Six insurers to pay Gulf Petroleum Sh1 billion in compensation

Dar es Salaam. Six insurance companies have lost a legal battle to reverse an order of the High Court requiring them to pay Gulf Petroleum (T) Limited Sh1 billion in compensation for loses caused by massive spillage of fuel at its tank.

The Court of Appeal has dismissed appeal by the insurers and sustained 2013 findings of the High Court that they were liable of indemnifying the oil marketing company for the loss.

The highest court in the land has maintained that the spillage at the petroleum storage facility was caused by a malicious act that was covered under the contract the insurers had entered into with the oil firm.

Gulf took a one-year insurance policy cover with Sanlam General Insurance (T) Ltd, (formerly Nico Insurance (T) Ltd), Tanzania Insurance Company Ltd, Mgen Tanzania Insurance Company, Real Insurance Tanzania Limited, Reliance Uinsurance Co (T) Limited and Alliance Insurance Corporation Limited to secure its products from calamities of fire and related risks.

According to court documents, the Sh1 billion insurance cover that was to run from August 15, 2007 to August 15, 2008 excluded cover on theft or attempted theft.

It happened that on May 28, 2008 when the policy was still in effect, an oil spillage occurred in one of the insured tanks at Kurasini in Dar es Salaam.

Following the incident, Gulf reported the incident to the insurers and other relevant authorities including the police who managed to stop the spillage.

Acting under its cover note, Gulf raised a claim for indemnification of the loss. What would later turn to be a fierce legal battle started after the insurers rejected the claim. Their ground for rejection was that the loss was caused by attempted theft and not through malicious act. The rejection prompted Gulf to sue the companies in 2010.

Oil spillage

Gulf claimed that on the fateful day (May 28, 2008) at around 4am, an unknown person maliciously damaged the valve of the tank at its Kurasini depot and caused massive spillage of petroleum from the facility which had stored 800,000 litres of the product.

It further claimed that a total of 681,523 litres of petroleum worth Sh1 billion was lost.

Insurance companies did not dispute the fact that Gulf was insured by them as co-insurers as per the policy and that there was spillage of oil at one of its tanks.

They, however, refused to accept the loss of 681,523 litres and the claim that the loss was caused by malicious damage or any peril insured under the policy.

After hearing the parties, the Commercial Division of the High Court was to decide on what were the terms and conditions of the insurance contract between the parties, and whether the six insurers breached the insurance contract by not indemnifying Gulf.

The court was also to decide on whether the respondent suffered loss covered by the Fire and Allied Perils Insurance Policy.

The security officer and in-charge at Gulf’s Kurasini depot, Mr Mansour Ally, had told the court that a security guard on duty had informed them that he saw a person running away from the scene over the wall.

Alexander Forbes (T) Limited, a brokerage company that organized and placed insurance terms which Gulf was to be insured by the appellants claimed at the hearing of the case that Gulf was entitled to be indemnified for the insured loss. The six insurers denied the obligation alleging that the incident was a result of theft which was not covered by the insurance policy.

Anuj Jethwa, a loss adjuster with Toplis & Harding who was part of the team that conducted investigation and collected relevant documents from the scene gave evidence to suggest that there was possible dishonesty on part of the security guards who colluded with the thief in stealing the petrol due to the previous reported incidents of theft that also involved the security guards.

It was his opinion that the loss was due to attempted theft and not a malicious act and that they could not commend for the insurers to accept the liability under the insurance policy.

The CEO of Sanlam General Insurance (T) Limited, Mr Manfred Sivande, told the High Court that they denied to pay the respondent because of the recommendations they received from two different adjusters—Toplis & Harding and Independent Adjusters Limited.

Gulf wins case

After weighing evidence of both parties, the High Court found in 2013 that the insurance policy that the parties were bound with covered the risks of leakage and malicious act caused by another person but excluded theft or attempted theft.

As to whether the companies breached contract by not indemnifying the company, the High Court sided with Gulf after being satisfied the loss suffered was occassioned act of unknown person who loosened the bolts and nuts and ultimately spillage of oil occurred.

The High Court ruled out the issue of dishonesty on the part of the security guards and theft or attempted theft and found that there were no receptacles left at the scene.

The court then ordered the six companies to compensate the company Sh1 billion and pay general damages of Sh100 million for failure to honour the insurance policy agreement in time.

Insurers’ appeal

The insurance companies were not satisfied with the verdict of the High Court and filed an appeal in 2016 to challenge the decision.

It was their contention that the trial judge erred in maintaining that Gulf suffered Sh1 billion loss being value of 681,523 litres of petroleum alleged to have spilled out from Gulf’s fuel storage tank without any concrete evidence being tendered in court to support the alleged spillage and attendant monetary value of the same. They further contended that the judge was wrong in arriving at the conclusion that the spillage of the petroleum was caused by an alleged malicious act of an intruder base on the hearsay evidence.

At the hearing of the appeal, the insurance companies were represented by Octavian Temu and Oscar Msechu while the respondent enjoyed the service of Mr Ashiru Lugwisa. The appellants claimed there was no evidence suggesting that 681,523 litres of petroleum was lost through spillage because the man who verified the litres of petroleum was an accountant who had no expertise on measurements.

They argued that Gulf was under legal obligation to bring a report from the measurement expert showing calculations on the quantity of the litres lost and remained.

They further argued that there was no direct evidence of the presence of the intruder that would have warranted the trial judge to reach a conclusion that the said intruder was for malicious purpose.

Court decides

Court of Appeal Justices--Gerald Ndika, Mwanaisha Kwariko and Barke Sehel—started addressing the grounds of appeal on whether the High Court based its decision on the hearsay evidence when it held that the spillage of the petroleum was caused by malicious act of an intruder.

“On our part we see no logic in that submission. The fact that a person was seen running away from the scene does not by itself establish or prove malicious act. The malicious act is inferred from the fact that the person who run away did not leave behind any receptacles to suggest that he intended to steal.

“In the light of what is contained in the evidence, we are satisfied that the spillage of oil was caused by a malicious act. Since malicious act is fully covered under the insurance policy, we uphold the findings of the High Court that the appellants were liable to indemnify the respondent,” said the judges in their recent decision.