The question that arose for the COA to consider was how the outstanding claims against Setanta Insurance Company Limited ("Setanta") ought to be met, in circumstances where it is clear that Setanta does not have sufficient funds available to discharge these claims. In the High Court action, the Accountant of the Courts of Justice sought the direction of the High Court as to whether the claims should be met by payments out of the Insurance Compensation Fund (ICF) or by the MIBI, pursuant to its agreement with the Minister for Transport dated 29 January 2009 (the "2009 Agreement").
The MIBI’s argument
The COA gave particular consideration to Clause 4.1.1 of the 2009 Agreement which requires the MIBI to make payments where a judgment is not satisfied within 28 days "whatever may be the cause of the failure of the judgment debtor".The MIBI contended that the 2009 Agreement must be read as a whole and that the provisions of this clause should be interpreted in light of other provisions within the Agreement which, it believed, showed that that the 2009 Agreement was not intended to apply to cases of insurer insolvency. The MIBI also pointed to its Memorandum of Association and contended that it would have in fact been ultra vires the Memorandum for the MIBI to enter into an agreement, which provided for liability in the case of insurer insolvency.
The COA’s decision
While the COA did not disagree with the MIBI’s general principle of interpretation, it was not satisfied that any other clause in the 2009 Agreement could negate Clause 4.1.1 which it stated was "all embracing and comprehensive".
The COA agreed with the High Court’s view that the inclusion in Clause 4.1.1 of the 2009 Agreement of the words "whether or not such person or persons be in fact covered by an approved policy of insurance" and later "whatever may be the cause of the failure of the judgment debtor" includes a situation where the failure to pay is caused by the insolvency of the insurer. The COA’s view was that Clause 4.1.1 could not realistically be read otherwise than as including cases of insurer insolvency.
Implications of the COA decision
The COA’s decision extends the role of the MIBI far beyond the original intention of its creation. The judgment has far-reaching implications for consumers, claimants and the motor insurance industry. The following are regarded by industry as the main implications:
- Upholding the High Court decision will add an additional €90 million to the total liabilities of the MIBI, which will fall to motor insurers to pay.
- This cost burden will be passed on to motor policyholders through a once-off premium increase of €50 at a time when the motor market is already under considerable pressure from rising claims costs.
- Where an approved motor insurer goes into liquidation its obligations to claimants of its policyholders will have to be met by the surviving approved motor insurers who are members of the MIBI even where a competitor has behaved in an imprudent manner.
- The approved motor insurers will need to consider the implications of this outcome on their regulatory capital requirements.
- The existing MIBI model will require review as its reserving to date would not extend to covering the potential cost of an insolvent insurer.
- It is not envisaged that any reinsurers will be directly affected as they are not underwriting motor insurance in Ireland directly and, as a result, are not obliged to become members of the MIBI.
Appeal to Supreme Court
On 3 May 2016, the Supreme Court granted leave to the MIBI to appeal the COA's ruling. The board of the MIBI took the decision to appeal the case to the Supreme Court after consulting with its forty members.
The MIBI will again argue that the cost of these should be met by the ICF. We will continue to update on this topic as it develops.