On 25 May 2017, the Supreme Court handed down its eagerly awaited judgement in the case of The Motor Insurance Bureau of Ireland (“MIBI”) v The Law Society.
The MIBI has succeeded in its appeal over a Court of Appeal decision that it is should be liable for claims brought against collapsed insurer Setanta. The ruling means that successful claims against Setanta will now have to be met from the State’s Insurance Compensation Fund.
Background This case arose when the Maltese insurance company, Setanta, was wound up in April 2014. At the time Setanta had approximately 1,750 pending claims amounting to a combined value of €90 million.
It was anticipated that the State Insurance Compensation Fund would compensate the claimants with up to 65% of the claim (to be capped at €825,000) and that the balance might be recovered from the liquidation process in accordance with the rights of policyholders as unsecured creditors. However the Law Society argued that the MIBI should pick up the bill.
The MIBI is operated under the terms of a 2009 Agreement between the Government and companies underwriting motor insurance in Ireland. The 2009 Agreement provides for full recovery of a claim amount from the MIBI. The core issue in the Appeal was interpretation of this Agreement and whether or not the Agreement covered claims to be met by an insolvent insurer.
Judgment Mr Justice O’Donnell referred to the Agreement as being like a “freeform jigsaw where it is possible to arrange the pieces in at least two different patterns…but where some pieces are difficult to fit into the overall pattern”.
He noted the vast effects that the decision may have on motor insurers and claimants alike, even stating that the decision may lead to a winding up of the MIBI or a re-negotiation of the MIBI Agreement.
Ultimately, he held that the MIBI’s interpretation of the Agreement – i.e. that it did not extend to cover insolvent insurance companies - was “more plausible” and correct. The appeal was allowed on a 5:2 majority in favour of the MIBI.
Impact This decision is of huge relief to insurance companies underwriting motor insurance in Ireland. However, victims of road traffic accidents will face a significant limit on the amount they can recover from claims made in respect of drivers whose insurers have become insolvent.
We expect that the Department of Finance will move speedily to be bring certainty to the structure of the compensation framework in the future and that the Government will introduce legislation to clarify the roles of the MIBI and the Insurance Compensation Fund.