Insurance Brokers Move to Court to Stop Section 156 of the Insurance (Amendment) Act 2019

On Wednesday 7th August, 2019 Justice J. Mativo sitting in Nairobi issued the following orders:

  1. THAT the coming into force of the Insurance (Amendment) Act, 2019 pursuant to Article 116 (2) of the Constitution is stayed pending the hearing of the application.
  • THAT the operation and implementation of section 156 of the Insurance Act as amended by the Insurance (Amendment) Act 2019 is stayed pending the hearing and determination of the petition.
  • THAT for avoidance of doubt the orders herein granted shall remain in force until the date i.e. 26/9/2019 or until any other or further orders of the Court.

The genesis of this is an application filed on 5th day of August 2019 and certified as urgent in High Court Petition No. 288 of 2019, Association of Insurance Brokers of Kenya vs Cabinet Secretary for National Treasury & Planning, the Attorney General, Insurance Regulatory Authority and Association of Kenya Insurers. The following are the grounds, inter alia, that were adduced at the hearing thereof:

  1. The Insurance (Amendment) Act, 2019 was gazette on 19th July 2019, way after the constitutional seven (7) days after assent by the President on 5th July 2019.
  • The Insurance (Amendment) Act, 2019 which amended the Insurance Act and in particular Section 156 criminalizes the handling of premiums by insurance brokers thereby negating the presumption of constitutionality in the first instance.
  • By virtue of section 156 of the Insurance Act, as amended by the Insurance (Amendment) Act 2019, members of the Petitioner have been stopped from hitherto handling and receiving premiums on behalf of insurers, an activity that is perfectly legal and core to insurance brokerage. The Amendment has introduced criminal sanctions and members of the Petitioner are in real danger of being arrested and charged even before the hearing and determination of the Petition and/or the application for conservatory orders.

While considering the application, Justice Mativo in his ruling, noted that the Petition raised Constitutional questions which warranted interrogation by the Court. The learned Judge went further to note that in the event of any adverse action being undertaken pursuant to the impugned provision and in the event of the Petition succeeding, then the enforcement will have not only negatively impacted on the members of the Association of Insurance Brokers of Kenya, but the decision and consequential effects would be legally frail.

The Learned Judge thus concluded that it would be safer to maintain the status quo at the moment and as such the Court found merit in that the Petitioners had established a basis for the court to grant the Interim Orders sought.

The High Court issued an addendum in that since the Petition before the Court had been scheduled for hearing on 26th September, 2019, the same be maintained; and further that for avoidance of doubt the orders herein granted shall remain in force until the said date that is 26th September, 2019.

PROVISIONS OF SECTION 156 OF THE INSURANCE (AMENDMENT) ACT, 2019

Section 156 of the Insurance (Amendment) Act, 2019 states:

  1. No insurer shall assume a risk in Kenya in respect of insurance business unless and until the premium payable thereon is received by insurer.
  2. An intermediary shall not receive any premiums on behalf of an insurer.
  3. An intermediary who contravenes subsection (2) shall be liable to a penalty of one million shillings on each contravention, payable to the Policy Holders Compensation fund.
  4. Any officer or director of an intermediary who contravenes subsection (2) shall be guilty of an offence, and upon conviction shall be liable to a fine not exceeding one hundred thousand shillings or to an imprisonment term of three months, or to both.
  5. An insurer shall pay an intermediary insurance commission due within thirty days upon receipt of premium.
  6. An insurer who contravenes subsection (5) shall be liable to a penalty of five million shillings on each contravention, payable to the Policyholders Compensation Fund.

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