How ‘No’ answer cost man Sh5 million insurance benefit

By Wahome Thuku

It is common to conceal information on our private lives when filling official documents. The easier way is often to answer "No" to any questions seeking the truth especially on health status. That may be fine until something happens.

In April 2002, Mr David Wachira Wambugu took a Personal Accident Policy with the Co-operative Insurance Company.

The policy stipulated that in case of death or permanent total disability he or his beneficiaries would be paid Sh5 million in compensation. In case of temporary total disability he would receive Sh500,000.

The policy defined temporary total disability as "total and absolute incapacity following usual employment for a longer period than one week".

Wachira filled a proposal form where one of the questions was, "Have you ever suffered from gouts or diabetes paralysis or a fit of any kind or any nervous or recurring diseases?" He answered "No".

However, he had been diabetic since 1996. Medical reports also showed since 1997 he had been on medication for periodontitis (inflammation of the gums) a condition that had been complicated by diabetes.

On November 11, 2003 Wachira was attacked by armed thugs who robbed and assaulted him. They inserted a pistol in his mouth and he lost one upper tooth and all the lower teeth.

After medical treatment he claimed Sh5 million from the insurance, saying the injuries were a total permanent disability.

The company rejected the claim saying the injuries were temporary and the maximum compensation was Sh500,000, which they paid him.

Amend its defence

Wachira sued the company at the High Court in Embu on October 17, 2005. Co-operative Insurance filed a defence on November 16, 2005 maintaining their position. The hearing began on July 24, 2006 before Lady Justice Joyce Khaminwa.

On that day, the company lawyer applied to amend their defence. Wachira’s lawyer did not object and the amended defence was admitted in court. That was when the big issue arose.

Apparently, between November 2005 and July 2006, the company had discovered that when filling the proposal form, Wachira failed to disclose his diabetes and periodontitis condition.

In the amended defence, the company made a counter-claim, saying Wachira was guilty of non-disclosure, hence they were entitled to repudiate the policy.

They averred that had he disclosed the truth, they would not have agreed to underwrite the insurance or issue the policy and would not have paid him the money.

His lawyer did not object the counter-claim, arguing that by filing "No" to the question in the proposal form, Wachira had given the correct answer since there was no disease called "Diabetes Paralysis".

The lawyer said he had searched in all relevant authorities and had not found a disease by that name. Justice Khaminwa agreed with him.

She said insurance contracts were of utmost good faith. The proposal form had been prepared and printed by Co-operative Insurance and the question was whether Wachira had suffered from diabetes.

The judge held that Wachira had not concealed any information and on September 27, 2007 she awarded him Sh5,411,429.

The insurance company appealed this on 11 grounds. Their case was that Justice Khaminwa had made an arithmetical error by awarding the amount, having ignored the fact that Wachira had already received Sh619,317.

The judge had taken into account erroneous facts in coming to a conclusion that the injuries were permanent yet they fell in the category of "temporary total disablement" with a maximum of Sh500,000 as compensation.

The company argued they were entitled to repudiate the policy on account that Wachira had concealed material facts on his health status.

Wachira’s lawyer defended Khaminwa’s judgement reinstating that his client had answered the question in the form correctly as there was no disease known as "Diabetes Paralysis". He had not concealed any information on his health.

The lawyer said according to evidence before Khaminwa the injuries could only be classified as permanent. He asked the court to dismiss the appeal.

The issue for determination by the Court of Appeal was whether Co-operative Insurance was entitled to repudiate the policy on account of non-disclosure of material facts by Wachira.

If the answer was "Yes" that would be the end. Wachira would not be entitled to any compensation and whatever else raised before Khaminwa would be worthless.

Utmost good faith

The judges cited legal authorities setting out the governing principle in all such contracts and dealings.

In all the running principle was that insurance contracts are contracts of uberrimae fidei (utmost good faith).

The person being insured has a legal duty to disclose to the insurer any material facts and circumstances known to them, which may influence the underwriter’s opinion as to the risk he is undertaking.

Insurance is a contract of speculation and the facts upon which the chance is to be computed are most commonly only known to the person being insured.

And good faith forbids either party to draw the other into a bargain from his ignorance, by concealing what he knows.

Concealing that information known to you, whether you thought it material or not, avoids the policy.

Even when the suppression of information is by mistake and without fraudulent intention, still the underwriter will have been deceived and the policy is void. The risquÈ run will be different from the risquÈ understood and intended at the agreement.

Wachira had a duty to disclose his diabetic condition even if he though the question was "diabetes paralysis".

The court reasoned with him that logically, there should have been a coma between "diabetes" and "paralysis" in the question.

All the insurer wanted to know is whether he was diabetic. Wachira had chosen his own interpretation of the question.

The judges reasoned that even if he was confused about the existence of "diabetes paralysis" he should have at least responded to the part of the question whether he suffered from any "recurring disease". He had chosen "No" for the entire question.

"This was a specific fact only known to the respondent and it was his obligation to disclose the same to enable the appellant assess the risk and whether it wanted to underwrite the same and at what risk," the judges stated.

Wachira had induced Co-operative Insurance to underwrite the risk and issue the policy and firm was entitled to repudiate that contract.

With that finding, the court did not even go into the issue as to whether or not Wachira had been properly compensated, as he deserved nothing.

The appeal was allowed and Khaminwa’s judgement and decree was set aside with effect that the High Court suit was dismissed and the company’s counter-claim allowed. The company was allowed to avoid the policy and Wachira was ordered to pay costs for both the High Court case and the appeal.

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