A Supreme court ruling which means the state is potentially liable for up to €90m worth of claims against collapsed insurer has been described by one insurer as a good day for Irish motorists.
Earlier today the Supreme Court overturned a finding that the Motor Insurers’ Bureau of Ireland was potentially liable for an estimated 1,750 claims - which could run to about €90m - against collapsed Maltese-registered insurance company Setanta.
Jonathan Hehir the Managing Director of www.insuremyvan.ie said the decision should help to remove the threat of premium increases as a result of this issue.
"We believe many insurers had planned for the eventuality whereby the MIBI would carry the costs involved (and possibly those of future failures) and would have added €40-50 ‘insolvent insurer cost’ to all car and van policies. Thankfully situation has been avoided by today’s ruling.
"The decision of the courts today seems wholly logical given that the Compensation Fund was set up with the specific role of providing for policyholders in the event or an Irish or EU authorised Insurer going into Liquidation."
Mr Hehir said the issue of responsibility was still outstanding and suggested the responsibility for the failure of Setanta Insurance rests with The Maltese Government.
"They failed in their duty to provide the appropriate supervision of this insurer.
"We would argue that the next step for the Irish Government should be to recover their costs from Malta.
"The Irish people should not be held responsible for the Maltese Government’s lack of supervision."
The State is potentially liable for hundreds of claims against collapsed insurer Setanta after the Supreme Court overturned a finding the Motor Insurers’ Bureau of Ireland was potentially liable.
The liquidator of Maltese-registered Setanta, which sold insurance policies exclusively in Ireland before it collapsed in 2014, has determined the cost of an estaimated 1,750 claims could run to about €90m.
The Supreme Court 5/2 majority ruling upheld the MIBI argument that various agreements with the Minister for Transport did not cover insolvent insurers.
The MIBI had argued the State's Insurance Compensation Fund (ICF) should pick up the Setanta bill, as was done in the cases of PMPA and Quinn Insurance and the Supreme Court ruling means claims against Setanta will be met from the ICF, set up under the Insurance Act 1964.
The court noted the relevant scheme means claimants against Setanta policy holders will recover no more than 65 per cent, as opposed to a potential 100 per cent if the MIBI was held liable.
Mr Justice Donal O'Donnell said the logic of limiting claims in respect of insolvent insurers makes some sense in the context of claims by Setanta policy holders to whom "some moral hazard" may be considered to apply.
However, there was a "strong and perhaps unanswerable case in equity" for amendment of the scheme to permit full recovery of claims against Setanta policy holders.
"A victim does not choose the party with whom he or she collides, and still less his or her insurer," he said.
If such victims continue to be limited to 65 per cent recovery, the constitutional validity of applying that limit to third party claimants "would clearly arise".
He was giving judgment allowing the MIBI's appeal against a Court of Appeal decision rejecting the MIB's interpretation of agreements between the MIBI and Minister for Transport between 1955 and 2009, referred to as the MIBI agreement.
The case - brought by the Law Society on foot of a court order - was essentially aimed at preventing the accountant of the High Court making payments from the ICF to claimants on the basis it appeared the MIBI could instead pay out.
The core issue was whether the MIBI agreement - particularly Clause 4.1.1 and 4.1.2 - covered claims to be met by an insolvent insurer.
Mr Justice O'Donnell said the agreements were "ambiguous" and like a "freeform jigsaw" with pieces that could be arranged in at least two different patterns and some pieces difficult to fit into the overall pattern.
When considering the "overall picture", he concluded the MIBI interpretation - the agreement does not extend to liability for claims against drivers whose insurer had become insolvent - was "more plausible" and correct.
The complex arguments concerning the agreement were only necessary because of the "substantial difference" between the available recovery under the ICF (limited to 65 per cent or €830,000) and the near full indemnity available against the MIBI.
While the Law Society had argued a finding the ICF was liable "would be to the benfit of insurers at the expense of victims", the court was not being asked to decide if a victim should be partly or fully compensated but rather to interpret an agreement in line with principles applicable to every contract.
What interpretation was given, there would be consequences including, if claims were to be met from the ICF, there woud be pressure for amendment of the relevant scheme.
The Chief Justice, Ms Justice Susan Denham, Mr Justice William McKechnie, Mr Justice Peter Charleton and Ms Justice Iseult O'Malley also agreed the appeal should be allowed.
Mr Justice McKechnie, in a separate concurring judgment, said, "not without some diffucult" he preferred Mr Justcie O'Donnell's approach to construing the agreement to that adopted by Mr Justice Frank Clarke in his dissenting judgment.
Mr Justice Clarke found the agreement obliged the MIBI to cover claims against drivers insured with Setanta. He said it was "particularly unfortunate", when the ICF came into existence udner the 1964 Insurance Act, the then MIBI agreement or its successors were not amended to make clear where liability for victims of drivers insured by insolvent insurers would lie.
Mr Justice MacMenamin, who also dissented, said the most important part of the MIBI agreement was Clause 4.1 which, in his view, creates a liability against the MIBI. It was open to the parties to revise the relevant agreements, he also noted.