Abstract.
This article analyses the recent case of APA Insurance (U) Limited v. MOIL (U) Limited (Application No. 002 of 2023), which was decided by the Insurance Appeals Tribunal of Uganda on the 26th April 2023.
The case involved the key legal principles of materiality and non-disclosure in insurance contracts, which determine the validity and enforceability of such contracts. This article further explores the duties of an Insured broker to disclose material facts when undertaking these Insurance contracts. The tribunal’s ruling not only resolved the specific dispute between the parties but also provided a comprehensive overview of the relevant legal doctrines and precedents surrounding insurance claims in Uganda.
Introduction.
In a recent landmark decision, the Insurance Appeals Tribunal of Uganda, composed of Chairperson Mrs. Rita Namakitika Nangono and members Mr. George Steven Okotha, Mrs. Solome Mayinja Luwaga, and Dr. John Bbale Mayanja, ruled on a matter of great significance in our developing insurance industry.
The case, APA Insurance (U) Limited v. MOIL (U) Limited (Application No. 002 of 2023), emerged from a dispute over the repudiation of an insurance claim and delves into the legal principles surrounding materiality and non-disclosure in insurance policies.
Background
The application sought to challenge the Insurance Regulatory Authority's (IRA) decision made on December 19, 2022, which declared that the respondent's claim had been repudiated by the appellant. The appellant argued that the IRA's ruling was erroneous, emphasizing that further investigations in Uganda should have been conducted instead of traveling to Dubai, Sharjah, and Tanzania.
The dispute arose from an insurance policy covering two motor vehicles, one of which was involved in an accident in Tanzania. The insurer, APA Insurance (U) Limited, initiated investigations, leading to allegations of non-disclosure by the insured, MOIL (U) Limited.
Legal Principles and Arguments
The central issue before the tribunal was whether there was a justifiable repudiation of the claim by the appellant insurer. The appellant's counsel underscored the insured's obligation to disclose material facts and contended that all relevant information within the respondent's knowledge had been disclosed. They relied on legal authorities, such as Pan Atlantic Insurance Company Ltd v Pine Top Insurance (1995) AC 501, to support the position that the burden was on the insurer to prove that non-disclosure induced the contract.
The appellant argued that the additional information requested, including details from Dubai, was material for the underwriting decision. However, the tribunal noted the distinction between information that would influence a prudent insurer in determining risk and information needed for investigating a claim. The tribunal referenced Pan Atlantic Insurance Co. Ltd v Pine Top Insurance Co. Ltd [1995] 1 A.C. 501 to establish the requirements for avoiding a contract based on non-disclosure.
On Page 5 of this fruitful judgement the tribunal noted as follows;
The leading decision on the right to avoid a contract of insurance for non-disclosure is that of the House of Lords in Pan Atlantic Insurance Co. Ltd v Pine Top Insurance Co. Ltd [1995] 1 A.C. 501 as relied on by the Respondent in its submissions and the Regulator in the impugned decision.
For an insurer to be entitled to avoid a policy on this ground, the insurer must be able to show both that the fact that the insured failed to disclose was ‘material’ and that the failure to disclose it induced him to accept the risk when the insurer would otherwise have declined it or would have accepted it only on different terms. These are closely related, but distinct, requirements.
Additionally, the tribunal discerned the distinction between information influencing underwriting decisions and that required for investigating claims. It examined the materiality of the undisclosed information and scrutinized the role of insurance brokers, emphasizing their duty to disclose material facts.
Decision of the Tribunal.
The tribunal, in its comprehensive ruling, scrutinized the insurer's failure to prove that non-disclosure materially influenced their acceptance of the risk. It questioned the lack of evidence regarding the state of the insured motor vehicle at the time of underwriting and criticized the absence of pre-insurance inspections.
On page 6 of this detailed judgement, the tribunal held as follows;
"The root of the problem lies in the manner in which the Appellant undertook to cover the risk under the policy. As cited by both Counsel for the Appellant and Respondent borrowing the description of materiality as elucidated by Preston and Colinvaux’s Law of Insurance the test applicable in what is material is ‘everything which will guide a prudent insurer in determining whether he will take the risk and if so, at what premium and what conditions’
The Tribunal further added that,
Apart from the information that is generally available in the market, insurers can only assess risks presented to them based on the information made available to them by their insureds.
Accordingly, the effect of a failure to disclose material facts can only be judged by reference to the information that the insured has made available to the insurer at the time he accepts the risk.
A fact is considered material to an insurance contract if it would influence the judgment of a prudent insurer in fixing premiums or determining whether he/she will take the risk. In the case of Pan Atlantic Insurance Co. v. Pine top Insurance Co. (1994), the House of Lords noted that besides showing that a material fact was not disclosed, it was also necessary to show that the actual underwriter in question was induced by the non-disclosure into entering into the contract on the said terms.
If at the time of making the contract the insured fails to inform the insurer of a matter that would diminish the gravity of the risk, in this case, the fact that this was not an original, but rather assembled equipment that might otherwise have led to a claim under the policy, he may be offered less favourable terms than would otherwise have been the case. He may also find that the failure to disclose some other material fact indeed induced the insurer, in the light of the information then before him, to accept the risk on terms that he would not have been prepared to accept if it had been disclosed. See; Drake Insurance Ple v Provident Insurance Ple [2003] EWHC 109 (Comm) (03 February 2003)
The Tribunal took cognizance of the fact that,
Counsel for the Appellant’s argument before the Regulator and this Honorable Tribunal in effect is that the Appellant was induced by the non-disclosure of the additional information now sought to be investigated by the Appellant. This information is to be provided by the Respondent as well as investigated in Dubai, from SAS Africa General Trading Company Ltd and Bhaktar. However, we find that the important question for this purpose is whether the insurer was induced by the non-disclosure to accept the risk on terms that would not otherwise have been acceptable, not whether he would have imposed different terms if he had had different information.
In the present case, it so happens that the additional information that would have affected the underwriting decision was in the Appellant’s possession. Notably, the Appellant did not lead any evidence to show what the state of the insured Motor Vehicle was at the time of underwriting. The Preliminary Motor Vehicle Investigation Report exhibited by the Appellant lists the Chassis and Engine numbers of subject No.URJ2021- 4269901 and URJ201-4271892..
What is Underwriting? The learned Tribunal on page 7 of this judgement discussed the process as follows;
Underwriting is the process by which an insurer determines whether, and on what basis, an insurance application will be accepted. It is the method used to calculate the level of risk that is involved and to determine under what rates the contract can be issued.
In the circumstances at hand, it is not shown whether the insurer/Appellant properly assessed the risk to be insured as there was no proposal form on record. What was disclosed by the insurance broker who was acting on behalf of the insured i.e. the state of the car and particulars thereof at the time of the assessment is not known.
The authors Raoul and Colinvaux in their book The Law of Insurance 4th Edn (Pg. 297 to 300) discuss the role and liability of insurance brokers. They write (on Page 297) “...Duty of assured’s agent....As the assured’s agent, he should make inquiries as to material facts and will be liable to the assured for breach of duty if he (the broker) fails, through his lack of care in this matter, to disclose such facts as are material (e.g. claims history) with the result that the policy is avoided by the insurers...”
What is The Duty of an Insurance Broker ?
The panel highlighted the duties of an Insurance Broker as follows;
The insurance broker acting on behalf of the insured is under a duty to act carefully and also to exercise proper care and skill when carrying out the assured’s instructions.
The Broker is required to disclose all material facts as given to it by its client the insured. In this case, the problem appears to stem from the fact that the Respondent allegedly did not disclose material information about tampering with the engine and chassis number and also the fact that parts of the vehicles however in the absence of a proposal or disclosure form, it’s hard to know what the broker disclosed on behalf of its clients.
The old English case of Manifest Shipping Co. v. Uni-Polaris Shipping 266 N.R. 50 (HL) established that duty of disclosure is required at the claims stage. Although the insurer failed to prove that the insured knew of the Star Sea’s unseaworthiness, the case confirmed the principle of good faith during claims. Even though the insurance company failed to prove that the insured knew of the unseaworthiness, the case is important because of the clarity it provided that the duty of disclosure is required even at the claims stage.
The alteration of risk occurs whenever something is done which affects the stipulated risk, whether as regards its subject matter. The alteration must be real making the risk a different risk, there is no alteration of the risk if the alteration made is one which was within the contemplation of the parties when they entered into the contract of insurance. See; Lord Warrington in Law, Guarantee, Trust and Accident Society v Munich Re-insurance Co [1912]1 Ch 138
In the event an insured fails to disclose relevant information, then their insurer is entitled to void the policy, provided they can show that had they received a fair presentation they would not have entered into the insurance contract, however, an innocent or unintentional non-disclosure would ameliorate this still position.
The reasons advanced by the Appellant for not honouring the Respondent’s claim on time is that the claim is still under investigation. From the pleadings and requests advanced by the Appellant to the Respondent it is deducible that some of the information sought to be specifically obtained from the Respondent cannot be reasonably expected or found to be in the Respondent’s knowledge. . At the hearing, it was verified that the letter dated 6" May 2022 from the investigator to the Respondent was responded to on 9 May 2022. The Respondent provided the information that was within its knowledge and as submitted, the ones that were not shared were within its custody or could not be availed by the Respondent see letter dated 9th May 2022.
It was held in the case of SALINI CONSTRUTTORI S.P.A V JUBILEE INSURANCE COMPANY OF UGANDA LIMITED CIVIL SUIT NO. 109 OF 2016 “in a situation where the Plaintiff did not know certain particulars such as the age of the vessel, that ignorance should not be held against her... The Plaintiff truthfully answered the question on age stating it was not known to them. The insurer found this sufficient answer and went ahead to insure the Plaintiff’s cargo...The total is that since Plaintiff did not hide any information from the insurers, Insurance Policy No. P/KLA/151/150L/07/1456, Exh D.2 was a policy properly issued and gave cover to the cargo. Which entitles the Plaintiff to indemnity.
The court found that the Respondent shared all the information within its knowledge before and after cover.
We do find some of the requirements/documents that the investigator required are immaterial or generally not information that would be in the knowledge of the insured.
The court further took cognizance of the fact that
Insurance policies rarely provide for claim payment times and to fill the gap, the Insurance Regulatory Authority issued the Insurance Claims Guidelines 2021.
Additionally, the tribunal addressed the timeliness of claims investigations, referencing the Insurance Claims Guidelines 2021. It established that, while no specific time frame was outlined for investigations, a reasonable period must be observed. Drawing from the Quadra Commodities SA v XL Insurance Company SE & others [2022] EWHC 431 (Comm) case, the tribunal determined that approximately two years for investigation and claim payment was reasonable.
On Page 10 of the Tribunal held as follows;
Looking at the Claims Settlement Guidelines, it becomes abundantly clear that no specific time has been provided for an investigator and the insurer to conclude the claim.
Therefore where there is a statutory period, that period will have to be observed and if there is no statutory period provided for, then the claim must be discharged within a reasonable period. What should be a reasonable period is a matter to be considered in the facts and circumstances of each case until the Regulator introduces Guidelines on claims investigations.
In the case of Quadra Commodities SA vy XL Insurance Company SE & others [2022] EWHC 431 (Comm), The High Court of England and Wales clarified that the burden of proof fell on different parties with different assertions. Taking all of that into account, the Court ruled that in light of the complicating circumstances of the insurance claim (including the fact that the fraudulent parties would have concealed details and destroyed documents), a period of around one year from the original notice would be a “reasonable time” for the insurer to have investigated, evaluated and paid the claim.
Whereas this decision is not binding on the Tribunal, we are persuaded that it is the correct position of the law. of course, that timescale was based on the “hypothetical” premise that there were no reasonable grounds for the insurer to have disputed the insurance claim (which was an issue considered separately by the Court). On that second point, the Court confirmed that even if the Court ultimately found that the insurer’s grounds for disputing an insurance claim were wrong, that did not mean that those grounds had been “unreasonable”.
Summary findings. The tribunal acknowledged that the insurance claim has been under investigation for nearly two years since the accident. Despite the prolonged duration and some imprudent aspects of the investigation, the claim had not been definitively rejected. The tribunal recognized the insurer's valid grounds for wanting to investigate thoroughly due to the complexity of a multi-border inquiry. While finding some of the investigator's requests unreasonable, the tribunal asserted that this should not hinder the insurer's right to conduct an investigation. Consequently, in the best interest of all parties involved, the tribunal recommended allowing the investigator to complete their inquiry within a stipulated 30-day period from the date of the judgment.
Key Takeaways.
The ruling establishes significant precedents in the Ugandan insurance landscape. It underscores the importance of insurers demonstrating how non-disclosure materially influenced their acceptance of risk. The case highlights the duty of insurance brokers in the absence of a proposal or disclosure form, emphasizing their responsibility to disclose material facts on behalf of the insured.
Conclusion. In conclusion, the Insurance Appeals Tribunal of Uganda clarified the legal principles surrounding materiality and non-disclosure in insurance policies. The decision underscores the importance of insurers demonstrating that non-disclosure materially influenced their acceptance of the risk. It also highlights the duty of insurance brokers to disclose material facts and the necessity of timely and reasonable claims investigations. The case serves as a significant precedent in the Ugandan insurance landscape, providing clarity on the application of legal authorities in disputes involving non-disclosure and claims repudiation.
By Waboga David (Law Development Centre Student Academic Yr 2022/2023)
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Disclaimer!!! This article is provided for informational purposes only and should not be considered as legal advice. It is important to consult with a qualified attorney for advice regarding your specific legal situation. Laws and regulations may change, and this article may not reflect the most current legal standards or interpretations. The information provided in this article is based on the knowledge available as of the publication date of the decision (April 26th 2023), and it may not reflect subsequent developments in the law
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