CATEGORIES OF INSURANCE CONTRACTS

• Insurance contracts may be placed or classified into broad categories.

1. By nature of event by which the sum becomes payable – this classification
places the insurance contracts into categories such as Marine, Fire, Life
etc. it places emphasis on the homogeneity of the group.
2. Nature of the interest affected – this classification places insurance
contracts into three broad categories namely;
• Personal insurance e.g. life, accident, fidelity etc
• Property insurance e.g. fire, marine, motor, solvency, crop, hypothecation etc.
• Liability insurance where policies are taken out in compliance with statutory
provision e.g. the compulsory third party motor insurance, workman’s compensation,
NSSF, NHIF
Cont…..
3. Nature of contract of insurance – a contract of insurance may be an
indemnity or non-indemnity.
a) An Indemnity Contract is a contract of insurance where the insured pays a
premium on the understanding that in the event of loss, he will be
indemnified for the actual loss sustained. He must be restored to the position
he was in before the loss. See Dalby vs India and London Assurance Co.
[1854] 15 CB 361

Dalby vs India and London Assurance Co. [1854] 15 CB 361

Cont….
It was observed that policies of insurance under fire and Marine risks
are properly speaking indemnity contracts i.e. the insurer engages to
make good within limited amounts, the losses sustained by the insured
and nothing else.
b) A non-indemnity Insurance Contract is one which the insured
secures the payment of a fixed sum of money, previously
determined as the value of the subject matter of insurance. There
is an assurance that the amount is payable should risk attach e.g.
life policies.
Cont…..
4. By nature of the program of insurance – insurance programs are
either private or social. Private insurance is generally optional and
voluntary and is effected on the premise that the insured stands to
loose should risk attach.
▪ Social insurance is compulsory imposed upon the assured by statute
to protect the society from a hazard which no single individual can
cushion it. The individual must guard against such risks as well as the
activities giving rise to the risk as it is beneficial to the society. Hence
those involved must contribute to cushion those likely to be affected
e.g. compulsory third party Insurance.
Cont…..
▪ Social Insurance is said to be a device of pooling of risks by their
transfer to an organization under an obligation to provide pecuniary
benefits or service to or on behalf of the insured on the occurrence of
the event e.g.
• Compulsory third party motor insurance
• N.H.I. F
• N.S.S.F
• Workman’s compensation ( W.I.B.A)
Cont…
5. Whether insurance is direct or re-insurance – Re-insurance takes
place when an insurer who has already undertaken to indemnify the
insured or pay the sum assured insurers himself against the same risk
with a re-insurer. Reinsurance is a 20th Century practice which
evolved to cushion the insurers against the insolvency. Re-insurance
may be optional or voluntary.
• Kenya Re-insurers are bound to insure up to 10% with PTA
Reinsurance and up the 5% with the African Re-insurance
Corporation. However, an insurance co. is free to re-insure up to 100%
Cont….
• Role of Re-insurance.
a) Re-insurance assists in the distribution and transfer of economic
processes from one company to another which benefits the
economy
b) It also generates the making good of losses in the event of
insolvency.
c) It also ensures that insurance companies invest part of their
accumulated funds locally.
INTERPRETATION OF INSURANCE CONTRACTS
[ PRINCIPLES OF CONSTRUCTION]
• The legal principles surrounding the construction of insurance policies
are in general merely those applicable to the construction of any
contractual document, but the particular features of insurance policies
require some amplification and modification of those principles.
• The starting point for all forms of contractual construction is that the
natural and ordinary meaning of the words should be adopted. See
Smith v Hughes[1861-1873] All ER 636, QB. However, it is by no
means easy to implement this principle in relation to insurance
contracts, which are documents of undoubted complexity and
normally in standard form.
Cont…..
• Such construction may be necessary to ascertain and give effect to the
intentions of the parties as well as enhance uniformity in the legal
effect of terms and clauses used in insurance policies by insurers.
1. Application of The Doctrine of Precedent – generally where
courts have already decided the meaning of words or phrases, used
in a policy of insurance, the doctrine of precedent applies in
subsequent similar cases and a similar construction is given.
In the words of Ivamy in General Principles of Insurance Law; “The
construction of a policy of insurance is a question for the court, when
words in a policy have once been judicially interpreted, they would be
construed in the same way, …
Cont…
should their meaning be an issue in a subsequent case, but when words
have not been previously interpreted, the court is guided by certain
principles of general application, the size of print, in insurance policies
is immaterial.”
• Similarly Parke B in Glen vs Lewis ]1853] Ex Ch 67 observed:
“If a construction has already been put on a phrase or clause in a contract of
insurance, the same should be given in subsequent similar cases”
• See also Louden vs British merchants Insurance Co Ltd [1961] 1
Llords Rep 155 where: An assured under a motor vehicle insurance
policy was killed in an accident. There was no doubt that he was drunk
at the time.
Cont….
. The insurance co. sought to avoid liability on the ground that he had
died on bodily injury sustained whilst under the influence of drugs of
intoxicating liquor, liability for which was excepted [not covered]
under the policy. It was held that since the words were not uncertain as
to their meaning and effect, they had to be interpreted as they were in
previous cases and the insurer was not liable.
• Further where words are merely put in as a variation of those
previously used and which are exactly the same as those which have
received a judicial construction the same meaning will be given to
Cont……
... them. See Lawrence vs Accidental Insurance Co Ltd [1881] 7 QBD
216
• But the general principle will not apply where the words are not the
same. See the words of Atkin L.J. in Re Calf and Sun Insurance
Office [1920] 2 KB 366 at 382

“On a question of construction, I protest against one case being treated

as an authority in another unless the language and circumstances are
substantially identical”.
Cont…

2. Intention of the Parties Must Prevail

• It is a fundamental rule of construction that the intentions of the
parties prevail. Such intention is discernible from the policy itself and
other documents relied upon by the parties.
• Courts are discouraged from speculating but reference to surrounding
circumstances may be made e.g. a previous construction.
• See Lombard Australia Limited vs N.R.M.A Insurance Ltd [1969] 1
Llyod’s Rep 575
Also Bon Motors Limited v Corporate Insurance Co. Ltd[2006]eKLR
Cont…
3. Policy Must Be Interpreted As A Whole [The Holistic Rule]
• The whole of the policy must be looked at.
• A court of law must interpret an insurance policy in its entirety and not
merely a particular clause.
• All words and phrases must be interpreted and none must be rendered
meaningless without good cause.
• As a general rule a policy should be interpreted to give all clauses a
positive meaning so as to give effect to the intentions of the parties.
• Illustrative case: Hamlyn vs Crown Accident Insurance Co. ]1893] 1
QB 750
Cont…
The insured had effected insurance against injury caused by violent,
accidental, external and visible means. A clause exempted the insurer
from liabilities in respect of injuries arising from “natural disease or
weakness https://maps.g
or exhaustion consequent upon disease.”
oogle.com/
The insured had stopped to pick up a mango dropped by a child and
dislocated and injured a cartridge of his knee. The insurer contended
that there was no external or visible means which caused the accident
and that it was not liable.
Cont…
It was held that the word ‘external’ was to be contrasted with
internal causes of injury such as disease, mentioned in the clause,
hence the injury was caused by external means and the insured
would recover.
In the words of Atkin L.J. ‘You must look at the document as a
whole’.
As a general rule, similar words or phrases bear the same
meaning throughout the policy.
Cont…
4. Ordinary Meaning
▪ Words and phrases in a policy should be given their ordinary or
natural meaning while sentences should be accorded their ordinary
grammatical meaning.
Case Law: Leo,Rapp Ltd vs Mc Clure [1955] 1 Lloyds Rep. 292
▪ Stocks of metal were insured against theft whilst in warehouse
anywhere in UK. Some metal was loaded into a lorry parked in an
open space in a locked compound enclosed by a thick wall topped
by barbed wire and was stolen. ( CLASS: Do you think the stolen
metal was covered under the policy?)
Cont…
• It was held that the loss was not covered by the policy as the
compound did not constitute a warehouse. In the words of Devlin L.J.
“When the court is construing words in an insurance policy, it must
give them their ordinary natural meaning.
• See also Thompson vs Equity Fire Insurance Co. [1910] AC 592, 103
LT 153
• The words must be construed in their ordinary meaning. A building
which was destroyed by fire had been insured under a policy which
exempted the insurance company from liability for loss while gasoline
was stored or kept in it.
Cont…
The fire was caused by a small quantity of gasoline in a stove used for
cooking purposes. No other gasoline was used in the building. It was
held by the judicial committee of the Privy Council, that the insurance
company was liable. The words “kept or stored” must be construed in
their ordinary meaning. They implied a considerable amount of
gasoline or at least keeping it in stock for trading purposes.
Lord MaCnaghten at Pg 154 stated;
“What is the meaning of the words ‘stored or kept’ in collocation and
in the connection in which they are found, they are common English
words with no precise or exact signification.
Cont….
They have a somewhat kindred meaning and cover very much the same
ground. The expression as used in the statutory condition seems to point
to the presence of a quantity not inconsiderable or at any rate not trifling
in amount, and to import a notion of warehousing or depositing for safe
custody or keeping in stock for trading purposes. It is difficult, if not
impossible, to give an accurate definition of the meaning, but if one
takes a concrete case, it is not very difficult to say whether a particular
thing is ‘stored or kept’ within the meaning of the condition. No one
probably would say that a person who had a reasonable quantity of tea
in his house for domestic use was ‘storing and keeping’ there,
Cont…..
or [to take the instance of benzene, which is one of the prescribed
articles] no one would say that a person who had a small bottle of
benzene for removing grease spots or cleansing purposes of that sort
was ‘storing or keeping’ benzene. ”
Some meaning must be given to the words ‘stored or kept’. Their
Lordships think those words must have their ordinary meaning. So in
construing them their Lordships come to the conclusion that the small
quantity of gasoline which was in the stove for the purpose of
consumption was not being ‘stored or kept’ within the meaning of the
statutory condition at the time when the loss occurred.”
5.Technical words to be given their
technical meaning.
• Where words are used which have some other technical legal meaning,
they are to be interpreted according to that meaning. And it may be
observed that strict adherence to this principle has sometimes
produced rather surprising results.
• However technical meanings must not be resorted to unless necessary
to amplify the ordinary meaning of words or phrases.
• Nevertheless, technical words or terms must be accorded their
technical meaning while technical legal terms must be given their
strict technical meanings.
Cont...
CASE LAW: London and Lancashire Fire Insurance Co. vs
Bollands. [1924] AC 836
Technical legal words must be given their strict technical meaning.
A burglary policy relating to premises as a bakery excluded the
liability of the insurance company if loss or damage resulted from
“a riot”. Four armed men held up the employees with revolvers and
seized money in a cashier’s office. There was no other disturbance at
all in the neighborhood. It was held by the House of Lords that the
Word ‘riot’ was used in its technical legal meaning and the action of
the armed men constituted “a riot”. Consequently the insured could
not recover under the policy.
Cont….
Lord Summer at 648 stated;
“It is true that the uninstructed layman probably does not think under the word
‘riot’, of even such a scene, as described in the cases stated. How he could
describe it I know not, but he probably thinks of something, if not more
picturesque, at any rate more noisy. But there is no warrant here for saying
that when the proviso uses a word which is emphatically a term of art, it is to
be confined, in the interpretation of the policy, to circumstances which are
only within the popular notions on the subject and are not within the technical
meaning of the word. That clearly must be so with regard to martial law, that I
think, must be so with regard to acts of foreign enemies; and I see no reason at
all why the word ‘riot’ should not include its technical meaning as clearly as
burglary or house-breaking do.”
Cont….
6. Ejusdem Generis Rule
• Ejusdem generis is a canon of construction providing that when
general words follow the enumeration of persons or things of a
specific meaning, the general words will be construed as applying only
to persons or things of the same general class as those enumerated.
▪ This rule is applied in circumstances in which a policy is not
exhaustive.
CASE LAW: King and Travelers Insurance Association Ltd [1931]
48 TLR 53
Cont…
King and Travelers Insurance Association Ltd [1931] 48 TLR 53
A policy of insurance against accidental loss of baggage contained a clause
stating “jewelry, watches, field glasses, cameras and other fragile or
specially valuable articles must be separately declared and valued”. The
insured claimed for the loss of a Persian lamb fur coat which had not been
separately declared and valued.. It was held by the king Bench that the fur
coat was not a fragile and a specially valuable article requiring to be
separately declared and valued and that the ejusdem generis rule applied.
Rowlatt J stated that Furs are commonplace articles of dress in the case of
nearly every woman of any sort of comfortable means at all.
Cont…..
…The circumstance that they afford scope for extravagance and vanity,
so that you can get furs of fantastic price, does not to my mind, show
that being commonplace articles of dress they are specially valuable in
the same sort of way that jewelry, watches, field glasses and cameras
are.”
• See also Mair vs Railway Passengers Association Co Ltd [1877]
L.T.R. 356

A Clause in life policy excluded the insurer from liability if the

Cont….
…insured met his death as a result of a wide variety of causes and
different from those provided by carriages or entering or leaving a
carriage in motion or riding races or stipple chases or generally by his
willfully exposing himself to any unnecessary danger or peril.
The insured accosted a woman in the street and was knocked down by
the man in whose company she was and died as a result of injuries
inflicted upon him. It was held that the insurance company could not
rely on the exclusion clause as what happened could not be considered
to be ejusdem generis with the perils enumerated in the clause.
Cont…..
7.Contra Proferentem Rule
▪ This rule is generally applied to interpret standard form contracts. If the words,
phrases or sentences in a policy are vague or ambiguous, they should be
interpreted, contra-proferentes i.e. restrictively against the party relying on
them. It has been observed that:
“It is a well known principle of insurance law that if the language of a warranty
in a policy is ambiguous it must be construed against the underwriter who has
drawn the policy and has inserted the warranty for his own protection”

▪ See Houghton vs Trafalgar Insurance Co. Ltd [1953] Lloyds Rep. 503,
[1953] 2 ALL ER 1409, [1953] 3 WLR 985 or [1954] 1 QB 247
Cont…
Houghton vs Trafalgar Insurance Co. Ltd [1953] Lloyds Rep. 503, [1953] 2 ALL
ER 1409, [1953] 3 WLR 985 or [1954] 1 QB 247
A motor insurance cover note excluded “loss, damage and or liability
caused or arising whilst the car is conveying any load in excess of that
for which it was constructed”. The vehicle was carrying a driver and 5
passengers. The insurer contended that it was not liable in that the car
was conveying a load “in excess of that which it was constructed.” It
was held that the company was liable. In the words of Somervell LJ,
“If there is any ambiguity, it is the company’s clause and the
ambiguity would be resolved in favour of the assured”
• See also English vs Western [1942] KB
8. Written words to prevail over printed
words.
• This principle applies in those cases where there is a standard form printed policy,
which has been specifically altered to meet the needs of the particular case. The
maxim is of importance in those situations where the standard form words and the
specially inserted words appear to be in conflict with each other. In such cases it is
obviously sensible to assume that the parties are more likely to have intended to
apply the specially inserted words, though obviously even this presumption will be
inapplicable if it would produce absurd results. The reference to written words
dates from the time when such alterations would normally be inserted in
manuscript. Although there is no reason why this should not be done even today, it
is more likely that the words will be typed, or even printed. In view of this it is
suggested that the maxim might usefully be re-formulated as ‘ special provisions
take precedence over general provisions’.
• Where a policy contains conflicting words; phrases or sentences, the
court must reconcile them so as to give the policy a positive legal
meaning.
Cont…
English vs Western [1942] KB it was held that:
There is no doubt that if the phrase used in the policy is ambiguous its
meaning must be chosen which is less favourable to the underwriters who
have put forward the policy.
• Contra proferentem is an important principle, but it should not be taken too
far. It does not mean that every document must always be construed in the
way least favourable to the company. It merely allows for genuine
ambiguities to be resolved in favour of the policyholder when other
approaches fail. It must also be stressed that the principle is limited to
genuine ambiguities: it is not proper to adopt a strained construction of the
language in order to find an ambiguity which can then be resolved in favour
of the policyholder.
Cont…
• Where the conflicts are irreconcilable then written words if any must
prevails over printed ones.
• See Yorkshire Insurance Co. vs Campbel [1917] AC 218.

▪ Express terms override implied terms with which it is inconsistent.

Where all terms are printed, the latter terms are given more effect than
the former as they may have been intended to qualify the former.
▪ Where contractual terms are written, the general rule is parole
evidence is inadmissible to vary, change or explain such terms.
Cont….
▪ However, such evidence may be admissible to show the circumstances
in which the contract was entered into or demonstrate that the contract
was subject to a particulars trade usage or custom.
▪ See also Robertson vs French [1803] 4 East 130
Cont….
Lord Ellen borough CJ at pg 136 said;
“The only difference between policies of insurance, and other
instruments in this respect, is , that the greater part of the printed
instruments of them, being invariable and uniform, has acquired from
use and practice a known and definite meaning, and that the words
superadded in writing [subject indeed always to be governed in point of
construction by the language and terms with which they are
accompanied] are entitled nevertheless, if there should be any
reasonable doubt upon the sense and meaning of the whole, to have a
greater effect attributed to them than to the printed words, in as much as
the written words are the immediate language and terms selected by the
parties themselves for the expression of their meaning, and the printed
Cont….
…words are a general formula adapted equally to their case and that of all other
contracting parties upon similar occasions and subjects.”
9. The Expressio Unius est exclusio alterius [Expression Rule]
• A canon of construction holding that to express or include one thing implies the
exclusion of the other, or of the alternative. For example, the rule that “ each
citizen is entitled to vote” implies that noncitizens are not entitled to vote. The rule
is also termed inclusion unius est exclusion alterius; expressum facit cessare
tacitum.
▪ This rule is to the effect that where a word of general significance is followed by words of
limitation or definition, the first word is construed as limited and applying only to the
particulars specified.
▪ Where a policy contains conflicting words, phrases or sentences, the court must construe the
same so as to give the policy (through reconciliation) a positive legal meaning. Where the
conflicts are irreconcilable courts have evolved several rules of construction.
▪ However if the intentions of the parties can be ascertained, any repugnancy in the contract
may be disregarded.
Cont….
10.Express Terms Override Implied Terms.
▪ Where all terms are printed latter terms are given more effect in the case
of a conflict on the premise that they are intended to qualify the former.
11.Parole Evidence Rule:
▪ Where contractual terms are written as general rule parole evidence is
inadmissible to vary or change the written terms
▪ However, such evidence may be admissible to demonstrate the
circumstances in which the contract was entered into.
▪ In an insurance contract such evidence may be admitted to establish a
trade usage or custom in insurance. It may also be admitted to show the
intentions of the parties or to establish that there is some mistake in the
documentation.
Cont…..
12.The Grammatical Construction Will Be Adopted
▪ The general rule is that the grammatical meaning of the words used in the policy will
be adopted.
▪ Where however the intention is clear, the grammatical construction must give way
▪ Obvious grammatical errors may be corrected and immaterial blanks may be reject.
13. Warranties and conditions
• In insurance law the traditional distinction between conditions and warranties is
reversed. Thus, a breach of warranty gives rise to an immediate right to terminate the
contract, whereas a breach of a condition sounds only in damages. Read Duckett v
Williams (1834) 2 Cr & M 348; 4 Tyr 240 and Provincial Insurance Co Ltd v
Morgan [1933] AC 240, [1932] ALL ER Rep 899.
Cont….
Other Minor Construction Principles.
▪ The words mean what they say.
▪ The words must be construed liberally.
▪ A reasonable construction will be preferred.
▪ The Court will try to reconcile the inconsistencies
▪ Subsequent ascertainment of matters originally uncertain.