Why you can pay dearly for giving wrong facts about your cover

Samuel Karanja Ruiru, a motor vehicle owner, visited Madison Insurance and obtained a private car insurance policy for his Toyota Wish.

The fine print of the cover was that he would use the car for domestic and social pleasures. Nevertheless, the unfortunate incident occurred when the vehicle was involved in an accident on April 3, 2021, at the hands of a friend in Kieni Forest, along the Thika Flyover Road.

One passenger, Sara Ngina, was fatally injured. Karanja was certain that the insurance firm would bail him out as he had a valid policy on the accident date.

However, following investigations, Madison rejected the payment claim, citing a breach of its terms.

The insurance firm stated that the vehicle was used for commercial purposes and that by the time Karanja was insuring a vehicle, he had no valid license, as he was only trained to drive a motorcycle.

Further, it stated that he failed to give full information about the use of the vehicle and that he was not eligible to drive a vehicle. Madison sued Karanja, arguing that it was not bound to pay as he had breached his end of the bargain. He never joined or opposed the case. It first suffered a loss at the magistrate’s court, after it was dismissed.

Aggrieved, it moved to the High Court, arguing that it had breached the conditions willingly, adding that the insurance was not valid from the start.

In the last year’s quarter one, insurers declined 22.364 per cent in the claims across all general insurance, including motor own damage, totalling Sh658.9 million. This was an increase of nearly 78 per cent from the same period in 2024.  

By the second quarter, the rejected claims had risen to Sh1.51 billion. In quarter three, declined cases, including third-party motor claims, increased by 1,939 per cent from quarter two, to 1611 claims, but decreased by 18.5 per cent in terms of amounts from Sh103.63 million to Sh84.45 million in 2024.

Gloria Makena, an underwriting specialist with Ensign Insurance Brokers Ltd, explained that Karanja’s case was just but among the many cases that have become expensive to industry players, leading to losses.

“In insurance practice, some of the most frequent—and expensive—problems arise when a policy is issued based on incorrect or incomplete information. From both an underwriting and claims perspective, this situation constitutes a clear breach of contract. Insurance is, at its core, a contractual relationship governed by policy terms, conditions and principles such as the principle of utmost good faith. This principle requires both parties, especially the insured, to make full and accurate disclosure of all material facts,” said Makena.

 According to the Insurance Regulatory Authority (IRA), motor vehicle insurance is a main target, with over 60 per cent of fraudulent claims.

The regulator indicated that staged accidents, forged certificates, usage violations, false claims and multiple policies are among issues dogging the industry and giving them cold feet while processing claims.

Regulatory measures

Last year, the IRA published new rules, Insurance (Claims Management) Guidelines, 2025, ushering in new but stricter guidelines on how insurers process and reject claims. Insurance firms are required to within 48 hours acknowledge a claim and communicate their decisions within seven days after receipt of the investigation report.

In addition, the regulations bar them from seeking new information if the same ought to have been obtained when issuing a policy. IRA also requires the insurers to conduct a valuation before issuing a cover, both at the start of a new claim or renewal. Makena explained that insurers are also bound to explain to the insured about the coverage taken. She, however, asserted that the insured person ought to be truthful and give full information, or else he or she is bound to lose compensation in case of an accident.

“However, responsibility does not lie with the client alone. Insurance intermediaries and sellers have a professional duty to guide clients clearly and responsibly. This includes conducting thorough fact-finding, asking direct questions about vehicle use and licensing and explaining the consequences of inaccurate or incomplete declarations,” she said. “Proper advisory not only protects insurers from unintended risk but also shields clients from avoidable financial loss at the claims stage.”

At the High Court, Madison called Charles Gathu as its witness. He stated that there were M-Pesa screenshots from Karanja indicating that he had hired out the vehicle. At the same time, he produced a report from the National Transport and Safety Authority (NTSA) indicating that the driver at the time of the accident, Dennis Ndirangu, had an expired driving licence.  

Section 30(1) of the Traffic Act stipulates that no person shall drive a motor vehicle of any class on a road unless he is the holder of a valid driving licence, endorsed in respect of that class of vehicle. Gathu said that at the time of the inspection, Ndirangu did not produce the original driving licence.

In the meantime, he also said that the NTSA portal also showed that Karanja’s licence was for classes as “F, G”.

These classes are for motorcycles. He said that the revelation that the motor vehicle owner could only drive a different class of vehicle changed the entire outlook of the risk.

He asserted that if he had disclosed this, then the insurer would have decided whether to accept the risk or fix the premium.Joseph Kuria, an insurance industry expert, said that Madison could have probably issued Karanja an excess cover if he had disclosed that he was not certified to drive a car.

“It is a traffic offence, so there is a penalty. There is an excess fee that can be charged because you are not authorised to drive. That has no relationship with an accident, but there are some which will charge you a fee, but others will repudiate the same,” said Kuria.

He argued that the usage of private vehicles, the premium is calculated and limited to the use. According to Kuria, insurance industry players are also deploying technology to ensure that what the vehicle was insured for corresponds with the usage.

He indicated that although the same has not been deployed widely, insurance firms such as Heritage Insurance have telematic devices which gives record of the usage of the vehicle. “If the use is personal, it is presumed that the use is less risky, whether you are going to work, business or functions, as long as it is for private use. For private use, you can give a friend so long as it is authorised by the insured and the person is licenced,” he explained, adding that the regime is different for commercial vehicles.

“For commercial, you are not going to gain monetary gain out of it. There are two classes, motor commercial own goods and motor commercial general cartage. Under commercial own goods, this is a person who has items to carry for their own business. The moment you hire, it ends up being general cartage. If anything happens, the insurance will not pay since you had no extension to carry other people’s goods,” he added.

Karanja’s narrative, as captured in the statement given to the investigator by Ndirangu and his father, Peter Kimata, was that he had lent them the car to attend a funeral.

Kimata explained that he had personally put Sh1500 for the vehicle, which he claimed was a contribution.

 In the meantime, the vehicle’s mileage had a different story altogether. It indicated that it had moved around 101 kilometres per day for over 54 days.

Madison Insurance investigator argued that the movement was not consistent with the social or domestic use but indicated that it was for commercial purposes. Justice Helene Namisi concurred with the insurer and declared that it was not liable or bound to pay the accident victim or indemnify Karanja. She said, he lied.

“By applying for a private car policy, the Respondent implicitly represented that he was a person capable of being insured for that risk. This was a false

representation of a material fact. This breach of the duty of utmost good faith is a clear statutory ground for avoiding the policy, as contemplated by section 10(4) of the Insurance (Motor Vehicle Third Party Risks) Act. The appellant’s unrebutted evidence proved this point on a balance of probabilities,” the judge said.