Policyholders of collapsed insurer still waiting for justice 16 years later 

In November 2017, creditors of United Insurance Company, which had been under statutory management since July 2005, were looking forward to finally being paid the monies they were owed after 12 years of waiting.

The Policyholders Compensation Fund (PCF) and the shareholders of the collapsed insurer had agreed on a roadmap, the Joint Settlement Proposal on Statutory Management, on paying of the debts the firm owed estimated at Sh1.2 billion.

The proposal also provided for the revival of the insurer after two audits, one by Deloitte and a second by statutory manager Mr Evanson Munene Waruhiu, found that the insurer was solvent and could get back to its feet provided they disposed of some of their assets mostly in form of parcels of land.

The proposal had received the approval of the regulator, the Insurance Regulatory Authority (IRA). However, the hopes were quickly dashed as the game of musical chairs that have kept the insurer under receivership since July 15, 2005, returned to scuttle the revival of the company.

IRA is pressing on with a winding up petition, notwithstanding different audit reports that showed the insurer was solvent and could be revived. The matter is coming up on November 2 for directions before Justice Alfred Mabeya. 

An advisory by solicitor-general Kennedy Ogeto for an amicable settlement remains ignored while a judge who was to decide on the dispute that has kept the creditors from being paid recused himself after the conclusion of the hearing and just five days before the judgment was to be delivered.

In the January 14 advisory, Mr Ogeto questioned why IRA was insistent on liquidating the insurer despite independent audits returning a verdict that the company was solvent.

“In this case, it is clear that the reports of three statutory managers were of the consistent conclusion that the company was capable of being revived. In fact, a joint proposal on revival strategy was duly adopted in court and a representative committee set up to work with the statutory manager to revive the company, pay off the outstanding claims and preserve the assets of the company,” Mr Ogeto said in the letter.

“It is, therefore, not clear to us why the Commissioner of Insurance (now IRA) disregarded the reports from the statutory managers and the consent orders recorded in court and instead opted to proceed with the winding up proceedings in relation to the company,” he added.

Beginning of problems

That the winding up proceedings are still pending in court some 10 months after Mr Ogeto’s letter means that IRA disregarded the advice from the Attorney-General’s office.

It is this case of United Insurance Company that led to the conviction of former Kenya Re CEO Jackson Githaka for fraud.

After the insurer was placed under statutory management in July 2005, then Commissioner of Insurance Sammy Makove appointed Kenya Re as the statutory manager. This marked the beginning of problems for the shareholders and employees of United Insurance.

In the books of United Insurance, Kenya Re was also the biggest debtor owing the troubled company about Sh160 million, thus creating a conflict of interest. However, Mr Makove ignored the matter and Kenya Re carried on with its statutory management duties. In due course, it conducted an audit of United Insurance and returned a verdict that the company was insolvent to the tune of Sh1.2 billion and should therefore be liquidated.

The report was shared with Mr Makove who then instituted a winding up petition in the court. However, the petition was opposed by shareholders who disputed the Kenya Re report as the insurer owned a lot of assets in the form of land. 

Justice Mohamed Warsame, then in the High Court, ordered an independent audit, and Deloitte was thus appointed.

In their report, Deloitte returned a completely contradictory report to what Kenya Re had stated. According to Deloitte, United Insurance Company Ltd was solvent to the tune of Sh1.3 billion. Following the Deloitte report, Mr Makove acknowledged the insurer’s healthy financial situation in an affidavit in 2006 but did not withdraw the winding up petition he had filed.

Creditors led by Kensilver Express Ltd, Mr Simon Kimutai, Mr Peter Njuguna Gathi and Ms Nancy Wanjiru Kimani had also moved to court after United Insurance went under. In the decision to their petition, Justice Mary Ang’awa on December 18, 2007, declared the appointment of Kenya Re a nullity and an illegality since they were a conflicted party. The Commissioner of Insurance was directed to remove them and replace them with another receiver manager.

Despite the court order, Mr Makove did not replace Kenya Re and the statutory manager would remain in office for a further seven years until September 2014 when Mr Makove appointed Mr Evanson Munene Waruhiu as the new statutory manager.

Revival hopes scuttled

Mr Waruhiu did a third audit report that confirmed Deloitte’s earlier finding that United Insurance Company was solvent and therefore there was no need to liquidate the company. Like Deloitte he recommended that the insurer should be revived.

“Noticing that the company is currently solvent, all that is needed is to enhance the liquidity of the company through a careful, well-managed partial disposal of company assets,” Mr Waruhiu stated in his report of June 12, 2015.

However, the second statutory manager did not last long on the job. An amendment to the Insurance Act had introduced the Policyholders Compensation Fund (PCF) which by law took over the statutory management.

Thus on November 6, 2017, PCF and the United Insurance shareholders filed the Joint Settlement Proposal, which was also adopted by the regulator, the Insurance Regulatory Authority (IRA) and taken to creditors for approval on February 18, 2018 at the KICC.

On March 8, 2018, Justice Fred Ochieng’ also ordered the appointment of a claims settlement committee to oversee the implementation of the proposal. In the orders, IRA was to come up with the terms of reference for the committee but in court documents seen by the Sunday Nation, the committee would not agree to IRA’s ToRs which gave all the powers to PCF. PCF was to chair the committee, be the secretary and had to be present for any meeting to take place.

It is this disagreement that scuttled the hopes for the revival of the insurer and payment of creditors who are owed Sh1.2 billion. The committee members went back to court seeking orders to compel IRA to include them in the process instead of giving all powers to PCF. As they were going back to court, IRA revived the old winding up petition at the Commercial and Tax Division of the High Court.

The two cases were consolidated and heard by Justice Francis Tuiyott, now a judge of the Court of Appeal. The hearing took place in September 2020 and the judge reserved December 21, 2020, as the day he would deliver his decision.

However, six days to the day on December 15, 2020, the parties were called to an urgent mention on December 16, 2020 during which he announced that he would be recusing himself as he had represented United Insurance in several matters in his previous life as a private legal practitioner through Nyaundi Tuiyott and Co Advocates. In fact, he told the parties that United Insurance still owed him Sh15 million in professional fees.

The file was placed before Justice David Majanja who also recused himself as he had acted for United Insurance before while in private practice. Eventually, the file was taken to Justice Alfred Mabeya. The file is pending before him and the matter will come up on November 2 for directions.

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