In the matter of Blue Shield Insurance Company Limited (Under Statutory Management) [2017] KEHC 1558 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYAAT NAIROBI

CIVIL SUIT NO. 465 OF 2011(O.S)

IN THE MATTER OF BLUE SHIELD INSURANCE COMPANY LIMITED (UNDER STATUTORY MANAGEMENT)

AND

IN THE MATTER OF THE COMPANIES ACT (CAP 486 OF THE LAWS OF KENYA)

AND

IN THE MATTER OF THE INSURANCE ACT (CAP 487 OF THE LAWS OF KENYA)

BETWEEN

SIMON PERTET & 59 OTHERS ……………………………..INTERESTED PARTIES

RULING

This ruling seeks to determine two applications both brought by way of Notice of Motions one dated 9th February, 2015 and the other one dated 10th July, 2014. Both applications seek similar orders hence the necessity of determining them together.

Application dated 9th February, 2015

The Application is brought under Article 27 (1), 47 (1) and 50(1) of the Constitution seeking orders that :-

(a)The proposed interested parties be granted leave to be joined as interested parties in this suit and consequent thereto;

(i)The Firm of Hamilton Harrison and Mathews be granted leave to come on record for the proposed 1st to 20th Interested Parties

(ii) This application be served by registered post to the last known addresses of the interested parties who are not represented by advocates.

(iii) the Orders given by the Court on 28th October, 2011 barring all proceedings of whatever nature against the policy holders of Blue Shield Insurance Company Limited (under statutory management) during the currency of the moratorium declared by the Statutory Manager, be set aside and that the costs of the Application be provided for.

This Application is premised on the grounds set out on the face of the Application as well as in the Supporting Affidavit of GIBSON KAMAU, the deputy legal manager at Heritage Insurance Company Limited being that the order of 28th October, 2011 purports to bar the proposed 1st to 22nd Interested Parties from proceedings by third parties against the policy holders of Blue Shield Insurance Company Limited.  Neither section 67 C of the Insurance Act nor any other provision of the law gives court power to issue an order barring any proceedings by third parties against the policy holders of Blue Shield Insurance Company Limited. Heritage has under the doctrine of subrogation , filed various suits through the 1st to 22nd Interested Parties against the 23rd to 60th Interested Parties who are insured by Blue Shield Insurance Company ( under statutory management which claims total to over Kshs. 10,000,000/=). Details of the current positions of the cases are tabulated.  The deponent further avers that there is no contractual relationship between the 1st to 22nd Interested Parties and Blue Shield Insurance Company Ltd and therefore the orders should be set aside as the court did not have such a power to make the orders.

With regard to this application, the record shows that on the 10/5/2015 Justice Aburil granted prayer 1 of the application and that leaves me with only payer 2 to determine.

Application dated 10th July, 2014

This is an application by Ashbell Macharia Wachira the proposed 1st Interested Party brought under the provisions of section 1A, 1B , 3A of the Civil Procedure Act, Order 51 Rules 1 & 15 of the Civil Procedure Rules, section 67C (10) of the Insurance Act and Articles 23 (1) and (3), Article 27 (1), 47 (1) and 50 (1) of the Constitution. Stella B.K Kang’oing’oi was the proposed 2nd Interested Party. The Applicant sought orders that;

a)The Honourable Court be granted leave to enjoin the proposed interested parties herein in this suit

b)The firm of Archer and Wilcock Advocates be granted leave to come on record for the 1st Interested party.

c)THAT the Honourable Court be pleased to set aside the Order issued by Hon. Justice Mwera on the 28th October, 2011 the subsequent extension of the said order in this suit, barring all proceedings of whatever nature against the policy holders of Blue shield Insurance Company Limited during the currency of the moratorium declared by the statutory Manager.

d) In the alternative, the Applicant sought orders that;

i.the court sets aside aforementioned order with respect to the proceedings relating to the 1st interested party being CMCC No. 7901 of 2010; and

ii. A declaration that the Court Order issued by Honourable Justice Mwera and the subsequent extension are invalid and inconsistent with the Constitution of Kenya and the Insurance Act.

The 1st Interested Party was granted leave to be enjoined in the suit by virtue of a consent which was recorded by the Parties Counsels on 17th December, 2015 whereas an order was made for the non-joinder of the 2nd interested party in a ruling delivered on 17th October, 2016. Therefore, this ruling will address the 2nd and 3rd Prayers.

This application was supported by the affidavit of Zehrabu Janmohamed an Advocate having the conduct of this suit on behalf of the 1st Interested Party.  The grounds of the application are that the 1st Interested Party was the Plaintiff in CMCC No. 7901 of 2010 while the 2nd Interested Party is the Defendant in the said Suit and as a result of the order issued on 28th October, 2011, the 1st Interested Party had been barred from prosecuting the aforementioned suit. The 1st Interested Party was not a party to the proceedings herein and he was not afforded a chance to oppose the application on the moratorium.

The 2nd Interested Party filed Grounds of Opposition dated 16th December, 2014 and argued that the moratorium validly applied to the 3rd parties including the 1st Interested Party herein. He further contends that the Insurance Company stepped in the shoes of the proposed 2nd Interested Party and on that behalf the matter was left in the hands of the Insurance Company.

In response to the Applications, Blue Shield Insurance Company Limited filed Replying Affidavits dated 29th June, 2015 and 23rd February, 2015 both sworn by JOHN SIFA KEAH, the Head of secretariat, Policyholders Compensation Fund who depones that the order issued by Justice Mwera on 28th October, 2011 stayed all proceedings involving Blue Shield Insurance Company Limited, its property or its policyholders during the currency of the moratorium.  That the application is incompetent in so far as it seeks to reverse or set aside the order issued by the court on 28th October, 2011 by a court of parallel jurisdiction with this Honourable Court.  That there is a business custom that insurers take up legal claims against their policy holders and setting aside the said order would lead to exposure of the policy holders to legal claims which they may not be able to defend.  That if the applications are allowed this will result to multiplicity of suits that would negate the whole purpose of a moratorium.

The applications were canvassed by way of written submissions which I have considered together with the authorities filed therein.  The disputed order which stayed all proceedings involving blue shield Insurance Company Limited, its property or its policyholders during the currency of the moratorium was issued under subsection 10 of section 67C of the Insurance Act, Cap 487 which provides that,

“(10) For the purpose of discharging his responsibilities, a manager shall have power to declare a moratorium on the payment by the insurer of its policy holders and other creditors and the declaration of a moratorium shall –

(a)Be applied equally to all cases of policy holders and creditors, subject to such exceptions in respect of any class of insurance as the manager may , by notice in the gazette, specify;

(b)Suspend the running of time for the purposes of any law of limitation in respect of any claim by any policy holder or creditor of the insurer;

(c)Cease to apply upon the termination of the manager’s appointment whereupon the rights and obligations of the insurer, its policy holders and creditors shall, save to the extend provided in paragraph (b), be the same as if there had been no declaration under the provisions of this subsection.”

The wording of the section is to the effect that a statutory manager can only, by law, declare a moratorium on payment to its policyholders and creditors.  Therefore this ruling will seek to determine whether the 1st to 22nd Proposed Interested Parties fall within “policyholders and creditors” or whether the moratorium extends to them.  A moratorium declared under section 67 C (10) of the Insurance Act is meant to protect the insurer in this case against its policy holders and its creditors and not the policy holders against proceedings from third parties.

This issue was dealt in two other similar applications against the respondent herein by Justices Waweru and Justice Odunga. In declaring the moratorium issued herein ultra vires, Justice Waweru held that,

“it is common ground that the 1st interested party is not a policy holder of Blue Shield. And except to the extent that she may become a judgment-creditor under section 10(2) of the Insurance (Motor Vehicle Third Party Risks) Act, Cap 405 following a decree in a declaratory suit, she is not a creditor of Blue Shield.  Her suit is against a tortfeasor in negligence.  She has no direct connection, as policy holder or creditor to Blue Shield.  The moratorium declared by the Statutory Manager, is so far as it extends to the 1st interested party’s suit, was clearly ultra vires subsection (10) of section 67C of Cap 487. ”

Justice Odunga found the orders made on 28th October, 2011 in so far as it affected the 1st Interested Party to have been made without jurisdiction and the same to be unlawful. He further held that,

“A moratorium in my view is meant to protect the insurer against policy holders and creditors. it is not meant to protect policy holders and shield them from meeting their liabilities which they may be obliged to perform for third parties whether in contract, tort or under a statute…Accordingly, just like my learned Brother Justice Waweru, I find that the applicant herein is neither a policy holder nor a creditor of the insurer.”

In the matter of Concord Insurance Company (2014) eKLRand George Ngure Kariuki Vs. Charles Osoro Makone & Anor (2014) eKLRthe courts refused to grant orders extending moratorium to third parties.

The Respondent Insurance Company statutory manager filed submissions and argued that this court has no jurisdiction to set aside or in any way interfere with the decision by a court of parallel jurisdiction and relied on the case of Mburu Kinyua V. Gachini Tuti (1978) KLR 69 where it was held that,

“in our jurisprudence and with the greatest respect to Mulwa J. He himself had absolutely no jurisdiction to declare unlawful and unacceptable the orders made by a brother judge of equal and concurrent jurisdiction.”

The Respondent submitted that the policyholders had a legitimate expectation that in the event of occurrence of an accident relating to the risks their motor vehicles were covered for, it would be the responsibility of the insurer to settle any claims arising therefrom.  The Respondent therefore sought to rely on the doctrine of legitimate expectation.

I have considered the submissions by the opposing parties and it is clear that there is no dispute that the said moratorium was issued under section 67C subsection 10.  The section ONLY seeks to protect the insurers against claims from its policyholders and creditors thereby excluding claims against the policy holders from third parties.  In fact there is no privity of contracts between the insurer and the third parties for a moratorium to extend to the third parties.  If insurers were allowed to issue moratoriums to third parties then it is the third parties who would be prejudiced as they would not be in a position to enforce claims against negligent policyholders. The Interested Parties were not parties to the initial proceedings declaring the moratorium as a result of which they did not have the opportunity to oppose the application.

Borrowing wisdom from my learned members of the bench, I find that the orders issued by the court on 28th December, 2011 in so far as they extend to the 1st to 22nd Respondents were issued without jurisdiction. Section 3A of the Civil Procedure Act, gives this Court the inherent power to make such orders as may be necessary for the ends of justice or to prevent abuse of the process of the court.

The finding of this Court therefore is that the proposed Interested Parties in the two applications are neither policy holders nor creditors of the Insurance Company and as such the moratorium declared by the Statutory Manager, in so far as it extends them was ultra vires.

Consequently, I allow prayers 3 of the application dated 10/7/2014 and prayer 2 of the application dated 9/2/2015. Costs shall be in the cause.

It is so ordered

Dated, signed and delivered at Nairobi this 13thday of November, 2017.

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L. NJUGUNA

JUDGE

In the presence of

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