Rival firms challenge ruling they must cover Setanta Insurance claims

An appeal by the Motor Insurance Bureau of Ireland (MIBI) against a High Court ruling that it must pay out on outstanding claims following the collapse of the Setanta Insurance Company in 2014 has opened before the Court of Appeal.

The MIBI is appealing against Mr Justice John Hedigan’s finding that it was liable to pay out in respect of claims against persons who were insured with Setanta at the time of its liquidation.

The case has important implications for motor insurance premiums as well as parties involved in claims concerning Setanta. Following Setanta’s liquidation, some 1,750 claims by and against Setanta policyholders remained in existence.

The High Court was asked to determine whether the MIBI – operated under the terms of an agreement between the Government and companies underwriting motor insurance in Ireland to deal with claims related to uninsured drivers – or the Insurance Compensation Fund, which had been used to cover claims of insolvent insurance companies, were liable for the claims.

Paul Gallagher SC, for the MIBI, said the case raised “a very important issue” concerning the liabilities arising from the insolvency of one of its members.

Significant difficulties

The High Court ruling has created “very significant difficulties” for the MIBI and its members which were now caught up in the insolvency of a fellow member of the MIBI, counsel said.

The effect of the High Court judgment was that members of the MIBI, made up of more than 40 insurance companies operating in the State, were now “co-guarantors” of rival firms but had no entitlements to any information about those prior to the insolvency, he said.

The MIBI agreement did not deal with an issue as fundamental as the issue of insolvency of one of its members, he said. The High Court had decided a phrase in one particular sub-clause in the agreement meant the MIBI had a liability to pay out in respect of claims against persons insured by an insurer that has become insolvent.

This interpretation was “too narrow” in the context of the entire MIBI agreement, the High court’s reliance on this “hidden” sub-clause rendered the judgment incorrect and it should be set aside, he said.

Judgment

Another effect of the High Court’s decision meant the MIBI could potentially seek judgment against any Setanta policy-holders found liable as a result of a claim the MIBI had to pay out on, counsel said.

The appeal is opposed by the Law Society which, following Setanta's collapse, wrote to the MIBI stating solicitors had been inundated with queries from customers as to the consequences of the liquidation.

Initially the proceedings were brought by the accountant of the Courts of Justice who has statutory responsibility for administering the Insurance Compensation Fund. The High Court subsequently directed the Law Society act as the claimant while the MIBI should be the respondent. The accountant of the Courts of Justice adopted a neutral position in the proceedings.

A liquidator was appointed in April 2014 to Setanta, a Maltese-registered company, and its policies were cancelled by the liquidator on May 29th, 2014. Setanta was a member of the MIBI.

The MIBI, which covers the cost of claims related to uninsured drivers claimed through levies imposed on customers, argued it did not have to satisfy awards against policy-holders where the insurer was unable to pay all or part of the award because of insolvency.