Setanta Insurance ruling has implications for motor insurance premiums

Court rejects Motor Insurance Bureau’s appeal related to collapse of Setanta Insurance two years ago

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 two years ago.

The actual liability of 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 premiums as well as parties involved in claims concerning the Malta-registered Setanta.

In his judgment, the president of the appeals court, Mr Justice Seán Ryan, said he could not find evidence the proposed liability represents “a catastrophic consequence” which could not be countenanced by any prudent insurer.

He was impressed by evidence from senior management figures in major motor insurance companies that the obligation to indemnify in such cases presents a “very serious problem”.

He agreed with the High Court that it “may well be time” for changes and better regulation in the EU.

MIBI had asked the appeals court to set aside a High Court decision that it must pay out on claims against persons insured with Setanta when that firm was liquidated in 2014.

The Law Society, opposing the appeal, said it was envisaged, under a 2009 agreement and all the various agreements governing MIBI since it was established in the 1950s, that 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 that rather than declaring MIBI was liable, the correct ruling was that it 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 MIBI or the Insurance Compensation Fund, used until now to cover the claims of insolvent insurance companies, was liable for the claims.

MIBI is operated under the terms of a 2009 agreement between the government and those companies underwriting motor insurance to deal with claims related to uninsured drivers. Following Setanta’s liquidation, some 1,750 claims by and against Setanta policyholders remained in existence.

Mr Justice Ryan said he was persuaded the 2009 agreement “does mean what it appears to say”: 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 “does make sense” and represented a more satisfactory reading of the agreement than that proposed by MIBI.