THE Court of Appeal has found the Motor Insurers Bureau of Ireland (MIBI) "potentially liable" for hundreds of outstanding claims following the collapse of Setanta Insurance in 2014.
The actual liability of the MIBI to individual claimants will have to be decided on an individual basis, the three judge court directed.
Its unanimous decision has major implications for motor insurance premia as well as parties involved in claims concerning Maltese-registered Setanta.
The President of the Appeal Court, Mr Justice Sean Ryan, said he could not find evidence the proposed liability represents "a catastrophic consequence" which could not be countenanced by any prudent insurer.
However, he was impressed by evidence from senior management figures in major motor insurance companies the obligation to indemnify in such cases presents a "very serious problem". He agreed with the High Court it "may well be time" for changes and better regulation in the EU.
The MIBI had asked the appeal court to set aside a High Court decision it must pay out on claims against persons insured with Setanta when that firm was liquidated in 2014.
The Law Society, in opposing the appeal, said it was envisaged, under a 2009 agreement and all the various agreements governing the MIBI since it was established in the 1950s, it would have to pay out if a member became insolvent.
In three concurring judgments, Mr Justice Ryan, Ms Justice Mary Finlay Geoghegan and Mr Justice Gerard Hogan rejected the appeal.
All three agreed, rather than declaring the MIBI was liable, the correct ruling was the MIBI was "potentially liable" for claims against persons insured with Setanta up to its collapse.
Mr Justice Hogan said he was dismissing the appeal despite "certain reservations" about the true character of the MIBI agreement.
The court also refused to award costs against MIBI and directed the sides pay their own costs of the case.
The High Court was asked to determine whether the MIBI or the Insurance Compensation Fund, used until now to cover the claims of insolvent insurance companies, was liable for the claims.
The MIBI is operated under the terms of a 2009 agreement between the Government and those companies underwriting motor insurance in Ireland to deal with claims related to uninsured drivers.
Following Setanta's liquidation, approximately 1,750 claims by and against Setanta policyholders remained in existence.
In his judgment, Mr Justice Ryan said he was persuaded the 2009 agreement "does mean what it appears to say", which is that the Bureau accepts responsibility to pay, whatever the circumstances of the failure to satisfy the judgment.
While he did not believe it was possible to achieve a "logically impregnable" result in this case, he believed a judgment in favour of the Law Society's interpretation of the agreement "does make sense" and represented a more satisfactory reading of the agreement than that proposed by the MIBI.
While the Department of Transport had said in a 2014 letter its understanding of the 2009 agreement was there was no legal obligation on the MIBI to satisfy claims or judgments made against validly insured customers of Setanta up to May 2014, that letter expressed a legal view and was not decisive or determinative, he said.
The MIBI agreement was more than a contract between two parties, he said. There was a public element because motor accident victims are given specific rights which are exercisable if they fulfil certain conditions.
The Insurance Act 1964 also "manifestly" contemplated a role for the MIBI in the case of an insolvent insurer.