Towards Reforms in Marine Insurance in Kenya.

Despite the fact that modern insurance has been practiced in developed economies since the early 20th Century, it is a fact that insurance uptake is still very low in third-world countries compared to developed economies. Specifically, the lack of development of the marine insurance sector is a matter of concern as this sector can contribute massively to economic development. In Kenya, the marine insurance legal framework is mainly administered by the Marine Insurance Act of 1968, which despite the many changes in the marine insurance sector, has not been amended to meet those changes. The legislation is a mere word-for-word adoption of the 1906 Marine Insurance Act of the United Kingdom. This is a case of isomorphic mimicry. The legislation simply copied the formal rules without having implicit norms to guide our situation. There have been no changes, legislative or otherwise to the provisions and schedules to the Act.

In 2019, the total Gross Written Premium for non-life insurance was KES 133.45 Billion mainly driven by the three largest classes led by medical at 31.8%, motor commercial at 18.2% and motor private at 17.7%. This was a 3.57% growth compared to (KES 128.9 Billion) in 2018 despite the social, economic and political changes experienced in the country in the preceding 10 years.
All the same, in marine insurance, the uptake was staggeringly low and declined from KES 3.66 Billion in 2018 to KES 3.49 Billion in 2019, a 4.6% decline. Notably, the marine insurance had the highest decline in growth compared to other classes of Non-Life Insurance. To what extent then are we to ensure the uptake of marine insurance in Kenya? The reform in law to reflect the changes in the Kenyan marine industry shall lead to increased capacity and development of the economy to handle marine insurance competitively.
A contract of marine insurance is defined as “a contract where the insurer undertakes to indemnify the assured, in manner and to the extent thereby agreed, against the losses incident to marine adventure.” In guiding reform, our laws need to be harmonized with international practice and we offer proposals that are necessary to bring the marine insurance law in tandem with the challenges facing the industry today in Kenya. This will ensure that there is increased uptake of marine insurance.

Proposal on reforms
a) Insurable interest
The Insurable Marine Risks in Kenya are natural disasters, theft and piracy, collision, sinking or stranding of ship, fire and explosions, jettison (intentional throwing overboard of part of the cargo or piece of ship to save the vessel), pilferage and war.
The following subject matters are insurable under a marine policy of insurance in Kenya: (a) ship; (b) goods; (c) movables; (d) freight; (e) profits; (f) commissions; (g) disbursements; (h) wages; (i) ventures undertaken by a company; and (j) third party liability.
The definition of the insurable interests under the Marine Insurance Act lacks clarity. It is defined as the possibility of benefit or prejudice depending on the safety of the property or adventure. There are uninsurable perils in marine insurance which include ordinary leakage, wear and tear of the subject matter assured, loss or damage caused by unsuitable package and inherent vice. Other incidents excluded from the cover are, financial default or insolvency of owners or operators of the vessel, loss, or damage due to strike, riot, and civil commotion, loss or damage arising from the use of nuclear fission, weapon, or any other radioactive force and attack or damage from biological, biochemical, chemical, or electromagnetic weapons. These all qualify as marine insurable interests due to the evolving nature of marine perils and technology in the contemporary world, in the 21st century.
The above-mentioned marine perils are points of genuine concern, which ought to be addressed in the primary law that covers marine insurance in Kenya. It is therefore our proposal that the term ‘insurable interest’ be amended and defined as “a pecuniary interest in the subject matter, venture or contingency assured” to standardize approach towards marine policies and expand the scope of perils to be covered.

b) Utmost good faith, disclosures & representations
A contract of marine insurance is Uberrimae fidei. It is based upon utmost good faith, and, if this is not observed by either party, the contract may be avoided by the other party. In the landmark European case of Carter v Boehm case [1766] 3 Burr 1905 Lord Mansfield voided the policy because concealing “special facts” was a fraud.
While Section 17 of the Act espouses that the duty applies to both parties, Section 18 specifically deals with the contractual disclosure duty of the assured. Further, Section 19 stipulates the disclosure duty of the agent effecting an insurance on behalf of the assured. In addition, Section 20 emphasizes that any statement made by the assured to the insurer must be genuine or accurate. There are no corresponding duties laid out for the insurer.

Additionally, sections 18-20 are only concerned with pre-contractual duties of disclosure. There is no continuing duty to supply the insurer with information relevant to the risk underwritten. However, this duty has been established to also arise when the underwriter is called upon to make certain other active underwriting decisions. The duty of disclosure arises at every renewal, variation, and extension of cover on payment of additional premium.

We propose that in place of ‘utmost good faith’, the introduction of ‘fair presentation’. This doctrine entails giving true and fair statements that are free from material misstatements and that faithfully represent the positioning of an entity. This doctrine is fairer than the traditionAl doctrine as the assured needs to disclose “every material circumstance” to the insurer. In the US case of Garnat Trading & Shipping (Singapore) Pte Ltd. v Baominh Insurance Corp, [2011] Lloyds Rep 589, it was held that, ‘where the insurer does not take the initiative to ask the facts, the insurer cannot claim the non-disclosure obligation of these facts.’ The consequences of the “fair presentation doctrine” rely on whether the false statement/concealment is “deliberate or reckless”. Therefore, the doctrine protects the assured by ensuring they are indemnified in cases of losses incidental to marine adventure the circumstances of were in their knowledge and which they revealed.
Further, the Act needs to provide corresponding duties to the insured so as to effect Section 17 of the Act.

c) Compulsory local insurance of marine cargo
The Marine Insurance Act makes it compulsory under Section 16A of the Act to insure marine cargo locally.  Specifically, “a person with insurable interest in marine cargo shall place marine cargo insurance with an insurer registered under the Insurance Act unless prior exemption has been granted by the Commissioner.” By 2017, an average of $425 million in marine insurance had been paid to foreign insurance companies. The question that arises as a result of this, why then do many exporters shun local insurance firms?  There is of course the issue of capacity where most exporters are not sure whether the industry can handle the volumes of business in marine insurance. The usual argument the industry offers is that they have the capacity and that if a single company cannot handle a certain volume of business, then there is always the option of co-insuring.  It is necessary to protect the local market and to increase business in the insurance industry through implementation of Section 16A of the Act. Considering this proviso, transportation of goods imported into Kenya should be insured with companies legally established and duly licensed in Kenya in light of the fact that it is the importing country that ultimately bears the risk and many developing countries consider that the basic principle of insuring national risks in the local market should apply in the case of imports.
The Kenya Maritime Authority should liaise with Government enforcement agencies such as KRA in making sure that maritime business persons comply with Section 16A of the Act and Section 20 (1) of the Insurance Act Cap 487 which prohibits placing of Kenyan insurance business other than reinsurance business with an insurer not registered under the Act without prior approval by the Commissioner of Insurance. To start off, for example, imports should be imported based on Free On Board incoterms while exports should be exported based on Cost Insurance and Freight incoterms. The effect of this is that all imports and exports will be underwritten by local insurers and hence positive impact to the uptake of marine cargo insurance in Kenya.

d) Jurisdiction
Exclusive jurisdiction of the English Courts is expressly reserved in the Maritime Insurance Act Form of Policy unless expressly provided to the contrary. Therefore, where the MAR form of policy and the ITC are used together, regardless of the jurisdiction of the contract, disputes are to be resolved by the English Courts, applying English Law.
Article 165 (3) on the other hand, vests the High Court of Kenya with unlimited and inherent original jurisdiction in civil matters. As such, there is conflict of jurisdiction between the High Court of England and the High Court of Kenya where the MAR policy is to be used and there is no express provision for the Kenyan Courts to have jurisdiction. Notably, where the ITC are used, English Law must be applied in the resolution of a dispute but not necessarily in English Courts. Therefore, English Law can be applied by Kenyan Courts. However, this does not solve the problem where parties are desirous of applying Kenyan on other Non-English Law.
There’s need for reforms to oust the jurisdiction of English Courts regarding MAR policies and expelling the application of English Law with regard to the application of Institute Time Clauses in Marine Insurance Contracts.

e) Institute of London Underwriters Clauses
It is recommended that the Kenyan Marine Insurance Act be amended to incorporate the Institute Clauses as and when they are issued by the Institute of London Underwriters in the United Kingdom or when such clauses are amended from time to time. The rules are adaptable, flexible and prospective in nature. Moreover, they are capable of universal application. However, the amendment should also limit the application of these clauses only to such extent, as they are relevant to the circumstances of the marine insurance market in Kenya. In addition, the amendment should grant the parties involved the power to omit specific clauses which are not applicable to their situation/circumstances.

f) The York-Antwerp Rules 1994 and the Rules of Practice of the Association of Average Adjusters.
Regarding adjustment of general average Kenya would benefit from the above rules hence it is recommended that the Marine Insurance Act be amended to provide for the direct application of the afore mentioned rules.

Conclusion
To enhance public trust in the area of marine insurance, as well as increase the uptake of marine insurance policies, it is imperative that the Kenyan marine insurance legal regime provides a conducive environment for the same to thrive. The reforms as suggested above will be key in ensuring this. It is noteworthy that collaboration with key stakeholders such as Insurance Regulatory Authority, the Association of Kenyan Insurers, the Kenya Maritime Authority, local and international stakeholders to ensure implementation of proposed reforms.