United Bus Service Limited Co. v. The New India Assurance Company, Ltd. Civ. Case. 1-M-67, 19/7/68, Seaton J.

United Bus Service Limited Co. v. The New India Assurance Company, Ltd. Civ. Case. 1-M-67, 19/7/68, Seaton J.

Plaintiff, a limited company operating a fleet of buses, filed an application for insurance with defendant in which it set forth the market value of the vehicle to be insured as Shs. 65,000/- This value was correct at the time the proposal form was submitted, but the value only included the chassis and cab, which were purchased for approximately Shs. 65,000/- under a hire-purchase agreement, and did not include a bus body which plaintiff fitted to the chassis at a cost of about shs. 25,000/- before the policy was issued. The vehicle was subsequently damaged in an accident and defendant initially commenced repair work; but when it discovered that the value of the vehicle was Shs. 90,000/- rather than Shs. 65,000/- as the proposal stated, it ordered the work stopped and disclaimed liability because of the alleged false statement. Plaintiff sued for the cost of the repairs and lost profits which it would have earned during the repair period. Defendant raised the defence misrepresentation; and its witnesses proved its standing policy of not insuring vehicles worth more than Shs. 75,000/-. It also argued that only the legal owner could sue, and that the policy required arbitration of disputed claims within 12 months after liability was disclaimed. Under the hire-purchase agreement, plaintiff was obliged to maintain and repair the vehicle and also to procure a policy of comprehensive liability insurance, with the owner designated as sole agent to receive any proceeds and to negotiate claims. The policy issued by defendant was endorsed to set forth the interest of the owner under the hire-purchase agreement and to provide that all monies were to be paid to the owner as long as it was the owner.

            Held: (1) Where the risk of loss is on the hirer, as here, it is entitled to recover under the policy even though all monies received would be held by the hirer as trustee for the owner. (2) The dispute here “arose out of the policy and is thus subject to arbitration; plaintiff’s argument, that the denial of liability goes to the entire policy and thus repudiates the entire policy (including the arbitration clause), is not well taken. However, having been advised in correspondence from plaintiff’s attorney that a lawsuit was contemplated, and not having invoked the arbitration clause, defendant is  estopped to raise this as a defence. (3)Even though the value as stated on the proposal was true as of the date of the proposal, defendant relied upon the truth of the statements in issuing the policy and they were untrue by the date the policy was issued. In view of its intention to build on a bus body to the chassis and cab, plaintiff had a duty to disclose to the defendant the true value of the vehicle as of the date the policy was issued. In failing to do so the plaintiff “misled the defendants into consenting to issuing the policy which they would otherwise have declined to do ….” The contract of insurance was thus void able at the option of the insurer under section 19 (1), of the Law of Contract Ordinance. (4) Having so held against plaintiff, the Court entered findings on the remaining issues as follows. While plaintiff had proved the actual cost of repairing the damage, it would not be entitled to lost profits even under the contract, since

(i) the policy excluded, by its terms, “consequential loss;” (ii) plaintiff had not adequately established its special damages; and (iii) plaintiff failed to mitigate losses, but continued the repairs after defendant disclaimed.