Director del Toro could take the rights and produce the game elsewhere. He's retained film rights since the project was first announced.
Insane was announced during the 2010 Spike Video Game Awards, but never showed up during various gaming events across the past two years. Aside from it being a project developed in tandem with film director Guillermo del Toro, little is known. Saints Row developer Volition was working on the first game in the planned trilogy, and is now known to be developing a full sequel to last year's Saints Row: The Third.
Update: THQ says the game "was in very early development," and that "no teams/staff are affected by this decision." When asked whether del Toro also retains any code/assets created for the project thus far, we were told, "The rights for the property have been returned to Guillermo for his future use/exploration."