INTRODUCTION
Imagine paying your insurance premiums faithfully for years, only to find that when you need coverage
most, following an accident or liability claim, your insurer is insolvent. Worse, imagine being personally
exposed to court decrees and execution of your assets because the insurance company you trusted can
no longer meet its obligations.
This was the reality for hundreds of policyholders of United Insurance Company Limited. However, a
recent landmark judgment by the Court of Appeal at Nairobi in Civil Appeal No. 61 of 2014, Commissioner
of Insurance -vs- Kensilver Express Limited & 192 Others has set a powerful precedent for insurance
consumers in Kenya.
The Case That Changed the Landscape United Insurance Company Limited, a Kenyan motor vehicle insurer, faced liquidity crisis from 1999 onwards. The Insurance Company was in the business of issuing third party insurance policies in particular, to public service vehicles.
The Commissioner of Insurance was aware of the company’s deteriorating financial position from 1999 and he found that the major problem facing the company was failure to separate ownership of the company from its management. Over the years, the Commissioner took various administrative steps such as: facilitating management restructuring, directing asset sales, and attempting to negotiate with the insurer’s principals.
These efforts did not yield any fruits which eventually led to the company being placed under Statutory Management.
The Commissioner of Insurance with the approval of the Minister of Finance appointed Kenya Reinsurance Corporation (Kenya Re) as the Statutory Manager under Section 67C of the Insurance Act (Cap 487). On 18th July, 2005, Kenya Re declared a moratorium through the daily newspaper for a period of one year. This meant that the Insurance Company could not give legal representation to their clients and if Judgment was entered against them, they could not settle the decretal sum.
As a practical consequence, 193 Judgment Creditors, mostly motor vehicle accident victims or their dependents had their court decrees frozen. The Judgment Debtors were forced to settle the decretal sums and those who were unable to do so, faced civil imprisonment. The policyholders approached the court, arguing that their constitutional rights to liberty and peaceful ownership of property were violated by the regulatory failure to
Findings from the
Court of Appeal Judgment
1. Regulatory Diligence is Mandatory
The Court affirmed that the Commissioner of Insurance and the Minister of Finance have a statutory
duty to act with expediency and diligence in the public interest, and cannot sit on known financial
troubles of an insurer until it is too late. While the Court of Appeal noted the Commissioner had held
meetings to try and salvage United Insurance when it began showing signs of trouble in 1999, it
affirmed that delaying intervention while knowing an insurer is failing constitutes a breach of duty to
the public, as regulators must act before a collapse becomes inevitable.
Why It Matters to You:
•Preventive Protection: Regulators cannot wait until an insurer is completely insolvent
before stepping in. If the Commissioner of Insurance delays intervention while knowing
an insurer is distressed, policyholders left exposed during that delay may have grounds
for recourse.
•Continuity of Cover: The law expects regulators to prioritize the continuity of insurance
cover for the public. If regulatory delay leaves you uninsured against third-party claims,
the state may bear responsibility for the gap.
2. Government Liability for the Compensation Fund Perhaps the most significant holding for consumers was regarding the Policyholders Compensation Fund (PCF). The Court held that the Government was responsible for losses suffered due to the failure to operationalize the PCF because it exists specifically to cushion policyholders when insurers become insolvent or when they are under Statutory Management. Although the
Fund existed in law since 1985, it was not operational until 2005. The Court ruled that this delay violated policyholders’ rights.
Why It Matters to You:
•State Liability: While the Policyholders Compensation Fund is now active, this judgment establishes that the Fund exists to protect you, not to create hurdles. The Insurance Act provides that the Policy-holders Compensation Fund shall provide compensation to the claimants of insurer placed under a manager or whose license has been cancelled under the Act
•Safety Net Enforcement: The Court affirmed that the Fund’s purpose is to compensate policyholders of insolvent insurers. This strengthens your legal position when filing claims against the PCF for Xplico or Invesco policies. It is a statutory right.
3. Constitutional Rights
Trump Administrative Moratoriums The judgment reinforces that administrative measures like moratoriums and statutory management cannot indefinitely violate fundamental constitutional rights to liberty and peaceful ownership of property. The case arose because policyholders were facing execution of decrees, seizure of assets, and even civil imprisonment because their insurer could not pay third-party claims during the moratorium.
The Court recognized that while regulators may implement temporary protective measures to address
insolvency, these measures cannot leave policyholders indefinitely vulnerable to enforcement actions or strip them of constitutional protections. The balance between administrative convenience and individual rights must ultimately favor the policyholder when the state has failed to prevent the collapse or provide timely alternative remedies.
Why It Matters to You:
•Protection from Personal Liability: If you held a valid third-party policy, you should not be personally liable for debts the insurance was meant to cover. If an insurer’s insolvency exposes you to personal execution, the law provides avenues to stay those proceedings.
• Human Rights Compliance:
The judgment affirms that policyholders cannot be subjected to civil jail merely because their insurer failed to meet its obligations. The High Courtreferenced United Nations Conventions prohibiting imprisonment for debt. A principle that remains persuasive authority for protecting insured persons from personal liberty violations arising from insurer insolvency
PRACTICAL LESSONS
EVERY POLICYHOLDER
SHOULD KNOW
From the Landmark Kensilver Judgment & the current Insurance Landscape
1. Verify Before You Buy4. Documentation Is Your Shield United Insurance had liquidity problems as early as
1999—but policyholders kept paying premiums unaware.
Always confirm your insurer’s licensing status and financial health via the Insurance Regulatory
Authority (IRA) portal before purchasing or renewing cover.The petitioners had to prove they were genuine
policyholders with valid contracts. The Court emphasized strict verification to eliminate fraud,
but also protected bona fide claimants.
2. Conflict of Interest in Statutory Management Is Unlawful
The Court held that Kenya Reinsurance Corporation ought not to have been appointed Statutory
Manager of United Insurance because, as a reinsurer, it was potentially a debtor to the insolvent
insurer therefore creating a real or potential conflict of interest.
The entity managing your insurer (e.g., PCF managing Xplico) must act solely in your interest and not to protect its own financial exposure. Any bias or conflict that delays or reduces your settlement is legally challengeable.
3. Your Cover Survives
Insurer Insolvency, if You Act The Court affirmed that policyholders retain enforceable rights under their insurance contracts even when the insurer is under statutory management. The moratorium suspends claims settlement however, it does not eliminate your cover. If your insurer is placed under Statutory Manage
ment or is insolvent, one can still get compensation through the Policyholders Compensation Fund
under Section 179 (1) of the Insurance Act (Cap 487) Your policy documents, premium receipts, claim
forms, and correspondence are critical evidence. Without them, even valid claims may be rejected.
5. Your Constitutional Rights Shield You from Personal Execution Policyholders cannot be indefinitely exposed to asset seizure or civil jail merely because their insurer failed to pay decretal sums in Judgments.
If you face personal liability due to an insurance company being placed under Statutory Manage-
ment or is insolvent therefore unable to pay decretal sums owed, seek urgent legal intervention to
stay execution proceedings.
How ESK Advocates LLP Can Help
Navigating insurance insolvency, statutory management, and claims against the Policyholders
Compensation Fund requires specialized legal expertise. The legal framework is complex, and
insurance companies often rely on technicalities to deny claims.
Don’t let insurance failure compromise your future. The law is on your side, but you need the right
advocates to enforce it. The Commissioner of Insurance v Kensilver Express Limited judgment
proves that with diligent legal representation, your rights can be protected. If you are facing challenges with an insurance claim, an insolvent insurer, or regulatory disputes, contact us today for a consultation.
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