Carter v Boehm (1766) 3 Burr 1905 is a landmark English contract law case, in

which Lord Mansfield established the duty of utmost good faith or uberrimae fidei in
insurance contracts.

Facts[edit]

Mr Carter was the Governor of Fort Marlborough (now Bengkulu), which was built by
the British East India Company in the island ofSumatra. He took out an insurance policy
with Mr Boehm against the fort being taken by a foreign enemy. A witness called
Captain Tryon testified that Mr Carter knew the fort was built to resist attacks from
natives but not European enemies, and the French were likely to attack. The French
attacked, and Mr Boehm refused to fulfil the insurance claim. Mr Carter sued.

Judgment[edit]

Lord Mansfield held that Mr Carter, as the proposer owed a duty of utmost good
faith (uberrimae fidei) to the insurer, he was required to disclose all facts material to the
risk:

Insurance is a contract based upon speculation. The special facts, upon which
the contingent chance is to be computed, lie most commonly in the knowledge
of the insured only; the underwriter trusts to his representation and proceeds
upon the confidence that he does not keep back any circumstance in his
knowledge, to mislead the underwriter into a belief that the circumstance does
not exist, and to induce him to estimate the risk as if it did not exist. Good faith
forbids either party by concealing what he privately knows, to draw the other
into a bargain from his ignorance of that fact, and his believing the contrary.

Lord Mansfield went on to hold that the duty was reciprocal and that if an insurer
withheld material facts, the example cited being that an insured vessel had already
arrived safely, the policyholder could declare the policy void and recover the premium.

Lord Mansfield proceeded to qualify the duty of disclosure:

either party may be innocently silent, as to grounds open to both, to exercise

their judgment upon.... An under-writer can not insist that the policy is void,
because the insured did not tell him what he actually knew.... The insured need
not mention what the under-writer ought to know; what he takes upon himself
 the knowledge of; or what he waives being informed of. The under-writer needs
not be told what lessens the risque agreed and understood to be run by the
express terms of the policy. He needs not to be told general topics of
speculation.

Lord Mansfield found in favour of the policyholder on the grounds that the insurer knew
or ought to have known that the risk existed as the political situation was public
knowledge:

There was not a word said to him, of the affairs of India, or the state of the war
there, or the condition of Fort Marlborough. If he thought that omission an
objection at the time, he ought not to have signed the policy with a secret
reserve in his own mind to make it void.

In Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd[1] Lord Hobhouse said,

As Lord Mustill points out, Lord Mansfield was at the time attempting to introduce
into English commercial law a general principle of good faith, an attempt which
was ultimately unsuccessful and only survived for limited classes of transactions,
one of which was insurance. His judgment in Carter v Boehm was an application
of his general principle to the making of a contract of insurance. It was based
upon the inequality of information as between the proposer and the underwriter
and the character of insurance as a contract upon a "speculation". He equated
non-disclosure to fraud. He said at p 1909:

"The keeping back [in] such circumstances is a fraud, and therefore the policy is
void. Although the suppression should happen through mistake, without any
fraudulent intention; yet still the underwriter is deceived, and the policy is void."

It thus was not actual fraud as known to the common law but a form of mistake of
which the other party was not allowed to take advantage. Twelve years later
inPawson v Watson (1778) 2 Cowp 786 at 788, he emphasised that the
avoidance of the contract was as the result of a rule of law:

"But as, by the law of merchants, all dealings must be fair and honest, fraud
 infects and vitiates every mercantile contract. Therefore, if there is fraud in a
representation, it will avoid the policy, as a fraud, but not as a part of the
agreement."

REPUBLIC OF KENYA
IN THE COURT OF APPEAL
AT NAKURU
(CORAM: GICHERU, KWACH & SHAH, JJ.A.)
CIVIL APPEAL NO. 12 OF 1998

BETWEEN

CORPORATE INSURANCE COMPANY LTD........APPELLANT

AND
ELIAS OKINYI OFIRE .........................................RESPONDENT

(Appeal from the Judgment & Decree of the High Court of Kenya
at Eldoret (Lady Justice Nambuye) dated 9th October, 1996 in
H.C.C.C. NO. 75 OF 1994)
***************
JUDGMENT OF THE COURT

The respondent, Elias Okinyi Ofire, was injured as a result of a traffic accident on
2nd June, 1988. The accident occurred on Kilgoris/Kisii Road. The respondent filed a
suit against the owner (James Nyangechi) and the driver of the vehicle involved in the
accident, which vehicle is described in the judgment of the superior court (Aganyanya,
J.) as a "Matatu pick-up" registration number KYB 408. No other vehicle was involved in
the said accident. The learned judge entered judgment for the respondent against the
owner and driver of motor vehicle KYB 408, (hereinafter called "the vehicle") in the sum
of Shs.212,955/= plus costs and interest.

The respondent then filed a suit being Civil Suit No. 1163 of 1993 in the Senior
Principal Magistrate's Court at Eldoret, against the insurers of James Nyangechi
seeking the following reliefs:
"(a)A declaration in the terms of paragraph 6 above and an order that the Defendant do

pay the sum of Shs. 212,955/= with interest and costs in Eldoret H.C.C.C. NO. 717 of

1989.

(b)Costs of this suit.

(c)Interest on (a) and (b) at Court rates.

(d)Any other or further relief this Court deems fit to grant."

The defendant in that suit (the appellant here) confirmed that the appellant was the
insurer of the motor vehicle for the period 26th March, 1988 to 25th March, 1989 and
that the insurance cover was renewed upto 26th March, 1990; that the insurance
covered third party risks only; that there was a condition limiting the use of the vehicle
that is to say the insured was to use the vehicle for his own business and carrying
passengers relating to the "execution of his business"; that the insured was not to use
the vehicle for hire or reward; that on 2nd June, 1988 (the date of the accident) the
vehicle was insured; and that the vehicle was at the material time being used for hire
and reward (for ferrying fare paying passengers) contrary to the terms of the insurance
policy. He said that the insurer was not liable for the accident.

The learned Senior Principal Magistrate (as he then was) said:

"Secondly the defendant has argued that the plaintiff was not to use the vehicle for hire

or reward and that this vehicle was being used contrary to the terms of the insurance

policy. This exclusion clause limiting the use of the insured vehicle to the owner's

business only does not in law afford a defence capable of allowing an insurance

company to avoid liability of the High Court and there is nothing to indicate that the

plaintiff was a fare paying passenger."

The last statement is incorrect. The respondent (plaintiff there) said:

"The vehicle was carrying passengers on the material day.

I paid fare as I was charged. The vehicle had other passengers as well as some
luggage on top."

There can be no doubt that the vehicle was being used as a "matatu". But was it
insured as a "matatu"? The policy of insurance produced as an exhibit by the appellant's
witness one Mr. Zacharia who is a senior executive assistant employed by the
appellant, shows that the same is a Commercial Vehicle Policy. It is described in the
schedule to the policy as a Toyota pick-up with carrying capacity of one ton and carries
the following limitation:

"Use in connection with insured's business. Use for the carriage of passengers in
connection with the insured's business.

(1)The policy does not cover use for hire or reward or for racing, pacemaking, reliability,

trial or speed testing.

(2)Use while drawing a trailer except the towing (other than for reward) of any one

disabled mechanically propelled vehicle."

The vehicle was therefore insured as a commercial vehicle for use in connection with
the insured's business which business is described as "Farmer/Business." It is not the
insured's business to run "matatus". If that was his business he would have had to
obtain a different insurance cover namely that of carrying passengers for hire and
reward.

If an insured after obtaining an insurance cover for a commercial vehicle for use in
connection with his business changes the nature of the vehicle to that of a "matatu" the
nature of the policy remains that of a commercial vehicle policy and such change does
not and cannot make the insurer liable to the passengers who are thereafter carried in
the vehicle for reward (fare). If this were the case most insurers would decline to issue a
commercial vehicle policy.

The learned Senior Principal Magistrate further said:

"What amounts to owner's business in this case? This clause is a very ambiguous

clause and may cover a lot of operations in as far as the owner of the vehicle insured is

concerned. According to section 8 of Cap. 405 the conditions (sic) is of no effect."

Here again the learned magistrate erred. There is nothing ambiguous about the
clause "for use in connections with the insured's business." A pick up vehicle is used by
a farmer/businessman to ferry his produce or goods. It is not for use for carriage of
passengers for hire or reward.

The learned magistrate as well as the learned judge (Nambuye, J.) misconstrued
and misunderstood the nature of the requirement of compulsory insurance cover
required to comply with the statutory requirements laid out in The Insurance (Motor
Vehicles) Third Party Risks) Act Cap. 405 Laws of Kenya (the Act). It would suffice
to say for the purposes of this case that section 5 of the Act lays down the
requirements and expressly provides exceptions as follows:

"5.In order to comply with the requirements of section 4, the policy of insurance must

be a policy which -

(a)................

(b) Provided that a policy in terms of this section shall not be required to cover

(i)-

(ii)except in the case of a vehicle in which passengers are carried for hire or reward or

by reason of or in pursuance of a contract of employment, liability in respect of death of

or bodily injury to persons being carried in or upon or entering or getting on to or

alighting from the vehicle at the time of the occurrence of the event out of which the

claims arose; or

(iii)................
The compulsory insurance cover for use of a vehicle on a road especially in regard
to fare-paying passengers is required in respect of vehicles like buses and 'matatus'
whose owners use it for hire or reward. But an owner of a vehicle who is not supposed
to use his vehicle for carrying farepaying passengers is not bound to insure the
passengers and if he carries such passengers he does so at his own risk and in fact he
commits an offence if he uses the vehicle for such purpose without relevant cover as
provided for in section 4(2) of the Act.

The learned magistrate referred to section 16 of the Act and concluded that "a
policy purporting to restrict the insurance of persons incurred (sic) by referring to
matters like those raised by the defendants herein shall as respects such liabilities as
are required to be covered by a policy under paragraph (b) of section 5 of the same Act
be of no effect." The learned magistrate misread section 16 . This section renders of no
effect certain conditions inserted in a policy, and such conditions are specifically
referred to in the section. These are:

"(a)The age or physical or mental condition of persons driving the vehicle; or

(b)condition of the vehicle; or (c)the number of the persons the vehicle carries; or

(d)the weight or physical characteristics of the goods that the vehicle carries; or

(e)the times at which or the areas within which the vehicle is used; or

(f)the horse power or value of the vehicle; or

(g)the carrying on the vehicle of any particular apparatus; or

(h)the carrying on the vehicle of any particular means of identification other than any

means or identification required or to be carried by or under the Traffic Act."

The learned magistrate's reliance on the case of The New Great Insurance Co of
India Ltd v Cross and Another [1966] EA 91 was misplaced. In that case, the insurer
attempted to avoid liability as the driver was disqualified from driving.

The Court held that the proviso excluding a disqualified driver from the class of
authorized persons in the policy was not a condition but a definition limiting the type of
person who was authorized to drive. It was further held that the effect of sections 4 and
5 of the Act was that a statutory duty was imposed upon, inter alia, the owner of the
vehicle to cover by insurance any liability which the owner might incur in respect of
injury to third parties arising from the use of the vehicle on the road by such person,
persons or classes of persons as may be specified in the policy. The Cross case has
no relevance to this case.

The learned judge dealt with the submissions of counsel at length but did not
discuss the important aspects of the Act which have a very substantial bearing on the
issues in this appeal. Unfortunately her judgment does not help us much.

She says:

"On my own interpretation of clause 9 use in connection with the insured's business and

use for the carriage of passengers in connection with the insured's business clearly

covers the respondent as the word business was not qualified to exclude matatu

business. If an owner carries on matatu business then it is his own business."

The learned judge failed to consider the effect of the second proviso to section 5 of
the Act. We have already dealt with the same and no further elaboration is necessary.
 The appeal must be allowed on the first ground in the memorandum of appeal but
as there is a certain amount of uncertainty in the profession as to whether or not a
declaratory suit, such as was filed in the Senior Principal Magistrate's Court, could be
filed in the magistrate's court we find it necessary to deal with the point. Mrs. Nyaundi
for the appellant argued that it was a matter of notoriety that such cases can only be
filed in the High Court. She quoted no authorities to support her proposition. It is true
that there is such a general belief as urged by Mrs. Nyaundi. But that is not
correct. Section 3(1)(c) of the Judicature Act, Cap. 8 Laws of Kenya, gives the High
Court and all subordinate courts power to exercise jurisdiction in conformity with the
substance of the common law, the doctrines of equity and the statutes of general
application in force in England on the 12th August, 1897.

"Court" as defined in the Civil Procedure Act means the High Court or a

subordinate court, acting in the exercise of its civil jurisdiction.

"Suit" as defined in the Civil Procedure Act means all civil proceedings

commenced in any manner prescribed.

Order II rule 7 of the Civil Procedure Rules reads:

"7.No suit shall be open to objection on the ground that a merely declaratory judgment

or order is sought thereby, and the court may make a binding declaration of right

whether any consequential relief is or could be claimed or not."

As "Court" includes a subordinate court it has jurisdiction to make a declaratory
order such as was sought by the respondent, provided the value of the subject-matter is
within the jurisdiction of that court.

For these reasons this appeal succeeds and is allowed.

The judgment and order of Nambuye J. dated 9.10.96 is set aside and substituted with
an order allowing the appellant's Civil Appeal No. 12 of 1998 with costs and in effect
dismissing also with costs the respondent's suit Eldoret S.R.M. C.C. NO. 1163 of
1993. Costs of this appeal to the appellant.
Corporate Insurance Ltd v Loise Wanjiru Wachira
[2003]eKLR that:
While we agree with the proposition that a Scott v Avery arbitration clause
can provide a defense to a claim, we cannot accept the submission that the party
relying on it can circumvent the statutory requirement to apply for a stay of
proceedings. In the present case, if the appellant wished to take advantage of the
clause, it was obliged toapply for a stay after entering appearance and before
delivering any pleadings. By
filing a defense, the appellant lost its right to rely on the clause