The case in point is HIGH COURT OF KENYA AT MACHAKOS PETITION NUMBER 20 OF 2018: PETER MWAU MUINDE & INTERCOUNTY COUNTY EXPRESS LIMITED –V- INSURANCE REGULATORY AUTHORITY, ATTORNEY GENERAL & INVESCO ASSURANCE COMPANY LIMITED.
The Petitioners had insured their vehicles with Invesco Assurance Company Limited (Invesco) in line with Section 4 of the Insurance (Motor Vehicles Third Party Risks) Act. They dutifully paid the attendant insurance premiums to Invesco.
Unfortunately the Petitioners’ vehicles were involved in separate road accidents. Several passengers aboard the vehicles were injured. The passengers made claims following the accidents. The Petitioners duly notified Invesco of the claims. The Petitioners even forwarded the summons to enter appearance to Invesco for Invesco to defend or settle the various claims.
Invseco appeared and defended some of the suits. It failed to appear in other suits. Either way judgment was entered against the Petitioners, be it interlocutory or final judgment. Still, Invesco had notice of these judgments. It however failed to satisfy the judgments violating its cardinal duty under Section 10 (1) of the Insurance (Motor Vehicles Third Party Risks) Act. The Petitioners were left in the cold. Auctioneers reigned in and attached the Petitioners’ personal property in execution of various decrees arising from the judgments.
The Petitioners sought succor in the constitutional court. They alleged that the Respondents had violated their rights and fundamental freedoms under Articles 40, 46, 47 (1), 48 and 50 of the Constitution of Kenya, 2010. Specifically, as against Invesco, they Petitioners contended that it failed to meet its end of the bargain when it failed to satisfy the judgments arising from the claims. Yet it had religiously received premiums. The Petitioners contended that their right to property under Article 40 was violated when auctioneers attached their personal property in execution of the decrees. The Petitioners also argued that under Article 46, Invesco was under a duty to provide insurance services of reasonable quality. To the Petitioners, Invesco’s actions of abdicating its role to pay the claims fell short of quality services guaranteed under Article 46.
As against the Insurance Regulatory Authority (IRA), the Petitioners posited that the IRA failed to perform its functions under Section 3A of the Insurance Act. Part of these functions is to ensure the effective administration, supervision, regulation, control of insurance and reinsurance business in the country. The Petitioners maintained that despite word being out there that Invesco was having liquidity problems, the IRA failed to note Invesco’s liquidity woes early enough in order to protect the public or even invoke payments under the Policy Holders Compensation Fund.
As against the Attorney General (AG), the Petitioners lamented that the AG failed to compel IRA to ensure that Invesco was compliant with all the policies and standards for the conduct of insurance business in the country. The Petitioners faulted the IRA and the AG for their omissions, painfully slow and inefficient reaction and unreasonableness. To the Petitioners, this run afoul the dictates of fair administrative action that should be expedient, efficient, and reasonable under Article 47. Owing to the IRA’s and AG’s omissions, the Petitioners have been deprived of their rights. The accident victims have never been fully compensated. Public confidence in the insurance sector as a whole has been eroded since no one can be sure whether claims will be paid. This is despite paying premiums dutifully.
Against this backdrop, the Petitioners sought orders to the effect that the court declares that the Respondents have violated their rights and fundamental freedoms. That the Respondents to pay the decretal sums and costs arising from the judgments against the Petitioners. A permanent injunction to insulate the Petitioners from execution in respect of these claims for which they had insurance covers with Invesco. An order directing the IRA and the AG to take measures to ensure that Invesco is operating with the prevailing legal framework.
The IRA and the AG opposed the petition. Invesco stayed away.
The IRA and the AG fiercely contended that the petition raised no justiciable constitutional issues. That the matter was no more than a commercial claim based on contract now clothed in a constitutional garb. That the Petitioners failed to meet the specificity of constitutional litigation as elucidated in Anarita Karimi Njeru vs Republic (1979) 1 KLR 154 and reiterated by the Court of Appeal in the case of Mumo Matemu vs. Trusted Society of Human Rights Alliance, Civil Appeal No 290 of 2012.
The learned judge spilt considerable judicial ink addressing this salvo. We need not sink knee-deep into the learned judge’s analysis for purposes of this discourse. But we point out that, after considering a wealth of judicial opinion, the learned judge took this view. That where it is alleged that as a result of the failure by a state organ to carry out its statutory mandate, a person’s rights are threatened with violation or have been violated, the matter transcends the contractual arena and enters the constitutional arena. In the petition, it was contended that had the IRA and the AG carried out their statutory functions, the matter could have been salvaged. That the Petitioner’s rights pleaded would not have been violated. The judge observed that there was no contract between the Petitioners, the IRA and the AG, yet they were being blamed for exposing the Petitioners to the risk of losing their rights to property as a result of their inaction. With that, the court was satisfied that the petition raised justiciable constitutional issues.
Having accepted that the petition was rightly before court, the learned judge discussed the other issues raised by the Petitioners as follows.
That an insurance cover is not just a contractual relationship between the insured and the insurer. The relationship gives rise to a statutory obligation on the part of the insurer. The fact that the relationship is regulated by statute shows just how much premium the State attaches to this relationship.
That relationship affects third parties such as passengers and those who suffer injuries while using the services covered by the insurance policy. Thus, it is expected that the State will take a keen interest in the running of the insurance industry. This is the only way to give meaning to the compulsory requirement that those who have vehicles on the road to take out appropriate insurance covers.
When vehicle owners take out appropriate insurance covers as compulsorily required, they have a legitimate expectation that the State will efficiently regulate that sector. This means that in the event the insured is called upon to compensate those who suffer injuries that are covered by the policy, the insured will be protected from having to directly compensate the injured. To the judge, it serves no purpose for the State to compel people to take out covers yet at the end of the day, the State does not ensure that people benefit from the services for which they are paying. The people have delegated their authority to the State while expecting that the State will undertake its mandate.
Where the State fails to protect the insured against unscrupulous insurers yet ensure that the insured take out insurance covers at their costs, it is only just that the State takes responsibility for its failure to regulate the players in the industry. Otherwise, the State would be assisting those insurers who use statutes as instruments of fraud. That should not be the case.
According to the judge, insurance companies do not just collapse at the flick of a switch. Before they collapse, there are tell-tale signs that can be easily discerned by the IRA officers. The IRA officers should be vigilant at all times. Some of these indicators are outlined at Section 67 C (1) of the Insurance Act. Once the IRA discerns such indicators, the IRA should speedily invoke Section 67C (2) of the Insurance Act. Under this Section, the Commissioner of Insurance (also the CEO of the IRA) has wide powers, with sanction of the Board of the IRA, to appoint a manager to assume the management, control and conduct of the affairs and business of an insurer to exercise all the powers of the insurer. Such manager must discharge his duties with diligence and in accordance with sound insurance, actuarial and financial principles. In particular, the manager must pay due regard to the interests of the insurer, its policy-holders and the insuring public in general.
The emphasis is that the IRA should move with speed. They should not wait until a time when the insurer cannot meet its statutory obligations and move in to simply perform the last rights. It will be too late to unboil the egg.
We hastily point out that the learned judge did not establish an inexorable rule that the IRA should be held liable where every insurer collapses. To the judge, the IRA will not be liable where it has taken demonstrable steps to ensure that an insurer is operating within the law but that the insurer has collapsed due to matters the IRA was unable to unearth despite exercise of reasonable diligence.
In the case before court, the IRA did not state what actions it took to forestall imminent collapse of Invesco despite there being tell-tale signs. The court construed IRA’s failure to explain itself in the petition to mean that the IRA never performed its functions under the Insurance Act. For that reason, the IRA was found constitutionally liable.
In the end, the court entered judgment in favor of the Petitioners to the effect that the IRA and Invesco violated the Petitioners’ rights and fundamental freedoms as pleaded. The court ordered the IRA to pay the decretal sums and costs entered against the Petitioners in the cases arising from accidents for which the Petitioners had obtained insurance covers with Invesco under Section 4 of the Insurance (Motor Vehicles Third Party Risks) Act. The court also directed the IRA and the AG to take measures to ensure Invesco is operating in accordance with the prevailing legal framework. Here is the full case.
Is this judgment, at least for now, the much needed shot in the arm to ensure that the IRA is no longer complacent when regulating the insurance industry? Some quotas have posed that the industry has become riskier than Russian roulette. Is that a fair assessment? As we always say, you be the judge.
