Duncan Mogaka Michira and Alfred O. Michira t/a Obuya Express v Minister For Finance, Commissioner of Insurance, Statutory Manager United Insurance Co. Ltd, Attorney General & Erick Kimutai Mugun [2017] KEHC 2721 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT KERICHO

MISCELLANEOUS APPLICATION NO.49 OF 2006

DUNCAN MOGAKA MICHIRA AND

ALFRED O. MICHIRA T/A OBUYA EXPRESS..........................APPLICANTS

VERSUS

MINISTER FOR FINANCE..................................................1ST  RESPONDENT

COMMISSIONER OF INSURANCE..................................2ND  RESPONDENT

STATUTORY MANAGER

UNITED INSURANCE CO. LTD.........................................3RD  RESPONDENT

THE ATTORNEY GENERAL.............................................4TH  RESPONDENT

AND

ERICK KIMUTAI MUGUN................................................INTERESTED PARTY

JUDGMENT

1. This judgment relates to the application brought by way of originating summons dated 7th July 2006 and filed in Court on 11th July 2006.  There is a lack of clarity in the file with regard to the identity of the applicants. While the originating summons has the applicant as Liner Coach Co. Ltd., all the rest of the documents have the applicants as  Duncan Mogaka Michira and Alfred O. Michira t/a Obuya Express or Duncan Mogaka Michira and Alfred O. Michira t/a Linear Coach Co. Ltd

2. This matter has not been prosecuted for the last 11 years.  When it was placed before this court on 5th April 2017 after a hiatus of some four years, Counsel for the applicants, in the absence of counsel for the respondents and interested parties elected to proceed by way of affidavit evidence and written submissions, and the matter was fixed for mention on 10th July 2017. There was no appearance for the respondents in the matter on the mention date, and the matter was fixed for judgment on the basis of the pleadings and submissions on record. The mix-up in the identity of the parties only came to light in the course of preparing this judgment.

3. It would appear from the documents that the applicants are Duncan Mogaka Michira and Alfred O. Michira who were carrying on business as Obuya Express, or may have incorporated a limited liability company known as Linear Coach Co. Ltd.  At any rate, the applicants seek various orders directed at the respondents resulting from a judgment entered against the applicants in Kericho HCCC No.76 of 2001.

4. According to the applicants, they had taken up compulsory motor insurance No. 10 NMCP as required under section 4 (1) of the Insurance (Motor Vehicle Third Party Risks) Act, Cap 405of the Laws of Kenya, with United Insurance Company Limited in respect of their motor vehicle registration number  KAE 078J. The said motor vehicle was involved in a road traffic accident which resulted in the injury of Erick Kimutai Mugun, the interested party.

5. Following the said accident, the interested party filed Kericho HCCC No.76 of 2001. He obtained judgment in his favour, which he sought to execute against the applicants. At around the time the interested party sought to execute the said judgment, the applicant’s insurer, United Insurance Company Ltd., had been placed under a statutory manager as it was unable to pay its debts as and when they fell due. The applicants then filed the present application seeking to avoid execution of the decree against them. They argue  that by taking out the compulsory third party insurance under section 4(1) of the Insurance (Motor Vehicle Third Party Risks) Act, they had acted on the belief that the insurer would indemnify them in the event of a loss occurring.

6. The applicants therefore seeks some 13 orders set out in the application. The essence of the orders and declarations sought is that it would be unjust, oppressive unfair and unconscionable and a violation of the rights of the applicants set out in section 70, 75and77 of the former constitution of Kenya were execution to be levied against them while they had complied with the requirement to take out third party insurance in accordance with the Insurance (Motor Vehicle Third Party Risks) Act.

7. Further, that the requirement for compulsory insurance imposes a mandatory duty on the Attorney General, the Ministry of Finance and the Commissioner of Insurance to ensure the perennial financial soundness of all insurance companies that offer compulsory insurance. Should they fall to do so, the applicants sought a declaration that the respondents should provide indemnity mechanisms or funds to meet third party claims on behalf of holders of valid compulsory insurance in the event of insolvency of such companies.

8. Finally, the applicants sought an order that the Attorney General, the Ministry of Finance and United Insurance Company Limited satisfy the decree in suits arising from the accident which occurred on 19th  December 1998 involving motor vehicle registration number KAE 078J under policy number 10 NMCP and in particular HCCC No. 76 of 2001. They also sought an order that the Attorney General meets the costs of the application.

The Applicant’s case

9. The applicants’ case is contained in the application dated 7th July 2006 and filed in Court on 11th July 2006. The application is supported by the affidavit sworn by Duncan Mogaka Michira on 7th July 2006.

10. According to the applicants, they had taken out the compulsory motor insurance required under section 4(1) of the Insurance (Motor Vehicle Third Party Risks) Act for their motor vehicle registration number KAE 078 J with United Insurance Company Limited.  The policy number was 10 NMCP. The said vehicle was involved in a road traffic accident resulting in the injury of the interested party.  The interested party filed a suit for damages, and sought to execute the judgment against the applicants.

11. The applicants contend that having taken up compulsory insurance as required by law, they are exonerated from any claims from third parties and any decrees obtained against them should be satisfied by the insurer. They further contend that policyholders are indemnified and secured against personal liability for third party risks insured.

12. It is also their contention that the execution of the decree by the interested party against them would result in breach of their fundamental rights guaranteed in the former constitution of Kenya. The sections of the constitution that would be violated, according to the applicants, would be section 70 which provides for the fundamental rights and freedoms of the individual, section 75 which provides for protection from deprivation of property and section 77 which contains provisions to secure protection of the law.

13. The applicants filed written submissions dated 6th July 2017 in which they reiterated the orders that they seek against the respondents. They submitted that the issue for determination is whether, having taken up insurance cover against third party risks, they are entitled to indemnity against execution to which they were exposed. They relied on the decision of Lady Justice Ang’awa J (as she then was) in Kensilver Express Ltd & 3 others vs Commissioner of Insurance & 4 Others [2007] eKLR.They invited this court to be guided by the said decision and to make similar orders in the present case.

The Responses

14. While the respondents and interested party did not appear when this matter was placed before the court or file submissions in respect thereof, despite service, the 3rd and 4th respondent and the interested party had filed affidavits in reply to the application which I shall consider in rendering this decision.

15. The 3rd respondent, the Statutory Manager of United Insurance Company Limited, filed Grounds of Opposition dated 15th August 2006 and an affidavit sworn by Samuel C. Mweni on 14th August 2006. The Statutory Manager argues that the application is predicated on a wrong premise on the nature of an insurance policy, and that the applicants bear the  primary responsibility and liability arising from negligent driving of their motor vehicles. It is his argument, further, that the existence of an insurance policy does not absolve the insured from liability to third parties. It was his contention, finally, that there is no provision for issuance of declarations in interlocutory proceedings.

16. The Attorney General also filed grounds of opposition dated 22nd   September 2008 on behalf of the 1st ,2nd ,3rd  and 4th respondents. The Attorney General argued that the matters raised in this application are res judicata in view of the judgment of the High Court in Nairobi HCCC Misc. Application No. 1345 of 2005 (O.S) which was between the same parties by virtue of it being a representative suit on behalf of all policyholders of United Insurance Co. Ltd. In his view, all the issues raised in this application should have been raised in the said case. He also echoed the argument by the Statutory Manager of United Insurance that the declarations sought cannot be granted at an interlocutory stage, while noting that no reasons had been proffered to justify his office bearing the costs of the application as prayed by the applicants.

17. The interested party, Erick Kimutai Mugun, filed an affidavit which he swore on 12th September 2006. He avers that the respondents are strangers to him, not having been parties to Kericho HCCC No. 76 of 2001. It is his averment further that the application is intended to deny him the the opportunity to enjoy the judgment made in his favour. He further avers that the applicants had issued a cheque in his favour, which had been dishonoured, but they had made payment in respect thereof to avoid arrest for issuing a bad cheque. It is his case that the case between him and the applicants is totally different from the case between the applicants and the respondents, and the application should be diskissed with costs.

Analysis and Determination

18. I have considered the application before me and the responses thereto. I have also considered the submissions by the applicants. In the submissions, the applicants identify one issue for determination: whether, having taken out insurance cover against third party risks, they are entitled to indemnity from the respondents in respect of the execution that they face.  Related to this issue, and i believe, the starting point in determining this matter, is the question whether the existence of a third party compulsory insurance exonerates the policyholder from claims and or liabilities arising from judgments in favour of third parties.

19. Finally, I will consider whether the applicants, having sought a declaration that there has been a violation of their rights under sections 70, 75 and 77 of the  former constitution in the execution against them of the decree in favour of the interested party, have established violation of the said rights.

20. I must observe that the applicants have not placed any submissions on record on the basis of which the court could make a decision on the issues identified above.  They have contended themselves with citing the decision of Ang’awa J in Kensilver Express Ltd & 3 others vs Commissioner of Insurance & 4 others and asking the court to be guided by it.

21. I have read the decision in the Kensilver case. I note that it is a decision of the High Court, made by a judge of concurrent jurisdiction. It is therefore of persuasive value.  At a minimum, I would have expected the applicants’ counsel to make an attempt to persuade this court that it should follow that particular decision, and present cogent reasons for this. I will nonetheless consider the decision as I make an analysis of the issues that the application raises.

Whether the existence of third party compulsory insurance exonerates the policyholder from liability to third parties

22. The applicants argue that having complied with the law and taken out compulsory insurance against third party risks, they should have been indemnified against personal liability for third party risks so insured.

23. It is correct that a party who takes out an insurance policy should expect that, in the event that the risk insured against occurs, the insurance company will make payment in respect thereof, and that the insured will not have to be personally liable. In the present case, the applicants state that they had been insured by United Insurance Company Limited.

24. With respect to claims by third parties arising from the use of motor vehicles, section 10(1) of the Insurance Motor Vehicle Third Party Risks) Act imposes a duty on the insurer to satisfy judgments against persons insured. Titled ‘Duty of insurer to satisfy judgments against persons insured’, the section provides that:

(1)   If, after a policy of insurance has been effected, judgment in respect of any such liability as is required to be covered by a policy under paragraph (b) of section 5 (being a liability covered by the terms of the policy) is obtained against any person insured by the policy, then notwithstanding that the insurer may be entitled to avoid or cancel, or may have avoided or cancelled, the policy, the insurer shall, subject to the provisions of this section, pay to the persons entitled to the benefit of the judgment any sum payable thereunder in respect of the liability, including any amount payable in respect of costs and any sum payable in respect of interest on that sum by virtue of any enactment relating to interest on judgments.

25. In his decision in Joseph Mwangi Gitundu vs Gateway Insurance Co. Ltd [2015] eKLR,Gikonyo J  considered the duty of indemnity   placed on the insurer under section 10  and observed as follows:

“Therefore, under section 10(1) of Cap 405 Laws of Kenya, the insurer has a statutory obligation to pay to the persons entitled to the benefit of the judgment any sum payable thereunder in respect of the liability, including any amount payable in respect of costs and any sum payable in respect of interest on that sum by virtue of any enactment relating to interest on judgments. The obligation is statutory and a strict one; it cannot be shifted or abrogated by a term in the contract of insurance or in the manner proposed by the Defendant, lest the noble intention of the Act to guarantee compensation of third parties who suffer injuries arising from by use of the insured motor vehicle on the road should be lost. Similarly, if the statutory obligation placed by law on the insurer was to be shifted to the insured as proposed by the Defendant, the purpose for taking out an insurance policy and the compulsion by the Act for such insurance cover to be taken out on vehicles to be used on the roads to cover third party risks under Cap 405 Laws of Kenya will also be defeated.”

27.  The court went on to consider the only circumstances under which an insurer could avoid liability and stated:

“The only legal way liability and obligation to pay third party claims may be avoided, is by strictly following the prescriptions provided for under section 10 of Cap 405. In this case, the insurer’s liability and obligation to pay the judgment entered against the insured is not in dispute. Whereas, a contract of insurance is one of indemnity, in so far as claims by third parties are concerned, the insurance has a statutory obligation to pay the judgment of the third parties unless the liability thereof has been avoided in accordance with the law and specifically section 10 of Cap 405. ”

28. In the circumstances, the applicants cannot be faulted for having had the reasonable expectation that they would be covered in the event that judgment was entered against them, and that they would not have to personally meet the judgment entered against them following an accident involving the insured motor vehicle.

29.  The question, however, is what happens if, as happened in the present case, the insurer became insolvent during the pendency of a valid contract of insurance under section 10 of the Act.

30.  A scenario similar to the one currently before me was  considered in the case of Kenney Jaden Kwaji vs Minister for Finance & 3 others [2005] eKLR. In his decision in that matter, the court  (Emukule J) held as follows with respect to the liability of the insured where the insurance company had collapsed:

“The contract of insurance is between him (the insured) and the Insurer (the Insurance Company). If the insurance company has collapsed he must carry that risk in a free enterprise system such as ours, the insurer was a company of his choice. If he had insured with a better managed Insurance Company, the risk he took could have been absorbed. He probably insured in good faith, believing that since the insurer was licensed by the state, it was a good bet to insure with. He lost. His only right is to prove the loss or debt (represented by the decree against him) with the statutory manager, receiver or liquidator.”

31.  The reasoning of the court in this case, which I agree with, is that where the insurance company has become insolvent as is the case here, then the insured must bear the consequences of the choice of insurance company that he made. Where the insurance company becomes insolvent, the insured has the primary responsibility of meeting any claims made against him or her. In the words of the Court in the Kenney Jaden Kwaji case:

“It is a balancing act. The primary liability in my view is that of the insured. There is a valid decree of court against him or it, and so long as that decree subsists he is liable to satisfy it.”  (Emphasis added)

32.  This, in my view, is for good reason.  The balancing act involves weighing the competing claim of the insured, who made the unfortunate choice of an insurance company that was, for whatever reason, rendered insolvent, and a third party who is not party to the contract of insurance but has a judgment against the insured. The scales, surely, must tilt in favour of the third party.  Which leads me to the second main issue raised in this application.

Whether execution of the interested party’s decree is a violation of the applicants’ constitutional rights under sections 70, 72, 75 and 77 of the former Constitution of Kenya and should therefore be stayed.

33.  The applicants have contended that their rights guaranteed under sections 70, 72, 75 and 77 of the former constitution have or are at risk of violation should the interested party execute the decree against them personally.  They contend that thier rights to life, liberty and security of the person that were guaranteed under section 70 is at risk of being infringed if they are committed to civil jail. Further, it is their contention that their right to property guaranteed under section 75 of the constitution is at risk of infringement should their property be attached in satisfaction of the decree, as is their right to protection of the law guaranteed under section 77 should the execution of the interested party’s decree not be stayed.

34.  As noted earlier, save to refer the court to Ang’awa J’s decision in the Kensilver case, the applicants have not troubled to demonstrate how these constitutional rights would be violated. The decision in Anarita Karimi Njeru vs Republic [1979] 1 KLR, which was the guiding law at the time this application was filed, required that the applicants demonstrate, with a reasonable degree of precision, what rights were threatened with violation, and the manner of violation.

35.  However, the issue of alleged violation of constitutional rights through the execution of a decree of the court was considered in the case of James Ng’ang’a Njenga vs Comissioner of Insurance and 3 others [2011] eKLR. I can do no better than quote the words of the court in that decision:

‘As a starting point in this aspect, it is important to note that the root of this petition is a lawfully obtained court decree by the 3rd party against the petitioner. In pursuing settlement or execution of the said decree, the 3rd party was actually exercising her right.  She was not seeking to unlawfully dispossess the petitioner of his property. Just like the petitioner, she too has fundamental and inherent rights under the Constitution which need to be protected and respected including her right to the protection of the law under S.70 (c) of the now repealed Constitution. Indeed the proviso to that article (sic) provides categorically that the said rights are

“subject to such limitations designed to ensure that the enjoyment of those rights and freedoms by any individual does not prejudice the rights and freedoms of others or the public interest.”

By trying to invoke the provisions of Section 70 of the constitution in this matter to avoid settlement of a court decree, the petitioner is actually seeking to trample on the same rights belonging to the 3rd party.’

36.  The applicants have alleged violation or threat of violation of section 75 and 77 of the former constitution. With regard to section 75, the constitution contained an express proviso that “nothing contained in or done under the authority of any law shall be held to be inconsistent with or in contravention of subsection (1) or (2)and further, that execution of judgments or orders of a court in proceedings for the determination of civil rights or obligations shall also not be deemed to be a contravention of section 75. I need not add that so long as the judgment of the court was obtained in accordance with the law, and there is no suggestion in this case that the judgment was obtained unprocedurally, then there can be no basis for alleging violation of section 77. In any event, if the judgment in favour of the interested party was obtained unprocedurally, the remedy would have been to apply for it to be set aside, or appeal against it.

37.  The  applicants seek to stay the execution of the orders issued in favour of the interested party in Kericho HCCC No. 76 of 2001.   This raises an issue similar to what was addressed by the court (Kasango J)  in Kensilver Express Ltd vs John Mwita Kabira [2010] eKLR.The applicant in that case filed an appeal against a magistrate’s decision denying it stay of execution pending the hearing of the Court of Appeal Civil Appeal No. Nai. 4 of 2008 - Commissioner for Insurance and 2 Others vs Kensilver Express Limited. In declining to grant the orders sought, the court considered the provisions of Order XLI Rule 1 (1) and stated as follows:

“What is abundantly clear from the provisions quoted above is that stay is sought when the decree or order is the subject of an appeal. In other words, stay is sought in the very file where appeal is filed. That is not so here. The appellant has not appealed against the judgment in PMCC Maua No. 117 of 2006. The appellant had a case with the Commissioner of Insurance which is presently the subject of an appeal before the Court of Appeal. That appeal in the Court of Appeal does not involve the respondent nor does it relate to PMCC Maua No. 117 of 2006. The application of the appellant for stay dated 29th April 2010 is misconceived for that reason.” (Emphasis added)

38.  The applicants in this case are primarily seeking relief against the respondents. They cannot properly seek stay of execution against the interested party in the present proceedings. In any event, having found that they are primarily liable to the interested party and that none of their constitutional rights under the former constitution have been violated in the execution against them, I am unable to find any merit in their application.

39.  In closing, as I observed at the beginning of this analysis, the applicants made no effort to place before the court any material on the basis of which the court could find that the respondents should be held liable for the collapse of the United Insurance Company Limited and compelled to indemnify them for any claims they may have to meet in consequence of the collapse of the insurance. While the court is not without sympathy for the difficult position that failure of regulation of the insurance and other industries places persons in the position of the applicants, it must of necessity balance the competing interests, and in circumstances such as this, the interests of the party injured as a result of the negligence of the applicants, and who has a valid judgment against them, must prevail.

40.  Accordingly, the application date 7th July 2006 is hereby dismissed with costs to the interested party.

Dated, Delivered and Signed at Kericho this 4th day of October 2017.

MUMBI NGUGI

JUDGE

Mr. Soire instructed by the firm of Bosire Gichana & Co. Advocates for the applicants.

No appearance for the respondents and the interested party.