Matatu Welfare Association & Tel-Aviv Travellers Ltd and 100 others v Invesco Assurance Co. Ltd, Directline Assurance Company Ltd, Insurance Regulatory Authority (IRA) & Association of Kenya Insurers (AKI) [2019] KEHC 11281 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NAIROBI

CONSTITUTIONAL AND HUMAN RIGHTS DIVISION

PETITION NO.  518 OF 2016

MATATU WELFARE ASSOCIATION.....................................1ST PETITIONER

TEL-AVIV TRAVELLERS LTD AND 100 OTHERS.............2ND PETITIONER

VERSUS

INVESCO ASSURANCE CO. LTD.........................................1ST RESPONDENT

DIRECTLINE ASSURANCE COMPANY LTD....................2ND RESPONDENT

INSURANCE REGULATORY AUTHORITY (IRA)...........3RD RESPONDENT

ASSOCIATION OF KENYA INSURERS (AKI)..................4TH RESPONDENT

JUDGMENT

1. The 1st petitioner herein describes itself as a registered Welfare Association representing an amalgam of several societies while the parties presented as the 2nd petitioner are an amalgam of several public service vehicle societies and/or SACCOS.

2. The 1st and 2nd respondents are registered limited liability companies incorporated under the Companies Act Cap 486 of the Laws of Kenya.

3.  The 3rd respondent is a statutory regulatory authority mandated to regulate and set standards in the insurance sector while the 4th respondent is an association representing all Insurance Companies.

The petitioners’ case

4. Through the petition filed on 8th December 2016, the petitioners herein sued the respondents seeking orders for:

a) A permanent injunction against the respondents, their agents, servants or whosoever restraining them from implementing and/or enforcing the new increased insurance premiums to the PSVs until the petition herein is heard and determined.

b) A declaration that the rights of the petitioners have been breached, violated, infringed and/or threatened.

c) A declaration that the petitioners and other stakeholders, passengers and other consumers of public transport services are entitled to legitimate expectation.

d) A declaration that the new insurance premiums imposed on PSVs by the respondents are illegal, null and invalid.

e) An order for judicial review to remove to the high court the decision of the 1st and 2nd respondents effected  on  1st December  2016  to increase PSV premiums be and is hereby and quashed.

f) An order for compensation for damages and loss occasioned to the petitioners.

g) An order directing the respondents, their servants, agents or whosoever to comply with the values and principles of Article 73 of the Constitution.

h) A Judicial Review Order do issue compelling the first respondent, their servants, agents or whosoever to comply with the Constitution and the law.

i) Any other order, declaration, writ or remedy or redress the honourable court may deem fit and convenient taking all the circumstances of this case into account.

j) Costs of the suit to be provided for.

5. The petitioners’ claim, which was supported by the affidavit of Dickson Mbugua Keru, is that the respondents have without any lawful excuse arbitrarily and unreasonably increased the rates of insurance for public transport motor vehicles and that the increase of rates was not open, transparent and accountable. It is averred that since 2014, the respondents gave the excuse of increasing rates and that even though the percentage of accidents arising from public service vehicles (PSVS) declined dramatically during the period 2012-2016, no corresponding reduction of the insurance rates, fees and licenses was effected.

6. It is the petitioners’ case that the actions of the respondents have threatened, violated and denied the petitioners their fundamental rights and freedoms. They claim that they have been devastated by the increase in the premium rates because their source of livelihood and well-being has been undermined as most of their vehicles have been impounded for lack of insurance covers.  They further contend that their rights to fair administrative action under Article 47 of the Constitution has been violated.  The petitioners highlighted the rights that have been violated as follows:

i. The respondents did not give intention of notice to the insurance charges.

ii. After adjusting the rates they never advertised it in the wide circulating newspapers and television to make the members aware.

iii. They did not involve the members through public participation.

iv. The respondents never consulted the stakeholders within the meaning of the preamble, Article 10 of the Constitution.

v. The respondents ignored the fact that insurance cover is mandatory under Chapter 405 of the Laws of Kenya.

vi. The petitioners came to know about the increased rates on 28th November 2016 and that the new charges were becoming operational on 1st December 2016.

vii. That Article 46 of the Constitution was violated as the decision was arbitrary and in violation of the law.

viii. The whole process of increasing the charges appears anonymous, lacks transparency and is not accountable.

ix. It is instructive to note that the regulatory agencies.

a. Insurance Regulatory Authority(IRA)

b. Association of Kenya Insurance (AKI)have been consciously silent about the increment.

x. The respondents failed to appreciate that the Directors of Invesco are also major players and officials of the Matatu Owners Association.  There is an apparent conflict of interest and there are no checks and balances to ensure the process is open, transparent and accountable.

xi. The increment adversely affects the Matatu Operators as follows:

a) The general trend of matatu business is on the downward trend.

b) Many matatu vehicles have been repossessed by the banks and creditors for failure to service the loans.

c) The cost of maintainance and spare parts has gone up.

d) Taxes on the transport sector have been enhanced by KRA for instance road maintainance and fuel levy have been increased.

e) Statistics and data available shows that the accidents in the public transport sector reduced considerably between 2012- 2016 but there is no corresponding decrease of the insurance premiums.

xii. That the government has not built sufficient infrastructure to support the public transport sector.

xiii. That ultimately the increased charges are likely to be transferred to the consumers.

xiv. That it is a reality that the consumers (public) interest are facing difficult moments.

xv. The court should  take notice of the following:

a) Invesco Assurance Company in September 2014 argued that they would not pay claims because the premiums were low.

b) However, since September  2014, when they advertised a premium for claims of more than  1452  claims which had not been paid five years  down the line in 2016  the claims are still outstanding.

c) The respondents under pay cost claims yet they collect billions of shillings from the public transport sector.

d) There is need for the court to intervene to bring about fairness, equality and justice to the transport sector.

e) In 2014 the court gave a blanket order staying all claims.

7. It is the petitioners’ case that their right to legitimate expectation has been violated because the increase in charges was effected arbitrarily without taking into account the fact that the directors of the 1st respondents are also major operators of the PSV sector thereby creating a real conflict of interest to the prejudice of the petitioners.

1st respondent’s response

8. The 1st respondent opposed the petition through Grounds of Opposition filed on 13th December 2016 wherein it set out the following grounds:

a) That the issues raised in the application and petition are contractual issues which  are private  in nature and  should not therefore  be before  the  Constitutional Court as they do not raise constitutional issues.

b) That this petition and the application have been overtaken by events since the new premium rates being complained of are already in place and being implemented.

c) That the petitioners have not demonstrated to this Honourable Court that they will suffer any prejudice if the orders sought herein are not granted.

d) That the 1st respondent is not a public institution and therefore is not bound by Article 47 of the Constitution.

e) That the application as presented is bad in law, frivolous, vexatious and raises no reasonable cause of action and therefore an abuse of the due process of court and should be dismissed in limine with costs.

9.   The respondent also filed a notice of preliminary objection to the petition in which it listed the following grounds:-

1. That the petition herein is bad in law, misconceived and frivolous having been instituted by persons without locus stand and there being no valid verifying affidavit in support of the petition.

2. That the suit herein and the entire proceedings are unsustainable by reason of non compliance with the mandatory provisions of the constitution.

3. That the suit herein and the entire proceedings are an abuse of the Honourable Court’s process.

4. That the hearing date is prematurely taken before complying with the provisions of the Requisites Act of Parliament.

1st respondent’s response

10.   Through its answer to the  petition filed in 18th January  2017, the  1st respondent disputes the petitioners’ claim and stated that the increased premium rates are based on the law and that in effecting the increment in premium rates, the 1st respondent followed all the legally established procedures.

11. The 1st respondent maintains that the 3rd respondent, as the regulator of the insurance industry, takes care of the consumers’ interests and that the premium rates increment, having been approved by the 3rd respondent, did not require direct public participation or consultation with the stakeholders as the law created and recognizes the 3rd respondent as the overall insurance industry regulatory authority that protects the interest of insurance policy holders and beneficiaries, the petitioners included.

12.   The 1st respondent states that Insurance Act provides for the  process of reviewing insurance rates and further that the 1st respondent is not a public  body but a regulated private company whose relationship with its customers is defined by the contracts entered into with the said  customers, the  Insurance Act and the policies set by the regulator.

13. It is the 1st respondent’s case that it acted reasonably, and in good faith in reviewing the premiums and further, that it promptly communicated the changes to its customers.  It further contends that the Insurance Act creates the Insurance Appeals Tribunal to hear and determine any complaints over the decision made by the commissioner and that for this reason, the petitioners ought to have lodged their complaint before  the said Tribunal before coming to this court.

2nd respondent’s response.

14.   The 2nd respondent opposed the petition through the replying affidavit  of its principal officer Terry Wijenje sworn  on 13th January  2017 who avers that the insurance of public transport vehicles has become challenging for most insurance companies on account of large  number of motor vehicle accidents that has increased the risks involved in the business.  She further states that out of the 55 insurance companies licensed by the 3rd respondent only 10 insurance companies provide insurance to motor commercial PSVs in the country.

15.   She states that the 2nd respondent has a contractual duty to ensure that all third parties who obtain judgments in their favour against its PSV insured are paid and that for this reason, the 2nd respondent must enure that the premiums it collects are adequate to meet the claims it receives.

16.   She further avers that the third party insurance industry has experienced  a declining  trend especially with respect to the insurance cover for PSVs and that various insurance companies have faced enormous challenges in underwriting losses thereby threatening the  stability of the insurance industry.  The above scenario has made the business of underwriting PSV risks unsustainable for the 2nd respondent  since the numbers of claims received outweigh the premiums paid thereby resulting into heavy  underwriting losses and that the attempts to mitigate the costs arising out of the claims have only escalated the  costs.

17.   She avers that as a result of the losses experienced in commercial PSV underwriting, the 2nd respondent commissioned Alexander Forbes Financial Services to carry out an actuarial review of PSV premiums and recommend suitable price increase and that in a copy of a report that she attached as an exhibit to the replying affidavit, Alexander Forbes concluded that the fixed PSV premium rates established in 2010 had been overtaken by events due to the steep rise in the insurance claims lodged that had the effect of making the insurance business increasingly unprofitable.

18.   She further states that Alexander Forbes therefore recommended that premium rates for PSV class of business be increased by between 33%- 38% and that by a letter dated 13th June 2016 (also attached to the replying affidavit as an exhibit) the 2nd respondent notified and requested the 3rd respondent to consider the said actuarial report prepared by Alexander Forbes and approve the 2nd respondent’s proposal to revise PSV premiums by between 33% - 38%.

19.   It is the 2nd respondent’s case that through a letter dated 31st October 2016 (also attached as an exhibit) the Commissioner of Insurance informed the 2nd respondent that the 3rd respondent had considered its proposal and would only authorize an increment of not more than 15% and that following the said communication and approval, the 2nd respondent effected the revised insurance premium rates on 1st December  2016.  The 2nd respondent adds that a total number of over 20,000 motor vehicle (PSVs) purchased insurance covers for 3rd party risks in the said month of December 2016 following the coming into force of the new premium rates.

20. She maintains that this court lacks jurisdiction to hear and determine the petition in so far as the petitioners seek to enforce private contractual rights between the 2nd respondent and its insured who are not parties to this suit.

Petitioners’ submissions

21.  At the hearing of the petition Mr. Musoga, learned counsel for the petitioner highlighted the various rights that had allegedly been violated and/or threatened with infringement following the increment of the insurance premium rates by the respondents.  He outlined the  said rights as follows:

i. The rights of legitimate expectation as envisaged by the preamble and Article 10 of the Constitution.

ii. The right to protection and full benefit of the law under Articles 20 and 27(1) (2) of the Constitution has been violated.

iii. The rights under Article 21(1) (2) (3) of the Constitution are not just paper aspirations.  They reflect the hopes and dreams and aspirations of Kenyans.

iv. The right to an integral part of human rights under Article 19(1) and 22(1) (2) (3) (4) of the Constitution.

v. The right to constitutional remedies under Article 23 of the Constitution has been threatened.

vi. The right to legitimate expectation under Article 10 and 24 (1) (2) (3) of the Constitution has been threatened.

vii. The right to fair trial and prevention from inhuman and degrading treatment under Article 25(a) (c) of the Constitution have been threatened.

viii. The right to life and livelihood under Article 26(1) (2) (3) of the Constitution have been violated.

ix. The right to equality and full benefit of the law under Article 27(1) (2) (3) (4) (5) of the Constitution has been violated.

x. The right to integrity and dignity under Article 28 and 29 of the Constitution have been violated.

xi. The right to information under Article 35(1) (2) (3) of the Constitution has been infringed.

xii. The right to consumer rights under Article 46 of the Constitution have been violated and/or infringed.

Analysis and determination

22. I have considered the pleadings filed herein the law and the parties’ respective submissions together with the authorities.  The main issues that fall for determination are as follows:

a) Whether this court has the jurisdiction to hear and determine this petition.

b) Whether the petition meets the threshold of a constitutional petition, in other words, whether the petitioners established that by increasing the insurance premiums rates, the respondents violated the petitioners’ constitutional rights.

23. On jurisdiction, the respondents objected to this court’s jurisdiction and cited the doctrine of constitutional avoidance under which the respondents argued that the petition does not fall within the purview of a constitutional petition as it seeks this courts interference with private commercial transactions which is a matter relating to insurance contracts that ought to be determined by the commercial division of this court. On the doctrine of constitutional avoidance, the respondents argued that this court lacks jurisdiction to entertain the petition as it seeks to enforce private contractual rights between the 1st and 2nd respondents and their customers who were not parties to the suit.

24. On the doctrine of constitutional avoidance and whether this suit constitutes a constitutional issue, I note that  when faced with a similar question, Nyamu, J. (as he then was) in Muiruri vs. Credit Bank Ltd & AnotherNairobi HCMCS No. 1382 of 2003 [2006] 1 KLR 385was of the view that:

“A constitutional issue ... is that which directly arises from court’s interpretation of the Constitution.”

25. Similarly, in the case of Maggie Mwauki Mtalaki vs. Housing Finance Company of Kenya[2015] eKLRthe court held:

“52. The test whether a Petition raises a constitutional issue, and adopted by Tuiyott J in FOUR FARMS LIMTIED vs. AGRICULTURAL FINANCE CORPORATION [2014] e KLRfollowing the decision in DAMIAN BELFONTE vs THE ATTORNEY GENERAL of TRINIDAD AND TOBAGO where it was stated inter….

… where there is a parallel remedy, Constitutional relief should not be sought unless the circumstances of which the complaint is made include some feature which makes it appropriate to take that course. As a general rule there must be some feature, which, at least arguably indicates that the means of least redress otherwise available would not be adequate. To seek constitutional relief in the absence of such feature would be a misuse, an abuse of the Court’s process.”

26. The above principle was also adopted inJohn Harun Mwau Vs. Peter Gastrow & 3 Others [2014] eKLRwhere the court stated –

“Courts will not normally consider a constitutional question unless the existence of a remedy depends on it; if a remedy is available to an applicant under some other legislative provision or some other basis, whether legal or factual, a court will usually decline to determine whether there has been in addition to a breach of the other declaration of rights.

… It is an established practice that where a matter can be disposed of without recourse to the Constitution, the Constitution should not be invoked at all.  The court will pronounce on the constitutionality of a statute only when it is necessary for the decision of the case to do so.”

27. Courts have held the view that the Constitution is not to be invoked unless the constitutionality is itself in question. This was the position taken in the case ofLeonard Jefwa Kalama And Another Vs. Consolidated Bank Of Kenya Ltd. And 3 Others [2014] eKLR, the court said-

“unless it can be shown that the law itself is against the Constitution, the sale of charged property in accordance with due process of that law cannot be held to be unconstitutional deprivation of property within Article 40 of the constitution, this is because the constitution has as one of its principles of governance and national values under Article 10, the doctrine of the rule of law.”

28.  In the instant case, I find that the issue of whether the Petitioners’ rights were violated by the action taken by respondents to increase the insurance premium rates will only become determinable upon establishing whether the respondents had indeed acted ultra vires. The constitutional issue therefore, if any, only arises as a conditional issue and may not in fact arise if the court finds that the respondents followed the due process in effecting the increase in the premiums for PSVs.

29. In the case of ICJ (K) v. A.G. & 2 OthersS.C. Cri. Appeal No. 1 of 2012 the Supreme Court opined that the issue of enforcement of Bill of Rights should not be a collateral question when presented before the court. The Court did also adopt the Principle of Constitutional Avoidance in the case of Communications Commission of Kenya & 5 others v Royal Media Services Limited & 5 others[2014] eKLR in the following terms:

“[256]...The principle of avoidance entails that a Court will not determine a constitutional issue, when a matter may properly be decided on another basis. In South Africa, in S v. Mhlungu, 1995 (3) SA 867 (CC) the Constitutional Court, Kentridge AJ, articulated the principle of avoidance in his minority Judgment as follows [at paragraph 59]:

“I would lay it down as a general principle that where it is possible to decide any case, civil or criminal, without reaching a constitutional issue, that is, the course which should be followed.”

[257] Similarly the U.S. Supreme Court has held that it would not decide a constitutional question which was properly before it, if there was also some other basis upon which the case could have been disposed of (Ashwander v. Tennessee Valley Authority, 297 U.S. 288, 347 (1936)).”

30. In the present case I note that the 1st and 2nd respondents are private business enterprises/companies whose operations are regulated by the 3rd respondent which is the statutory body charged with the function of regulating the insurance sector. It was not disputed that the 1st and 2nd respondents decision to increase the premiums payable by PSV owners was ratified and authorized by the 3rd respondent, the insurance regulator, in accordance with the laws governing the insurance of PSVs and after a market survey/actuarial review was conducted by Alexander Forbes Financial Services. In the circumstances of this case, I am unable to find that the respondents acted in any unlawful manner so as to justify the petitioners’ claim that their rights were violated by the increment in premiums.

31.  My take is that the mere fact that the petitioners were not pleased with the increment in premiums does not necessarily mean that the said increment was unlawful or unconstitutional.  Needless to say, insurance companies operate in a free market economy where the cost of goods and services are dictated by the market forces.

32.    For the above reasons, I am not satisfied that the instant case falls within the purview of the constitutional court and I therefore find that it fails the test of forum.  I also find that determination on the issue of the doctrine of constitutional avoidance settles the second issue for

determination regarding the  threshold  required in a constitutional petition and I therefore do not find it necessary  to venture into determining the said issue.

33. Consequently, the petition is hereby dismissed for lack of merit  with  orders that each party bears its own costs.

Orders  accordingly.

Dated, signed and  delivered in open court at Nairobi this 9th day of May  2019.

W. A. OKWANY

JUDGE

In the presence of:

Miss Odiero for Kiragu for  2nd respondent

Mr. Karani for  1st respondent

Court Assistant - Ali