Victims' plight lost in €90m row over who should pay for insolvent firm
Published 22/06/2016 | 02:30
It has become the €90m question: just how will senior judges interpret a crucial line in an agreement between insurers and the State?
Essentially, that is what the row over who should carry the can for the 2014 collapse of Setanta Insurance turns on. The issue is quite technical and has divided the sharpest of legal minds. But it will have huge ramifications for every motorist in the country and the 1,750 injured parties with claims against drivers who were insured by the Maltese-registered firm.
All eyes will be on the Supreme Court in the coming months when it examines 'Clause 4.1.1' in an agreement between the Motor Insurers' Bureau of Ireland (MIBI) and the Department of Transport.
The MIBI was set up in 1955 as an industry-funded body to compensate victims of road traffic accidents caused by uninsured drivers and unidentified vehicles. Since then it has had several operating agreements with the Transport Minister, the most recent of which was in 2009.
Clause 4.1.1 of that agreement requires the MIBI to make payments where a judgment against an insurer is not satisfied within 28 days "whatever may be the cause of the failure of the judgment debtor". Under one interpretation of the clause, the country's 40 remaining solvent insurance companies will have to pick up the bill for 1,750 outstanding claims against drivers who were insured by Setanta.
In proceedings brought by the Law Society, the High Court interpreted the clause as meaning the MIBI could be held liable. Three Court of Appeal judges subsequently agreed with this finding.
But those rulings proved hugely controversial, as in reality the cost of outstanding claims - an estimated €90m - will end up being covered by higher insurance premiums. Insurers say each driver in the State would have to pay an additional €50 on their premium.
The MIBI has argued, thus far unsuccessfully, that under another interpretation of the clause it is only liable to compensate victims of uninsured and untraced drivers and should not have to carry the can for the liabilities of a failed insurer.
It believes the rulings mean solvent insurers will be faced with covering the costs of outstanding claims in the event another insurer fails, even if that insurer behaved recklessly or imprudently.
The MIBI believes the tab should be picked up by the Insurance Compensation Fund, which insurers pay into but is administered by the President of the High Court. The fund has been around since 1964 and was previously used to satisfy claims in the cases of PMPA and Quinn Insurance.
Under this scenario the hit taken by solvent insurers, and ultimately the premium-paying motorist, would be much less as there are caps on what can be paid out of the fund. The flipside is it would mean a very raw deal for a claimant who suffered catastrophic injuries in a road traffic accident.
The fund is limited to paying just 65pc of an award, up to a maximum sum of €825,000. This may seem a large sum, but could be less than adequate for someone who suffered life-altering injuries.
"It has been a characteristic of this whole debate and media commentary on it that the focus has been on the poor insurance companies and the premium payers," said Law Society director general Ken Murphy.
"Nobody is thinking of the victims of these accidents at all. Surely these are the people, some of whom may have suffered life-changing injuries, who are the real victims here."
Interestingly, after Setanta went bust, the Department of Transport's legal advice was that the MIBI was not liable and that claimants should be paid out of the Insurance Compensation Fund.
The President of the Court of Appeal, Mr Justice Seán Ryan, found the department's position could not be considered to be decisive. His judgment also suggested the MIBI only had themselves to blame for the current situation. The MIBI argued the clause could not mean they were on the hook as it defied common sense for insurers to agree to giving cross-guarantees to all their competitors.
However, Mr Justice Ryan said there was evidence insurance companies had themselves envisaged insolvent insurer liability being an issue for the MIBI as far back as 1964. They have had the opportunity since then "of agitating for a change in the legislation", Mr Justice Ryan noted. But they didn't, leaving them in the position they are in today.