IRA has no business interfering with lawful contracts, rules judge

A judge has reprimanded the Insurance Regulatory Authority (IRA) for instructing an insurance firm to withhold commission fees due to a broker.

High Court Judge Alfred Mabeya said the powers or regulatory obligations of the watchdog do not extend to advising an insurer to withhold a commission earned for brokerage services.

“The respondent (IRA), while tasked with regulatory oversight of the insurance industry, ought to have addressed any concerns regarding additional services through proper regulatory mechanisms rather than extending its tentacles into breaching a contract between two independent contracting parties,” said the judge.

In the matter, Kenya Forest Service (KFS) advertised a tender for provision of a group medical insurance, which was eventually won by First Assurance Company Limited.

Goldfield Insurance Brokers Ltd then demanded a 10 percent commission amounting to Sh27.6 million, for acting as a broker.

First Assurance Company Ltd was about to pay the commission but it was stopped by IRA saying the involvement of Goldfield Insurance Brokers in drafting and submitting the bid to the winning bidder was outside its legal mandate and therefore, not a brokerage service.

The insurance regulator submitted that a broker's role was limited to inviting offers and acting on received bids based on the client’s instructions.

IRA said a broker served as an intermediary, placing insurance business with an insurer or reinsurer on behalf of an insurer, policyholder, or proposer.

But Justice Mabeya said even in the role of introducing First Assurance Company to KFS, the broker was entitled to a commission.

The judge said the advice by the IRA leading to the withholding of the commission was beyond its legal mandate and therefore, unlawful.

“It (IRA) had no business in interfering in a lawful commercial transaction between two willing entities so long as the contract between the two was not illegal as in this case,” added the judge.

The court said there is no statutory prohibition against a broker assisting a client in navigating a procurement process, provided the broker does not undertake underwriting functions or assume the role of an insurer.

“In the absence of such a restriction, placing business logically includes essential activities such as advising the client, structuring the policy, negotiating terms, submitting proposals, and ensuring compliance with regulatory requirements so as to clinch a business,” he said.

The broker had moved to court after the Insurance Appeals tribunal dismissed its claim in November 2023.

The broker faulted the tribunal saying it failed to find that the Commissioner of Insurance lacked the legal authority to interfere with lawful contracts.

But the IRA defended the tribunal saying the decision was correct since the broker acted beyond its mandate under section 2 of the Insurance Act.

According to IRA, the law defined the role of a broker and did not allow for direct collaboration with an insurer in preparing tender bid documents.

The insurance industry regulator maintained the Act does not contemplate a broker directly assisting an insurer in preparing tender bid documents.

Instead, a broker’s role is limited to inviting offers, negotiating terms, and acting on offers received under a client’s instructions.

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