Kenya’s Insurance Regulatory Authority (IRA) recommends adopting standardised insurance policies for general, life and medical insurance covers, which comprise the 3(three) main categories in Kenya’s legal and regulatory framework. The recommended standard dispute resolution clause in the country’s insurance policies, therefore reads as follows and is readily available on IRA’s website:-

Dispute Resolution:

• For any disputes arising out of this Policy, the Insured shall endeavour to resolve the matter by negotiation with the Company
• Any disputes or issues not resolved by negotiation 30(thirty) days after the dispute arising may be resolved through a sole mediator jointly appointed by the parties in writing.
• Disputes that remain unresolved 60(sixty) days after the dispute arose (unless the parties extend that period in writing) shall be resolved by a sole arbitrator appointed either by the parties in writing or, in the absence of an agreement on the choice of arbitrator, by the Chairperson of the Chartered Institute of Arbitrators (Kenya Branch) upon the request of any of the parties

Therefore, insurance policies typically include a multi-tier dispute resolution mechanism that comprises negotiation, mediation, and arbitration in that order

Pre-action conduct of insurance disputes requires parties to engage in negotiation before mediation and arbitration. While the nature and depth of negotiations are not prescribed, they must be captured in writing and are calculated to ensure that the parties attempt settlement before resorting to adversarial mechanisms. Such protocols, therefore, include (1) the issuance of a notification of claim by the insured with the notification setting out the policy details, the date and nature of the incident, the amount claimed together with supporting evidence – Section 203 of the Insurance Act; (2) the Insurer is required to acknowledge receipt of the claim within 30 days and to complete investigations within 90 days – Section 204 of the Insurance Act; and (3) where there is a denial of liability this must be communicated in writing setting out the reasons for such denial – Section 205 of the Insurance Act.

Further, and in keeping with the fundamental common law principle of uberrimae fidei, the concept of good faith disclosure permeates the various stages of dispute resolution. Alternative dispute resolution is also a pillar of dispute resolution at all stages, including the pre-action stages.

Where a claim is not settled the claimant is required to issue a pre-action letter, that is, a demand letter, setting out (1) the basis of the claim and cause of action; (2) the amount sought; (3) supporting documents; and (4) a timeline for response which could be anywhere between 14(fourteen) days to 30(thirty) days. It is also important to note that where either the insured or the insurer fails to comply with pre-action protocols, consequences may include (1) penalties on costs being ordered by the Court requiring the noncompliant party to bear additional legal costs; (2) If a claim is filed prematurely courts may dismiss it for failing to exhaust pre-action measures; and (3) delays in court proceedings may arise where cases are referred back for ADR.

Policyholders and insurers are therefore urged to ensure timely claim notification, to document all communications with insurers and for insurers to maintain clear records of claim handling and otherwise provide detailed reasons for denying claims. For both policyholders and insurers, it is further imperative to engage in ADR in the manner set out in the multitier approach captured in each policy before proceeding to court to avoid lengthy court cases.

Kenyan courts have made significant strides in handling complex insurance disputes. They have a fairly robust legal framework, specialised courts, and precedents that support their ability to do so.

Kenya has well-defined laws that govern insurance disputes, including (1) the Insurance Act (Chapter 487 of the Laws of Kenya), which regulates insurance contracts and claims handling; (2) the Civil Procedure Act (Chapter 21 of the Laws of Kenya) which is read together with the Civil Procedure Rules, 2010 that collectively guide the civil dispute resolution process; (3) the Arbitration Act, 1995 that encourages arbitration as an alternative to litigation; and (4) the Consumer Protection Act, 2012 which protects policyholders from unfair insurance practices.

Specialised tribunals and courts in Kenya include (1) the Insurance Appeals Tribunal, which handles disputes involving IRA and policyholders; (2) the Commercial Division of the High Court, which deals with complex insurance and contractual disputes; and (2) the Court of Appeal and Supreme Courts of Kenya being the apex courts that have handled precedent-setting cases that refine insurance law interpretation. The Courts have developed jurisprudence on policy interpretation, claim denial justification and insurer liability. Key areas include the interpretation of ambiguous clauses in favour of policyholders, the requirement for strict compliance with claims notification timelines, and the enforceability of exclusion clauses in denied claims. Courts have further encouraged the use of ADR mechanisms such as mediation and arbitration to reduce case backlog, as well as the institutionalisation of mandatory pre-trial settlement conferences to improve dispute resolution efficiency.

Nevertheless, despite the progress, several challenges still limit the efficiency and effectiveness of courts in handling insurance disputes, such as (1) delay, and case backlog in civil litigation and insurance disputes can take years to resolve due to procedural bottlenecks; (2) the appellate process further serves to prolong final determinations. Also, some conflicting court decisions create uncertainty on how similar insurance disputes will be determined. Complex insurance disputes further involve expensive legal fees that may disadvantage claimants, especially against large insurers, and the spectre of cost awards against unsuccessful claimants further discourages litigation.

Further, whilst most Kenyan commercial judges handle insurance matters competently, in some isolated instances, the lack of specialised expertise in complex insurance principles such as reinsurance, indemnity and subrogation may be misapplied due to a lack of deep sectoral knowledge within the subordinate courts. Kenya’s High Court, Court of Appeal and Supreme Court have, however, built an extensive body of judicial precedent in this space.

ADR in Kenya is highly encouraged, though not technically mandatory. Its application is dependent upon contractual terms, statutory requirements, and judicial discretion.

Several laws and regulations support ADR mechanisms for the resolution of insurance disputes, the fundamental one being the Constitution of Kenya, 2010. Article 159(2)(c) requires the judiciary to promote alternative forms of dispute resolution, including mediation, arbitration, conciliation and negotiation, encouraging courts to refer cases to ADR before litigation. The Insurance Act, for its part, does not make ADR compulsory but allows parties to include arbitration clauses in insurance policies. Section 204 encourages insurers to handle claims efficiently and fairly before disputes escalate to litigation. The Arbitration Act of 1995 requires contracts, including insurance contracts, to go first to arbitration before court intervention. Courts tend to enforce arbitration clauses. Order 46 of the Civil Procedure Rules, 2010, further allows parties to refer disputes to arbitration where agreed. The Insurance (Policyholders Compensation Fund) Regulations, 2013 encourages ADR before claimants approach courts and allows policyholders to resolve disputes without immediate recourse to litigation.

Where an insurance policy has a valid arbitration clause requiring disputes to be resolved through arbitration before litigation, courts must enforce it, and a party cannot proceed to Court without attempting ADR. Courts also have the discretion to refer insurance disputes to mediation or arbitration before hearing a case such that pursuant to Section 59 of the Civil Procedure Act, a Court can stay proceedings and order ADR. IRA and the Policyholders Compensation Fund (PCF) respectively encourage ADR before claimants file cases to the Court and may require parties to attempt ADR before compensating claims.

Successful policyholders can recover costs in insurance disputes under certain conditions. These conditions depend on contractual terms, court discretion, applicable laws, and the insurer’s conduct.

The Civil Procedure Act at Section 27(1) empowers courts with full discretion to award costs. The general rule is that established at common law to the effect that costs follow the event. The losing party must then pay the successful party’s legal cost. For this to apply, a successful policyholder must apply for the costs in their case as part of the relief sought. The Insurance Act, Section 204, requires insurers to handle claims fairly and without unnecessary delays. As such, if an insurer acts in bad faith, courts can penalise them with costs. The Consumer Protection Act of 2012 also protects policyholders from unfair insurance practices, and Courts may, therefore, order insurers to reimburse legal expenses incurred by policyholders who have to enforce their rights. Where an insurance policy contains an arbitration clause, and the policyholder is successful, the insurer may be ordered to pay arbitration fees, legal representation costs, expert witness costs and other related expenses.

From the foregoing, it is clear that a successful policyholder can recover legal costs from an insurer (1) when the policyholder wins a Court case or Arbitration reference; (2) when an insurer acts in bad faith; (3) where there is a contractual right to costs or when the court exercises its discretion to order an insurer to reimburse costs if it is fair to do so. However, this is not to say that a successful policyholder must recover costs. They may not recover costs where (1) the policyholder fails to apply for costs when filing the case, (2) the insurer had a legitimate defence, (3) the case was settled out of court, and (4) the dispute was handled through mediation, as in most cases costs will not be awarded unless the parties agree. Policyholders, therefore, are required to seek reasonable costs, which in most cases tends to comprise (1) court filing and services fees; (2) Advocates fees, that is, legal representation costs; (3) arbitration fees; (4) expert witness costs, e.g. for professional assessments such as medical or actuarial are required; and (5) disbursements which are supported and proven.

Both court decisions and arbitral awards can be challenged through distinct appellate processes, each with different grounds for appeal and setting aside.

The hierarchy of appeals in court decisions can be taken to start with appeals from the Magistrates’ courts (and small claims courts for insurance claims of less than Kshs.1,000,000.00 Kenya Shillings One Million), which go to the High Court. The Court of Appeal hears appeals from the high court, which is comprised of significant insurance disputes and first appeals from the Magistrate Courts. Complex Insurance Litigation and second appeals go to the Supreme Court but only on issues of general public importance. The Supreme Court is the apex court and final appeals court where precedentsetting cases are heard. The Supreme Court only grants certification for leave to hear matters that hold general public importance. The key question for the appellate court of the first instance is whether the lower court properly assessed the evidence and the law providing room for considerations of misinterpretation of insurance law or procedural rules as well as wrong factual findings. Appeal courts further consider the misapplication of judicial precedent and whether a judgment/ruling was manifestly unfair or against public policy. The process of filing an appeal to the Court of Appeal commences with a Notice of Appeal within 7 days of the High Court ruling/judgment, and a request for certified copies of the judgment and court proceedings is made. A draft Memorandum of Appeal stating the grounds of appeal is prepared and usually lays the basis for an application for stay pending appeal. Service of interim applications against the Respondent may be required before conservatory orders are granted. Once the Record of Appeal is finalised the same is also served upon the Respondent. It is essential to highlight that the High Court, Court of Appeal and Supreme Court each have their respective procedural rules and strict compliance is usually required to have the appeal admitted, heard and determined.

Arbitral Awards are generally not appealable but can be challenged in the High Court within specific legal parameters. Therefore, the grounds for challenging an arbitral award are set out in Section 35 of the Arbitration Act, which provision wholesomely adopts the New York Convention. Grounds for setting aside are lack of jurisdiction, arbitrator bias or misconduct, serious procedural errors, illegality or public policy violation and the improper appointment of the arbitrator. An application to set aside an arbitral award must be made to the High Court within 3 months of publication, and no extensions are allowed unless there are exceptional circumstances. The High Court decision is final and cannot be appealed further except in very rare cases where the High Court has stepped outside of grounds set out and made a decision so manifestly wrong as to have completely closed the doors of justice to the parties. Nyutu Agrovet Limited v. Airtel Networks Kenya Limited; Chartered Institute of Arbitrators Kenya Branch.

Policyholders have a legal duty to disclose material facts to the insurer when purchasing an insurance policy, and this duty continues during the policy term. This duty is based on the principle of utmost good faith (uberrimae fides), which requires full and honest disclosure of relevant information. The duty to disclose is contained and governed by statutory law, common law, and contract terms.

The Insurance Act, Sections 80 and 81 respectively, state that policyholders must disclose all material facts that may affect the insurer’s decision to provide coverage. Where such a policyholder omits material facts, the insurer can avoid (cancel) the insurance contract. Further, where nondisclosure was fraudulent, the insurer can deny claims and recover damages. Section 204B of the Act goes further to criminalise fraudulent behaviour, carrying a 5 year prison term and a penalty fine of ten times the defrauded amount. The Contract Act (Chapter 23 of the Laws of Kenya), for its part, outlines that all contracts, including insurance contracts, must be based on mutual agreement and honest representation. The Consumer Protection Act further protects policyholders from unfair denial of claims based on unclear policy provisions. The Common Law principle of uberrimae fides further applies by dint of the incorporation of common law principles by Kenya’s Judicature Act (Chapter 8 of the Laws of Kenya), and this means that both the policyholder and the insurer must act in good faith with the policyholder disclosing all relevant risks and the insurer clearly stating all policy terms and exclusions.

The duty to disclose does not end at the policy’s inception; rather, it is an ongoing duty throughout the policy period and applies at various stages, including renewals, material changes in circumstances, and claims submission. A policyholder must update the insurer about any new material risks that have arisen since the last policy term, especially if there are significant changes in risk exposure. Failure to disclose this can lead to an insurer denying a claim. Some policies actually require immediate disclosure of any material change.

Kenyan courts are guided by the principles set out generally in Black King

Shipping Corporation v Massie “The Litsion Pride’ [1985] 1 Lloyds R 137 and

Manifest Shipping & Co. Ltd v Uni- Polaris Insurance Co. Ltd ‘The Star Sea’ [1995] 1 Lloyds R 651. They are further guided by the objective test in Pan Atlantic Insurance Co. Ltd & Another v. Pine Top Insurance Co. Ltd [1994]  2 Lloyds R 427 as applied in Kenya Orient Insurance Limited v Kelvin Macharia Karanja [2017] eKLR that seeks an answer to the fundamental question of whether the non-disclosure as misrepresentation influenced (or could have influenced) the insurer.

Policyholders must provide accurate and complete information when making a claim. Any false, exaggerated, or omitted details may lead to denial of the claim. Any requests for updated information must be addressed with truthful responses

When a policyholder breaches the duty of disclosure, either by failing to disclose material facts or by misrepresenting information, the insurer has several legal remedies available depending on the nature of the nondisclosure, the intent of the policyholder, and the impact on the insurer. These include (1) cancellation (avoidance) of the policy where nondisclosure is material, and it empowers the insurer to treat the policy as if it never existed; (2) claim denial where the insurer must prove that nondisclosure was material to the claim; (3) reduction of claim payable, thus instead of completely voiding the contract, the insurer may reduce the claim amount to what it would have been had full disclosure had been made; (4) contract reformation or policy adjustment where the breach was innocent or minor such that the insurer proposes adjusted policy terms instead of voiding the contract, e.g. through the increase of premium; (5) criminal and civil liability in a case of fraudulent misrepresentation.

The policyholder’s state of mind at the time of providing information is relevant in determining the appropriate remedy and thus non-disclosure can be categorised as innocent, negligent or fraudulent. Innocent non-disclosure occurs when the policyholder honestly believes the omitted fact was not relevant. Courts tend to treat this breach as non-material; hence, the insurer may not void the policy but can adjust the terms. Negligent non-disclosure for its part occurs where a policyholder carelessly fails to disclose a material fact such that insurers can reject claims of adjust terms. The insurer does not need to prove intention; only the information should have been disclosed. Fraudulent non-disclosure occurs when a policyholder deliberately withholds or falsifies information such that the insurer can void the contract completely, deny all claims or sue for fraud.

The Insurance Act provides for mandatory policy terms, prohibits unfair exclusions, regulates dispute resolution clauses, and grants the IRA the power to void unfair terms. The Constitution of Kenya at Article 46 grants consumers the right to fair and transparent contracts and declares any clause that violates public interest or fundamental rights void. The Consumer Protection Act further prohibits unfair contract terms in consumer agreements and invalidates deceptive or oppressive clauses in insurance policies.

Exclusion clauses that defeat the purpose of insurance, that is, through the exclusion of the coverage of key risks that an insured reasonably expects to be covered, are prohibited. Also prohibited are fraudulent or misleading clauses, which include provisions that mislead policyholders about their coverage and hidden terms that limit benefits but are not clearly disclosed. Clauses that allow the insurer to cancel the policy unilaterally and unreasonably without cause are prohibited. The Constitutional prohibition against discrimination in Article 27 also applies in insurance such that clauses that unfairly discriminate against insureds based on race, gender, age, or disability are void.

The consequence of including prohibited provisions is that the offending clause is rendered void, and courts can strike it down with the effect of further making the entire policy unenforceable, invalidating the entire insurance contract. The IRA is empowered to penalize insurers that incorporate and use unfair contract terms. Courts can further order insurers to pay damages for the unfair terms

Kenyan Courts have observed that the implication of a term is a matter for the court and whether or not it is implied tends to depend on the intention of the parties as deduced from their words of agreement and surrounding circumstances. Bid Insurance Brokers Limited v. British United Provident Fund (2016) eKLR

Consumer insurance contracts imply terms by law that are not explicitly written into the policy documents. The intention is to protect policyholders from unfair contract terms, insurer misconduct, and bad faith dealings.

In addition to (1) the duty of utmost good faith, uberrimae fidei, other implied terms include (2) reasonableness in policy terms such that insurance contracts must be fair, reasonable and transparent. Other implied duties relate to (3) the duty to act reasonably in the handling of claims; (4) the duty to explain policy terms especially key exclusions and conditions, as hidden or unclear terms cannot be enforced against consumers; (5) the insured’s right to a reasonable claim investigation completed within a reasonable time; (6) right to renew the policy unless there is cause for non-renewal such as non-payment of premiums or material changes in the risk profile of the insured.

Several laws restrict insurers’ ability to deny claims in compulsory insurance schemes where third-party protection is the primary objective. Thus, Section 4 of the Insurance (Motor Vehicles Third Party Risks) Act (Chapter 405 of the Laws of Kenya) makes third-party insurance compulsory for all vehicles. Section 10 further prevents insurers from using common policy defences to deny claims by innocent third parties. Essentially, an insurer cannot avoid liability to a third party even if the insured policyholder violated policy terms.

This is so even if (1) the policyholder obtained insurance fraudulently,          (2) has not paid full premiums, or (3) the vehicle was used for purposes not covered under the policy and therefore, the insurer is required to compensate innocent third parties. In Ogada Odongo vs. Phoenix of E.A. Insurance Co. Ltd Kisumu HCC 132/2003 quoted with approval in Kenya Alliance Insurance Co. Ltd. v Thomas Ochieng Apopa (suing as Administrator of the Estate of Pamela Agola Apopa deceased) (2020) eKLR it was held as follows:

1. “By an insurer issuing a policy of insurance, it automatically assures the rights of third parties. It simply means, the rights/obligation of the insured automatically transferred to the insured unless it is proved otherwise.
2. By covering third parties, rights, the insurance was in essence performing a statutory duty imposed by an Act of Parliament.”

Where an insurer offends these provisions, the court can order full compensation plus legal costs. Regulatory penalties from IRA can also apply, including suspension of the insurer or fines.

Insurance coverage is activated when specific “insured” events or conditions occur. Where an insurance policy covers its own loss, that is, first-party insurance policies, the trigger is that the loss attaches and the policyholder suffers covered damage. Thus, for fire insurance coverage is triggered when fire damages the insured’s property, for health insurance, when medical treatment is required, for motor insurance, when the insured’s vehicle is involved in an accident. In third-party insurance, the trigger is when the policyholder becomes legally liable to compensate a third party either through the occurrence of an event, e.g. accident, damage or injury or when a claim is lodged.

The trigger must occur during the period when the policyholder is undercover, and a claim is required to be taken during specified limitation periods; otherwise, the right to sue is lost. The Limitation of Actions Act (Chapter 22 of the Laws of Kenya) sets the general rules for the limitation of actions. This means that an action must be taken to court within the time prescribed by the statute. Any action brought outside of the time limitations is deemed time-barred and incapable of being pursued, and courts may strike it out. Under this Act, torts become time-barred after 3 years, while contracts’ limitation period is 6 years and 12 years for actions to recover land. The Public Authorities Limitation Act (Chapter 39 of the Laws of Kenya) further adjusts the periods to 1 year and 3 years, respectively, for torts and contracts against public authorities.

Exceptions and extensions to limitation periods may apply where fraud or concealment has occurred, such that if the insurer deliberately misled the policyholder, the limitation period starts when the fraud is discovered. In the event of disability or minority, the time begins to run when the claimant becomes legally capable. A written acknowledgement of the debt by the insurers restarts the running of the limitation period from the date of acknowledgement.

As a matter of practice, insurance contracts in Kenya generally contain exclusion clauses that define losses not covered by the policy, and these tend to fall under the purview of unreasonable claims, fraud, and high-risk liabilities that cannot be effectively priced. Common exclusions relate to an intentional act, gradual damage, pre-existing conditions, illegal activities, and extraordinary risks such as (1) intentional or fraudulent acts of the insurer; (2) fair wear and tear or gradual degradation, including ordinary ageing, rust, corrosion or mechanical breakdown; (3) pre-existing health conditions to the effect that medical conditions that are diagnosed before policy inception are excluded unless expressly covered; (4) standard policies exclude losses caused by war, riots, or terrorism; (5) driving while intoxicated or without a licence; and (6) using a private motor-vehicle for commercial purposes.

In British American Insurance Co. Ltd v Benjamin Ndolo Kimote [2020] eKLR, the plaintiff had issued a private comprehensive motor vehicle insurance cover. The Court held that as the accident occurred whilst the defendant’s driver was using the motor vehicle as a taxi in contravention of the policy, the same was duly voided.

Ambiguous or misleading exclusions will be interpreted in favour of the policyholder in accordance with the contra preferentum rule which is applied by Courts in Kenya generally. In Mwangi Ngumo v. Kenya Institute of Management (2012) eKLR the court stated thus:

“22. The contract itself, it appears was drawn by the Respondents. And if it was not drawn by the Respondents it has not been shown or argued that the Respondents entered into it under duress or coercion. I do agree with the Claimant that any ambiguities in the contract should be construed against the party who drew the contract and that party is the Respondents. This is what has been referred to as the contra proferentem rule and which was applied in the case of Horne Coupar v. Velletta & Co. 2010 BCSC 483, relied on by the Claimant.”

Accordingly, Courts regularly interpret exclusion clauses narrowly to benefit the insured and will define the incorporation of the phrase “reasonable” broadly in favour of policyholders. Other presumptions will be made in favour of policy renewal unless the insurer clearly notifies the insured. Courts will further assume lower deductibles unless clearly stated otherwise.

Courts may nevertheless side with the insurer where a policyholder had prior knowledge of the exclusion and the insurer can demonstrate that they clearly explained an exclusion before the policy was issued. Courts expect the policyholder to read and understand the terms of their policy and therefore where it is clear but the policyholder failed to read it, the Court may side with the insurer. Courts further tend to uphold standard industry exclusions that are widely used and are clear.

Courts will apply a causation test to determine whether an insurer is liable for a loss. In Ogada v. G4S Security Company & another (Civil Appeal 11 of 2022)[2023] KEHC 20983 Eklr the Court stated thus:

There has to be a nexus between the damages suffered and the persons who are alleged to have caused the damages due to negligence. This is the law on causation. Alnashir Visram J (as he was then) addressed the requirement for causation when he stated in Elijah Ole Kool vs George Ikonya Thuo (2001) eKLR:

When will an act or omission be said to be the cause of the Plaintiff’s injuries? A defendant will only be held liable for negligence if his act or omission is either the sole effective cause of the Plaintiff’s injury or the act or omission is so connected with it as to be a cause materially contributing to it.”

The 2 main causation tests are the “but for” and “proximate” test.

The But-for test for its part asks would the loss have occurred but for the insured peril? This test works best for single cause loss and the insurer pays if the insured event directly caused the loss.

The proximate cause test works well with multiple cause loss and wide area damage scenarios where the insurer pays only if the dominant cause is covered. In wide-area damage scenarios (e.g. floods, earthquakes, riots), Courts often favour the proximate cause test to determine whether a covered peril was the main cause of loss, that is, they identify the most direct and effective cause of the loss. This avoids insurers being held liable for losses caused by multiple interconnected events beyond their coverage scope.

It is nevertheless important to highlight that the question of causation remains a complex and somewhat unsettled one as observed in Patrick Muriithi Mumbi & another v Moses Kahindi Karisa (Suing as administrator and legal representative of the Estate of Kanze Jefwa Jabu) [2020] eKLR where the Court observed thus:

“On a cumulative view of the evidence in that case the principle established in the comparative dictum in United States v. Halfield 591 F 3d, 945, 947 (7^th Cir 2010) has a bearing on the clarity in the case Law about what type of causation was required. The Court Stated:

“Causation is an important issues in many cases in a variety of fields of Law and has been so for centuries. Yet it continues to confuse lawyers, in part because of a proliferation of unhelpful terminology for which we Judges must accept a good deal of the blame. One finds the following causal terms: proximate cause, actual cause, direct cause, but-for causation, significant causal connection, contributory causation, sole cause, meaningful role, possible cause, remote cause and cause in fact, a factor that resulted in, primary cause and played a part.”

The legal position regarding an insurer’s liability in the event of multiple causes will depend on the outcome of an examination of several factors (1) whether the causes are covered or excluded by the policy; (2) which case is considered to be the most dominant or proximate cause; and (3) the outcome of the applicable causation tests.

When two or more causes occur simultaneously, one covered and one excluded, the Court will examine which case played a more significant role. Thus,  (1) where the covered peril is dominant, then the insurer pays; (2) where the causes contribute equally, the Court will review the terms of the policy, and the wording of the policy will prevail, and (3) where the excluded peril is dominant then the claim will be denied.

Conventional practices surrounding breach of policy terms have differing impacts but can be classified into five general approaches as follows: (1) failure to disclose material facts may result in policy cancellation, claim denial, or fraud action; (2) failure to pay premiums will result in policy cancellation per Section 156(1) of the Insurance Act; (3) misrepresentation will result in policy adjustment or partial claim reduction; (4) failure to notify the insurer on the change in risk profile will result in policy adjustment or partial claim reduction; (5) use of an asset especially motor vehicle for a purpose other than the insured purpose will result in repudiation.

Further, it is important to highlight that in practically all cases of material breach, an insurer will cancel any affected policies and deny claims. Minor or unintentional breaches may attract a different approach, ranging from policy adjustments, warnings or premium changes, as the case may be. However, where an insurer keeps accepting premiums despite a breach, they may still be required to pay valid claims. As such, courts will tend to favour policyholders where the breach, whether minor, unintentional or material, did not affect the risk assessment or did not otherwise increase the risk.

Courts will answer this question depending on the particular circumstances, and they will consider (1) whether the insurance policy contains a severability of interests clause; (2) the type of breach, that is, whether it is material or minor; and (3) whether the policy is joint or composite. Kenyan courts will generally uphold severability of coverage such that one insured’s breach will not automatically invalidate coverage for all others unless the policy states otherwise. The Common Law doctrine of severability forms part and parcel of Kenyan contract law and was duly incorporated by a five-judge bench of the Court of Appeal in Nairobi Civil Appeal No.224 of 2017 Independent Electoral and Boundaries Commission (IEBC) vs. National Super Alliance (NASA) Kenya & 6 Others (2017) eKLR where the Justices of Appeal stated as follows as highlighted in Transmara Sugar Company Limited v David Nyabuto Sindani [2022] eKLR:

“Whether or not a contract is severable depends on the terms and conditions of the contract.  Where a single contract is signed by the parties, there is a presumption of unity of contract – a presumption that the contract is indivisible and is to be performed as one.  Severability turns on the intent of the parties and a court may examine extrinsic evidence – evidence outside the writing-to determine whether the parties actually intended an illegal term to be severable.  If the contract makes provision for severability, then it is severable.  However, if the contract has no provision for severability, a court will determine if the contract is indivisible or severable. Such determination by the court will take into account, amongst other things, the nature of goods, services or works to be performed.”

In joint insurance policies, all insureds are treated as one legal entity; in composite insurance policies, each insured has separate coverage. With a joint insurance policy, the breach by one insured invalidates the entire policy as they are deemed to have a joint interest; thus, the breach by one affects all. In composite covers, each insured is treated separately unless the policy states otherwise, and a breach by one insured does not affect others.

As a general rule, policyholders must continue to comply with policy conditions, including making premium payments, reporting obligations, and collaborating or cooperating with the insurer, especially in instances where investigations are required. This applies unless the policy is voided or cancelled or the dispute is otherwise resolved in favour of the policyholder.

Other factors that come into play include (1) whether the policy remains in force despite the claim denial, (2) whether the claim denial is valid or disputed, and (3) the contractual obligations as stated in the policy.

Once entitlement is established, the next step is to determine the quantum of damages or the amount payable. The assessment of quantum depends on (1) the type of insurance policy; (2) statutory caps; (3) policy limits, deductibles applicable and the existence of any exclusion; and (4) the principle of indemnity, to the effect that compensation will not exceed the actual loss.

Thus, the following will apply to the different classes or types of insurance:

1. Material factors such as market value, repair costs, and depreciation will be taken into account in motor insurance assessments.
2. Property insurance will entail a consideration for replacement cost and depreciation.
3. Life insurance will factor in the sum assured.
4. Health insurance will consider medical expenses billed by the hospital, doctors, and pharmaceutical supplies subject to the policy limits.
5. Business interruption will consider lost profits based on available financial records.
6. In all categories, court-awarded damages, including legal costs, articulate the quantum.

In summary, the quantum will be determined based on actual cash value adjustments, evidence of loss in receipts and invoices, police reports, medical bills, business financial records, and the like. In the alternative, where an insured is sued and found liable, the insurer covers the compensation and legal costs awarded by the court. Adjustments to this figure may be made to reduce the amount payable through the consideration of depreciation, policy excess/deductible, under insurance, as well as the salvage value, which is surrendered to the insurer

Where an insurance policy provides for reinstatement, replacement or repair of damaged property and the policyholder has a pre-existing plan to change the use of the property, the amount recoverable would likely depend on the policy wording, that is, whether the cover reinstatement was on an ‘as was’ basis, it allows “reasonable modifications” or whether the insurer had formally approved the change of use before the loss occurred. Courts will tend towards limiting property reinstatement to its previous state unless the insured can demonstrate expressly that the insurer had agreed to cover reasonable modifications or the change of use claimed and the extent to which this was covered under the policy.

As a general rule the principle of subrogation is triggered when the insured is indemnified in respect of his/her/their rights. The Court in Jonathan Kyangu Kisilu and Mary Nzioki Kyalu (suing as the legal representatives of the Estate of Kyaluma Kyangu (Deceased) v. Mombasa Fresh Company & 2 Others (2021) eKLR held that where the insurer came into the proceedings prematurely its representative’s affidavit in support of the application before the court was fatally defective for having been sworn by a strange to the proceedings leading to its being struck out.

Where a policyholder suffers financial hardship due to late payment, the only recourse will be the courts of law. Key considerations include the policy’s provisions, the nature of the loss, and any continuing damages. Courts will nevertheless expect an insured to demonstrate any mitigating measures they have taken.

Kenya’s insolvency law framework is primarily set out in the Insolvency Act of 2015. Section 3 of the Act sets out the philosophy of insolvency practice in the country, being to rescue insolvent companies and institutions whose financial position are redeemable and otherwise provide an orderly manner for liquidating those whose financial position is irredeemable. As such, provisions of an insurance policy are not invalidated per Section 385(2), and part of the powers of an administrator as set out in the 4th(Fourth) Schedule of the Act is to effect and maintain insurance policies in respect of the business and property of the company.

As a general rule, therefore, once a company is insolvent, a liquidator is appointed who assumes control of the company in place of the directors— Section 399 of the Act. The company’s insurance policies remain enforceable unless explicitly terminated by the insurer or liquidator and the terms and conditions are met, especially the paying of premiums.

In Kenya, class action or group litigation is recognized but is not as widely used as in other jurisdictions like the United States of America. Articles 22, 48, and 258 of the Constitution of Kenya, 2010, further tend to be regarded as providing wide latitude to provide locus standi and access to justice. Thus, one person may sue or defend on behalf of all in the same interest per the provisions of Order 1 Rule 8 of the Civil Procedure Rules, 2010. Another strategy employed is the consolidation of court cases after each party has filed their respective case.

The most significant challenges facing the insurance disputes sector include (1) delay in claims processing and settlements; (2) fraudulent claims; (3) insurer bad faith practices; (4) regulatory loopholes and weak enforcement mechanisms; (5) high costs of litigation; (6) slow court processes; and (7) lack of consumer awareness and/or access to disputes resolution mechanisms.

Key sector players have nevertheless come together and are seeking to combat these challenges, with the IRA and AKI taking the lead to leverage ADR mechanisms for those claims filed with the IRA and before the Courts. IRA has set up a consumer protection unit in this regard. Stakeholders, including the Judiciary and the Chartered Institute of Arbitrators Kenya Branch (Ciarb Kenya Branch), are further promoting mediation and arbitration in insurance disputes, and the standardized insurance policy boasts an arbitration clause nominating Ciarb Kenya Branch as the default nominating authority. The judiciary has established small claims courts that handle disputes of less than Kshs.1 million, reducing the case backlog.

AKI & IRA have engaged in insurance consumer awareness campaigns to educate policyholders on their rights, including the right to appeal denials. Efforts are further being made to ensure better communication between insurers and their customers. IRA has also developed and introduced templates for standardized insurance contracts to prevent misinterpretation for motor, health, and life insurance to ensure clarity, and the management of exclusions has been consistently highlighted, bringing much-needed transparency to insurance contracts.

Fraud remains one of the recurring challenges, and the industry has, therefore, taken steps to leverage AI and Blockchain tools to detect fraudulent claims. This reduces fraud, speeds up genuine claim approvals, and ensures better risk management for insurers.

Further steps that are required include (1) regulatory reforms that enhance claims and dispute resolution management, (2) leveraging ADR to reduce case backlogs in Court and pre-empt further cases in the courts, (3) Judicial reforms geared at enhancing the capacity of members of the Bench including in the subordinate courts, (4) innovation through the adoption of emerging technologies.

Kenya is frequently dubbed the Silicon Savanah, and Kenyans tend to exhibit a high level of technology adaptation. The penetration of mobile technology and its prevalent use for financial technology create an appropriate environment for the use of technology in the present and short term. Several insurance companies are increasingly integrating artificial intelligence (AI) into their claims-handling systems, especially in the medical health sector. A good number are leveraging machine learning (ML) algorithms to process customer information, claims history, and market trends to make data-driven decisions. The Association of Kenya Insurers (AKI) has started a competition, the AKI AI Innovation Challenge, motivating market/industry players to develop creative innovations that will lead up to an AI and ML Seminar to be held in Kenya in May 2025 when the winners will be announced creating a buzz in the insurance industry.

The insurance industry is expected to play a leading role in Kenya’s already robust fintech industry and technological integration. Specifically we can expect the insurance dispute resolution industry to be impacted as follows:

(1) AI, blockchain, and big data will transform insurance claims and disputes; (2) Smart contracts will automate claims with emerging legal gaps creating new disputes, including new-genres; (3) Privacy laws will require to evolve to regulate big-data use in insurance; (4) the potential for online dispute resolution will reduce litigation and improve efficiency; and (5) Kenyan courts will require regulations to cater for AI-driven claims assessments.

The Kenyan insurance sector has seen significant developments in insurance disputes over the past few years due to (1) regulatory changes strengthening consumer protection, (2) Increased litigation over denied claims, (3) the rise of fraud-related disputes; (4) technological disruptions particularly in respect to AI and blockchain; and (5) growth in alternative dispute resolution (ADR) methods.

Other emerging areas include environmental and social governance (ESG) through the Central Bank of Kenya’s Guidance on Climate-Related Risk Management and the draft Kenya Green Finance Taxonomy, 2024, which is currently under review. The fast-developing areas of data protection and cybersecurity will also impact technology adoption.

Further, the assent to the Anti-Money Laundering and Combating Terrorism Financing (AML-CTF) Laws (Amendment) Act 2023 also impacted the Insurance Act, granting IRA significantly enhanced supervisory power in the financial services sector.

The full impact of the above-emerging trends in the insurance sector will be discernible once IRA issues its guidance on these and other issues.

Section 16A of Kenya’s Marine Insurance Act (Chapter 390 of the Laws of Kenya) and Section 20(4) of the Insurance Act made it mandatory for any person with an insurable interest in marine cargo to take out marine cargo insurance with a locally licensed insurer in Kenya with effect from 2017. This provision was not enforced until the Kenya Revenue Authority and IRA issued a joint communique to the effect that starting 14th February 2025, all importers shall be required to digitally procure marine cargo insurance cover for their imports from locally licensed insurance companies before obtaining customs clearance. The two regulators have set up an integrated platform, and the press statement further described an elaborate procedure for purchasing the digital marine cargo insurance cover.

Whilst the full impact of this joint statement is yet to be determined, it is anticipated to spur significant growth in the marine insurance sector, ultimately impacting the insurance disputes sector, and creating the need for stakeholders with specialised expertise in this space.