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Group to claim millions from State over bungled insurance fund
Kensilver Express Ltd, a transport firm and 192 others, had accused the Attorney-General (AG) of failing to advise the then Finance minister to effect the fund.
More than 190 motor vehicle owners have been allowed to demand millions of shillings from the government for blunders that protected United Insurance Company from settling claims arising from accidents after the insurer’s collapse in 2005.
In a precedent-setting decision that could expose taxpayers to major losses, the Court of Appeal said the government was responsible for the losses suffered by policyholders over the delay in implementing the Policyholders Compensation Fund in 2005.
Kensilver Express Ltd, a transport firm and 192 others, had accused the Attorney-General (AG) of failing to advise the then Finance minister to effect the fund.
Justices Daniel Musinga, Mumbi Ngugi, and George Odunga agreed that it was upon the minister to seek relevant advice from the AG.
“In our view, once Parliament has enacted a law and left it to the minister to operationalise it, unless there is a very good reason for delay in doing so, the minister should act without undue delay,” said the judges on Friday last week.
The Court of Appeal said it was within the knowledge of the minister and the AG that the fund was absolutely necessary, given the state of the insurance industry in the country.
According to the policyholders, the fund would have cushioned them from exposure to execution by third-party decree holders.
Liquidity problem
“For avoidance of doubt, such losses, if any, must be limited to what the respondents (policyholders) are found to have made after taking into account any sum realisable from United Insurance Company and from the Compensation Fund,” said the judges.
The firm started facing liquidity problems in 1999, drawing the attention of the Commissioner of Insurance, who later discovered that the problem stemmed from the failure to separate ownership from its management, coupled with the poor and inappropriate investments.
A raft of measures were announced including the replacement of the principal officer with someone who would undertake the restructuring and, secondly, various investments made in real estate and land would be liquidated in order to meet the claims, 80 percent of which were motor claims.
The efforts did not yield fruits and the company was eventually placed under statutory management.
Kenya Reinsurance Corporation (Kenya-Re) was appointed the statutory manager of the company on July 18, 2005, who immediately declared a moratorium on claims payments for a period of 12 months.
A bulk of the insured were third party policy holders with the company, who had obtained judgments arising from road accidents.
The motor vehicle owners were then forced to settle the claims, and those that were unable had their assets attached and sold.
The policy holders blamed the Commissioner for not acting diligently in order to avoid the placing of the company under statutory management, since the move would have eroded public confidence following the collapse of Stallion Insurance and Lakestar Insurance.
The court agreed with the High Court that Kenya-Re ought not to have been appointed as the statutory manager, because of conflict of interest.
“We are unable to understand how this statutory obligation placed on an insurer can be properly carried out where Kenya Reinsurance Corporation Ltd is also the Statutory Manager of the insurer,” said the judges.
