The Law Society of Ireland v The Motor Insurers’ Bureau of Ireland [02.03.16]
Ireland’s Court of Appeal has decided that the Motor Insurers’ Bureau of Ireland (MIBI) is potentially liable to meet the cost of claims against former policyholders of the now defunct Setanta Insurance Company Limited (Setanta). The judgment has far-reaching implications for Irish motor insurers and policyholders.
The MIBI is a body made up of motor insurers writing business in Ireland, which has agreed with the Irish Government that it will ensure the payment of claims of persons injured by uninsured or untraced drivers. It is funded by the motor insurers in proportion to their gross written premiums by way of a 6% levy on all motor insurance policies written. The MIBI’s obligations are set out in a series of agreements with the relevant minister, the latest of which is from 2009 (the 2009 Agreement).
Setanta, a Maltese registered company, which was a member of the MIBI, was placed into liquidation on 30 April 2014, leaving an estimated 1,700 to 2,000 uninsured claims against its policyholders.
The MIBI denied that it was liable to meet the uninsured claims, arguing that it was instead the Insurance Compensation Fund (ICF) which was liable. The ICF was established by the Insurance Act 1964. It was primarily designed to make payments to policyholders where an Irish or European Union authorised insurer went into liquidation and High Court approval had been received for such payments. The Insurance Act excludes or limits payments out of the ICF where a payment has already been made by the MIBI.
The issue was submitted to the High Court which ruled on 4 September 2015 that the MIBI, and not the ICF, was liable to pay the Setanta claims. It was that decision which fell for review by the Court of Appeal.
The Court of Appeal in large part affirmed the High Court’s decision, varying it only to say that the MIBI is potentially liable, rather than actually liable, to pay court awards and settlements which would otherwise have been paid by Setanta. The reason for the variation is to allow for the fact that individual claimants must meet a number of pre-conditions set out in the 2009 Agreement before their claims are met.
Clause 4.1.1 of the 2009 Agreement states that the MIBI is liable to cover the cost of judgments obtained by individuals arising from motor claims whether or not the judgment debtor is covered by insurance. The Court ruled that the MIBI was liable under clause 4.1.1 “whatever may be the cause of the failure of the judgment debtor”, including where the judgment debtor was previously properly insured but its insurers went into liquidation, as occurred with Setanta. The Court said that this was clear from the words used in clause 4.1.1.
The MIBI raised a number of arguments contesting this view. While the Court had sympathy with some of these, ultimately it was not willing to divert from what it saw as the natural and ordinary meaning of clause 4.1.1.
The Court of Appeal’s decision has been met with consternation by the MIBI and its members. The MIBI has stated that the judgment will add €90 million for the sector arising from the collapse of Setanta, which will have to be met through an additional one-off levy on motor policies of an estimated €50 per policy. This is in addition to already increased premiums for customers arising out of the high cost of awards by the courts, legal costs and insurance fraud in Ireland.
Pat O'Brien, CEO of MIBI, says an urgent meeting with the new Government is required to get clarity around the relationship between the MIBI and the ICF.
It is certainly in the interests of the industry and all policyholders for the Government to give clarity on whether it intends the MIBI or the ICF to meet claims arising from the insolvency of motor insurers going forward and on what terms. This will require new legislation, which may take some time to be enacted. In the meantime the industry must contend with the costs of the uncertainty, which will no doubt be passed on to policyholders.