The High Court has overturned a decision by the Insurance Regulatory Authority (IRA) to invalidate insurance policies issued by Trident Insurance Company Limited and Corporate Insurance Company Limited after the two firms were placed under statutory management.
The court ruled that the Commissioner of Insurance exceeded the powers conferred by the Insurance Act by issuing a notice that purported to terminate policies that were already in force when the insurers were placed under statutory management.
In its decision, the court examined Section 67C of the Insurance Act, which sets out the legal framework governing statutory management of insurance companies.
The court found that placing an insurer under statutory management does not automatically bring its existing contracts with policyholders to an end. Instead, the statutory manager assumes control of the company’s affairs and is required to determine whether the insurer can be restored to financial stability or whether further action, including liquidation, is necessary.
The judge held that the Commissioner could not use the initial appointment of a statutory manager as a basis for immediately extinguishing contracts that had already been entered into with customers. The court therefore quashed the IRA notice insofar as it purported to cancel policies that were validly in existence when Trident and Corporate Insurance were placed under statutory management.
The court also faulted the regulator for failing to give affected policyholders an opportunity to present their views before the decision was made. It found that the policyholders were neither afforded a hearing nor given adequate reasons for the directive, amounting to a violation of their right to fair administrative action guaranteed under Article 47 of the Constitution.
The court further relied on Article 46, which provides constitutional protection for consumers, noting the importance of safeguarding policyholders’ interests within the insurance sector.
The regulator had also argued that the dispute should have first been taken before the Insurance Appeals Tribunal under the statutory dispute-resolution process. However, the court declined to dismiss the case on the basis of the exhaustion doctrine.
While recognising the importance of requiring parties to use available statutory mechanisms, the court held that the doctrine should not be applied mechanically where a dispute raises substantial constitutional issues and has implications beyond the immediate parties.
The judge found that the IRA’s decision went beyond the regulator-insurer relationship because it directly affected the rights and financial interests of numerous policyholders. As a result of the judgment, insurance policies issued by Trident and Corporate Insurance before March 10 remain valid for purposes of the applicable motor vehicle third-party insurance regime.
The court said the validity of those policies will remain subject to any lawful determination made under Section 67C(7) of the Insurance Act.
The ruling makes clear that statutory management and liquidation are distinct legal processes, and that placing an insurer under statutory management does not, by itself, terminate existing insurance contracts.
