The High Court has drawn a legal line around the powers of the Insurance Regulatory Authority (IRA), ruling that the regulator cannot invalidate existing insurance policies merely because an insurer has been placed under statutory management.
The court found that the Commissioner of Insurance acted beyond the powers granted by the Insurance Act when the regulator issued a notice purporting to nullify policies held by customers of Trident Insurance Company Limited and Corporate Insurance Company Limited.
At the heart of the case was the interpretation of Section 67C of the Insurance Act, which governs the appointment and functions of a statutory manager.
The court said the statutory management regime is designed to stabilise an insurer and protect policyholders, rather than automatically bring existing insurance contracts to an end.
According to the court, the statutory manager takes control of the insurer’s affairs and determines, within the statutory framework, whether the company can be revived or should eventually be liquidated.
The Commissioner therefore could not, at the initial stage of statutory management, use the process to extinguish contracts that had already been entered into between insurers and their customers.
The court consequently quashed the regulator’s notice to the extent that it purported to invalidate policies that were lawfully in existence when the insurers were placed under statutory management.
The court also found fault with the manner in which the directive was made, holding that affected policyholders were not given an opportunity to be heard and were not provided with reasons for the decision.
That, the court found, violated the constitutional guarantee of fair administrative action under Article 47.
The court also invoked Article 46 on consumer protection, stressing that Kenya’s constitutional and insurance framework is intended to protect policyholders, particularly in an industry that has historically seen insurers collapse and leave customers exposed.
The court’s decision was also based on its rejection of an argument that the case should first have gone through the Insurance Appeals Tribunal.
The respondents had argued that the dispute was essentially regulatory and that the petitioner was required to exhaust the statutory appeal mechanism before approaching the High Court.
The court acknowledged the importance of the exhaustion doctrine but said it should not be applied rigidly where a dispute raises constitutional questions and has wider implications for the public.
In this case, the court found that the directive affected not only the regulatory relationship between the IRA and the insurers but also the constitutional rights and economic interests of policyholders.
The immediate effect of the judgment is that policies issued by Trident and Corporate Insurance before March 10 remain valid for purposes of the applicable motor vehicle third-party insurance framework until a decision is made under Section 67C(7) of the Insurance Act.
The court stressed that statutory management does not itself amount to liquidation or termination of existing insurance contracts.
