertainty. Insurable Interest The insurable event must be of an adverse nature .i.e. the insured must have an Insurable interest in the property, life or liability which is the subject of the insurance. Insurable interest is said to be the pecuniary or financial interest which is at stake or in danger if the subject matter is not insured. It is a basic requirement for the contract of insurance. Control The insurable event must be beyond the control of the party assuring the risk as it was held in Re Sentinel Securities P.L.L Accidental or Negligent Loss Insurance can only be effected where loss is accidental in nature or is a consequence of a negligent act or omission. Loss occasioned by intentional acts does not qualify for indemnity or for payment of the sum assured. It was so held in Toxleth v Hampton. Risk Risk has been defined as the chance of loss, the probability of loss or the probability of any outcome different from the one expected. It is a condition in which there is a possibility of an adverse deviation from a desired outcome that is expected or hoped for. For individual proposes, risk is measured by the probability of loss as the individual hopes that it would  not occur.

TERMINATION OF AGENCY An agency relationship may terminate in any of the following ways: – Agreement Where the relationship is consensual, the parties therefore may enter into a new agreement to discharge the agency. Their mind must be ad idem Withdrawal of Consent This is termination of agency at the option of other party. The agent may renounce the relationship while the principal may revoke the same. However, agency is irrevocable if: – The agent has exercised his authority in full. The agent has incurred personal liability The agent authority is coupled with interest Death of Either Party The death of principal or agent ends the agency relationship. This is because the obligations of agency are confidential and not transferable. Performance Execution of the agent’s authority in full terminates the relationship as the obligation has been discharged. The contract if any is discharged by performance. Lapse of Time An agency relationship terminates on expiration of the duration stipulated or implied by trade usage or custom. Insanity The unsoundness of mind of either party terminates the agency relationship since the party loses its contractual capacity. Bankruptcy of the Principal The declaration of bankruptcy of the principal by a court of competent jurisdiction terminates the agency relationship Frustration of Contract Agency related by agreement or contract comes to an end when the contract is frustrated. Destruction of Subject Matter If the foundation of agency whether contractual or not is destroyed, the relationship terminates. Cessation of Emergency Agency of necessity comes to an end when the circumstances creating the emergency cease and the party in possession is in a position to seek instructions from the owner. Cessation of Cohabitation Agency by presumption from cohabitation comes to an end when the parties cease to cohabit, whether voluntarily, judicial separation or by a decree of divorce.

AUTHORITY OF AN AGENT The principal is only liable if the agent was acting within the scope of his authority. Authority implies permission to do or engage in a particular act. It differs from power which is a legal concept. Whereas authority creates power, power may exist without authority. Though the two concepts are at times used interchangeably, they are not the same. In certain circumstances, the agent has power but no authority e.g. an agent of necessity. Authority is the ability of the agent to effect the principal’s legal position in relation to 3 rd parties. There are 3 types of authority an agent may have namely: Real or Actual. Ostensible or Apparent. Real / Actual Authority This is the authority which the agent has been given by the principal under the contract between them. The authority may be express, implied, customary or usual.   Express Authority: It is the authority given to the agent by the principal in writing or by word of mouth. If in writing, it is interpreted restrictively. Implied Authority: It is the agent’s authority implied from the nature of the business or transaction which the agent is engaged to transact. It is the authority reasonably necessary to accomplish express authority. Customary or Usual Authority: It is the agent’s authority implied from the customs, usage and practices of the transaction or business. It is the authority which every agent in a particular business or profession is deemed to have and 3rd parties dealing with such agents expect such authority. It is a category of implied authority. Agents created by agreement or ratification exercise real or actual authority. Apparent/Ostensible Authority It is the authority which the agent has not been given by the principal but which he appears  to have by reason of the principal’s conduct. It is therefore apparent. Its scope is determined by the conduct of the principal. It is the authority exercised by agency created by estoppel. Presumed Authority It is a category of authority created by law and which an agent is deemed to have in certain circumstances. It is not given to the agent nor is it based on the principal’s conduct. It is given by operation of the law. It is agency created by necessity or cohabitation Liability for breach of contract If an agent with no authority to act warrants the same to a 3rd party who relied on the representation and suffers loss or damage, the 3rd party may have an action in damages against the agent for breach of authority. Authority coupled with interest It is a situation whereby the principal who is indebted to the agent gives the agent authority as a security for a debt. The agent has a personal interest in the relationship. In such a case the agent’s authority lies irrevocable by the principal.

AGENCY BY PRESUMPTION OR COHABITATION This is another category of agency presumed by law. It is presumed where a man and woman are living together in circumstances which portray them as husband and wife, the woman is presumed to be an agent and can pledge the man’s credit for necessaries. Marriage is not essential for the agency to arise. However, the following conditions are necessary: Cohabitation: The two persons must be living together as husband and wife. It was so held in Jolly v. Rees. Domestic establishment: The persons living together in a domestic establishment in the presumption of agency to arise. In Debenham v. Mennon where the parties were cohabiting in a hotel, it was held that the presumption of agency could not arise and the woman was liable. Necessaries: The woman’s authority is restricted to pledging a man’s credit for necessaries. The agency does not arise if: The woman contracts personally. The man has expressly/implicitly instructed the woman not to pledge his credit The goods pledged are not necessaries The parties have stopped cohabiting by divorce. The parties have separated by mutual agreement and the woman is provided for. The trades’ people extend credit to her personally. She’s prohibited from pledging credit. RIGHTS AND DUTIES OF THE PARTIES Duties of the agent Performance: The agent must perform his obligation if the agency is contractual. He is not bound to perform if the agency is not created by agreement or where the undertaking is illegal or void. Obedience: The agent is bound to obey the principal’s instructions. This means that he must act within the scope of his authority. Care and skill: The agent must exhibit a degree of care and skill appropriate to the circumstances. In ordinary transactions, the degree of care and skill is that of a reasonable man, if engaged as a professional the degree is that of a reasonably competent professional. Respect for principal’s title or estoppel: The agent must respect the principal’s title to any property he holds on the principal’s behalf. He cannot deny that the principal has title thereto. However if a 3rd party has a better title and the agent issued, he is entitled to plead jus tertii (the other person has a better title). Account: The agent is bound to explain to the principal the application of money or goods that come into his hands during the relationship. The account must be complete and honest. Personal Performance or non-delegation: The agent must perform the undertaking personally as this is consistent with the maxim delagatus non potest delegare “Delegates must not delegate”. If an agent delegates in violation of this principle, the principal is liable for any loss or liability arising. However, this maxim is subject to various exceptions where the delegates can delegate: Where it is authorized by the contract between the parties. Where it is authorized by law. Where it is authorized by trade usage or customs. Where it is effected with the principal‟s knowledge. Where it is reasonably necessary for performance. Where special skill is required. In case of an emergency. Bonafide: As a fiduciary, an agent is bound to act in good faith for the benefit of the principal. His actions must be guided by the principle of utmost fairness. Keep the principal informed: The agent must ensure that the principal is well aware of the transactions entered into. Secrecy/ Confidentiality: The agent must not disclose his dealings with the principalto 3rd parties without the principal’s consent. Separate Accounts: The agent must maintain separate accounts of his money or assets and those of his principal. This is necessary for accountancy purposes. Disclosure: The agent is bound to disclose any personal interest in contracts made on behalf of the principal. He must disclose any secret profit made, failing which he  is bound to account the same to the principal. The phrase “secret profit” refers to any financial advantage enjoyed by a fiduciary1 over and above his entitlement by way of remuneration e.g. bribe, secret commission or a benefit accruing from the use of information obtained in the course of employment. An agent may retain a secret profit if he discloses the same to the principal. If an agent makes a secret profit without disclosure, the principal is entitled to: Refuse to remunerate the agent for services rendered. Sue for the secret profit under an action for money had and received. Duties of the principal Remuneration: It is the duty of the principal to remunerate the agent for the services rendered. This duty  may be  express or implied. The agent must earn his remuneration by performing the undertaking. However, it is immaterial that the principal has not benefited from  the  However  the principal is not bound to remunerate the agent if: He has acted negligently. He has acted in breach of the terms of the contract. He has made a secret profit without disclosure. Indemnity: It is the duty of the principal to compensate the agent for loss or liability arising. However, the principal is only liable for loss or liability arising while the agent was acting within the scope of his authority.