The High Court has faulted the Insurance Regulatory Authority (IRA) for invalidating insurance policies held by customers of three insurers and placing them under statutory management without allowing affected policyholders to be heard.
The court ruled that the Commissioner of Insurance acted outside the statutory parameters when he issued a directive on March 10, 2026, affecting Trident Insurance Company Ltd, KUSCCO Mutual Assurance Ltd and Corporate Insurance Co. Ltd.
The IRA placed the insurers under statutory management in March over severe financial deterioration and a failure to meet mandatory solvency and capital requirements.
The court, however, said the decision contravened Articles 46 and 47 of the Constitution, which provide for consumer protection and fair administrative action.
“The failure to comply with Article 47, by failing to inform affected parties, failing to afford them an opportunity to be heard, and failing to give reasons for the decision, negatively impacted the consumer rights of not only the petitioner but all those who were holding policies with the insurer,” the court said.
The judge also found that the Commissioner had exceeded his powers by purporting to invalidate policies that were in force when the insurers were placed under statutory management.
The court said Section 67C(2)(i) of the Insurance Act allowed the Commissioner to appoint a statutory manager to take over the running of an insurer for purposes of stabilisation.
Under Section 67C(6), the statutory manager is required, within 12 months of appointment, to prepare and submit a report on the insurer’s financial position and management, including recommendations on whether it can be revived or should be liquidated.
“A literal reading of the relevant provisions therefore discloses that under Section 67C(2)(i), the provision under which the notice was issued, the Commissioner was limited to appointing a statutory manager to take over the running of the insurance company for purposes of stabilisation,” the judge said.
The court consequently quashed the notice to the extent that it purported to nullify or invalidate insurance policies that were lawfully in existence when the insurers were placed under statutory management.
It further declared that policies issued before March 10 remain valid for purposes of the Insurance (Motor Vehicles Third Party Risks) (Certificate of Insurance) Rules until a decision is made under Section 67C (7) of the Insurance Act.
The case was filed by city lawyer Christopher Njoroge, who challenged public notices issued by the regulator advising policyholders to immediately obtain alternative insurance covers.
Mr Njoroge told the court that he only became aware of the regulator’s action on the evening of March 13, when traffic police stopped him and alleged that he was driving without valid insurance.
He said he held a valid Trident policy running until October 18, 2026, and had not received prior communication from the insurer or regulator explaining why it had been cancelled.
Mr Njoroge argued that the regulator had interfered with private contracts between insurers and policyholders and violated his constitutional rights to property, consumer protection and fair administrative action.
He also argued that the IRA had failed in its duty to protect policyholders by allowing the insurers to continue collecting premiums while subsequently directing customers to obtain alternative cover.
The petitioner sought conservatory orders protecting policies issued before March 10, as well as general damages for alleged violations of his rights.
The IRA opposed the petition, saying statutory management had been lawfully invoked under Section 67C(2)(i) because of persistent weaknesses in the insurers’ solvency, governance, capital adequacy, reinsurance arrangements and risk management.
The regulator said statutory management suspends ordinary management, cancels operating licences and bars insurers from entering into new contracts.
It argued that individual notification of policyholders was impractical and that early disclosure of the insurers’ financial difficulties could have triggered a run on their assets, worsening losses for policyholders.
The IRA also relied on statutory safeguards, including moratoriums and compensation through the Policyholders Compensation Fund.
The regulator argued that contracts were frustrated by insolvency rather than arbitrarily cancelled and that policyholders became creditors entitled to lodge claims with statutory managers or liquidators.
IRA maintained that recognising policies issued by insolvent insurers would expose accident victims to uncompensated losses and undermine its statutory mandate.
But the court said the policies issued before March 10 cannot be treated as invalid merely based on the directive, pending the statutory process and any decision made under Section 67C(7).
“It would be inimical both to the Constitution and to the Act if their implementation were to leave insured persons in no better position than they were prior to the amendments and the promulgation of the Constitution,” the court said.
