The Supreme Court has ruled that the Motor Insurers’ Bureau of Ireland (“MIBI”) is not 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.
Setanta, a Maltese registered insurance company which also operated in Ireland, went into liquidation on 30th April 2014 leaving an estimated 1,666 uninsured claims against Irish policyholders valued at around €93 million.
Setanta was a member of the MIBI which is a body comprising 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 a levy on motor insurers. 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”).
The MIBI denied that it was liable to meet the uninsured claims resulting from Setanta’s liquidation, arguing that the Insurance Compensation Fund (“ICF”) should be liable instead. The ICF was established under statute to make payments to policyholders where an Irish or European Union authorised insurer went into liquidation and High Court approval has been received for such payments. Compensation is limited to 65% of the full value of the claim, or €825,000, whichever is the lower. The legislation setting out the ICF liability excludes or limits payments where a payment has been made by the MIBI.
In order to clarify the position as to who was liable the Law Society agreed to prosecute an action against the MIBI.
The case was initially heard in the High Court which ruled that the MIBI and not the ICF, was liable to discharge the Setanta claims. The court interpreted Clause 4.1.1 of the 2009 Agreement as meaning that the MIBI was obliged to discharge any unsatisfied judgments arising from road traffic accidents, whether or not the judgment debtor is covered by insurance, ruling that the MIBI was liable “whatever may be the cause of the failure of the judgment debtor”.
The Court of Appeal affirmed the High Court’s decision, varying it only to say that the MIBI was “potentially”, rather than actually, liable to pay court awards and settlements which would otherwise have been paid by Setanta.
By a majority of 5 to 2, the Supreme Court set aside the decision of the Court of Appeal and decided that the MIBI would not be liable.
It held that claims against Setanta, as an insolvent insurer, fall prima facie within the scope of the ICF noting the decision of the Court of Justice of the European Union in Csonka and Others v Magyar Allam which confirmed that EU Directive (EEC) 72-166 (which deals with the motor insurance obligations of Member States) does not extend the MIBI’s compensation obligation to insolvent insurers.
The court did not accept that the parties to the 2009 Agreement had intended to cover insolvent insurers because when was it originally drawn up they had failed to address the commercial and legal issues involved and held that the 2009 Agreement could not be construed as covering insolvent insurers.
Payments from the ICF will be restricted to the lower of either 65% of the claim or €825,000. The liquidator of Setanta may have retained funds with which to meet some of the shortfall but it is not yet known how much will be available. Claimants may also seek recovery of any unpaid damages from Setanta policyholders directly.
Where the MIBI has been joined as a party to proceedings involving Setanta policyholders, plaintiffs will be required to discontinue against the MIBI or, alternatively, the MIBI must apply to court to have the proceedings struck out. The MIBI has agreed to bear their own costs if plaintiffs discontinue the proceedings within 28 days of being asked to do so.
Although too late to assist claimants in the Setanta cases, legislation is being drafted for a compensation framework to reflect the Supreme Court judgment and government working group recommendations. Once in force, third party motor claims arising from the liquidation of an insurer will be met by the ICF and part-funded by a 35% contribution from the MIBI.