Insurance Company of East Africa (U) Limited v AIG (U) Limited (Civil Appeal 54 of 2004)

Observed later treatment

No later-treatment classification is recorded for this judgment.

Citator coverage is limited to judgments in the Wakilii corpus and source-matched treatment records. Absence of a signal is not an assertion that the case remains good law.

Holding

The Court of Appeal held that section 34(1) of the Insurance Act is couched in mandatory terms, prohibiting an insurer from extending credit on a premium beyond thirty days save for business emanating from a licensed broker. Since the parties dealt directly without a broker, the trial judge erred in holding that the respondent could extend credit beyond thirty days; non-payment operated as a defence to enforcement of the contract. The Court further agreed there was no common mistake between the appellant and respondent, as the reinsurance contract was a distinct agreement whose terms were known to both; any mistake was unilateral, involving the appellant and Allianz, and did not affect the respondent. Appeal allowed on grounds 1 and 2.

Outcome

Appeal allowed; High Court judgment ordering payment of the outstanding premium set aside, the insurer being barred from extending credit beyond thirty days

Facts

The appellant and respondent are insurance companies. In 2001 the appellant insured a German joint venture, Strabag/Stirling, for road repair works in Eastern Uganda under a policy dated 9 February 2001 for a sum of Euros 23,000,000, with a premium of Euros 103,500. As the risk was large, the appellant asked the respondent to reinsure part of it. The respondent accepted 19.38% of the risk and issued a reinsurance policy dated 1 June 2001, entitling it to a premium of Euros 20,058 (approximately UGX 27,279,288). The brokers, Allianz, delayed paying premiums to the appellant, who in turn delayed paying the respondent. Allianz later claimed only 10% of the risk should have been insured and the premium was Euros 103,500. The appellant sought to scale down the respondent's participation to 10%, which the respondent rejected, insisting on the agreed premium. After the appellant paid UGX 2,182,343, the respondent sued to recover the full premium under the reinsurance policy.

Issues

1. Whether the appellant was entitled to stay on cover for more than 30 days where the premium had not been paid.
2. Whether, on expiry of 30 days without payment of premium, a contract of insurance becomes void or voidable under section 34 of the Insurance Act.
3. Whether the parties operated under a common mistake going to the root of the reinsurance contract.
4. Whether the appellant could rely on the defence of common mistake.

Orders

• Appeal allowed on grounds 1 and 2.
• Respondent to pay costs of the appeal.
• Costs both in the Court of Appeal and the court below awarded (per Byamugisha, JA).

Rules and key headnotes

Legislation cited (2)

• Insurance Act Cap 213 s.34(1)
• Insurance Act Cap 213 s.34(2)

Cases cited (1)

• Bell v Lever Brothers Ltd [1932] AC 161

The original judgment as reported. Read the original PDF before relying on any passage.