Car insurance body appeals ruling on €90m Setanta liability

The Motor Insurance Bureau of Ireland (MIBI) is appealing a High Court ruling under which it is obliged to assume €90 million in liabilities from the collapse of Setanta Insurance last year.

The ruling by Mr Justice John Hedigan has prompted anxiety that motorists will be hit with higher premiums as insurers pass on the increased cost of funding the MIBI’s work to their clients.

Further concern surrounds claims that international insurers will have to allocate greater levels of capital to their Irish operations due to MIBI’s implied responsibility for claims arising from any future insurance liquidations.

The bureau, established 60 years ago to compensate the victims of accidents caused by uninsured drivers, has taken the case to the Court of Appeal.

Setanta, registered in Malta, went into liquidation in April 2014 and it had been a member of the MIBI.

The MIBI will argue in its appeal that responsibility for 1,750 outstanding claims by and against Setanta policyholders should be borne by the Insurance Compensation Fund, a separate industry-funded entity which makes payments mandated by the High Court for insurers in liquidation or administration.

The eventual outcome of the appeal will have critical implications for Setanta claimants. Where MIBI is deemed liable in cases, claimants receive 100 per cent of their compensation. Where the Insurance Compensation Fund is liable, payments are capped at 65 per cent of the compensation due. The fund pays only in cases where the High Court finds there is no other way of meeting the claim.

January hearings

John Casey, MIBI chief executive, said the Court of Appeal has reserved two days for the case in the new year. Hearings are scheduled for January 12th and 13th.

“This organisation was established in 1955. Our business every year since then has been to award compensation to uninsured and untraced drivers,” he said. “We never set up to be the guarantor of badly run insurance companies. Our view is that that is the role of the Insurance Compensation Fund.”

The High Court action which is the subject of the appeal was initiated by the Law Society, which asked for a determination as to whether the MIBI or the Insurance Compensation Fund was responsible for Setanta claims.

In his ruling, Mr Justice Hedigan found the MIBI was liable to pay out in respect of claims against Setanta policyholders at the time of its liquidation.

He said it was clear the background to the MIBI agreements was the obligation to protect the innocent victims of uninsured drivers. This obligation had been placed on insurers in return for the introduction of compulsory insurance in 1932.

From the evidence and legal argument before the court, it seemed to him that the wording of the 2009 MIBI agreement meant it had a liability to pay out in respect of claims against people who had been insured by an insurer which had become insolvent.

Liability apparent

In his view, this liability of the MIBI had been apparent and accepted since at the very least 1964 if not 1955. In the ruling, he said the High Court may not approve payments by the Insurance Compensation Fund “unless it appears to it that the MIBI is unlikely to meet the claim notwithstanding its obligation to do so”.