A seven-judge Supreme Court is hearing the Motor Insurers Bureau of Ireland's appeal against decisions that it is potentially liable for claims brought against collapsed insurer Setanta.
Because all motor insurers operating in Ireland must be members of the MIBI, the decisions by the High Court and Court of Appeal effectively mean that all insurers entering the Irish market must undertake an "enormous potential liability", Paul Gallagher SC, for the MIBI, said. "That cannot be correct."
As a result of the court decisions, the MIBI has been “left captive” and its members obliged to give guarantees even concerning insurers whom they believe will not last, he said.
If a guarantee of “such enormous proportions” was to be given, one would expect that to be done by statute, but it was not, he said.
A priority hearing of the appeal was granted by the Supreme Court due to the implications of last May’s decision by the Court of Appeal rejecting the MIBI’s arguments that it should not be held liable. That ruling affected all insurance companies underwriting motor insurance in Ireland, the Supreme Court noted.
The MIBI argues that the State-backed Insurance Compensation Fund should pick up the Setanta bill, as happened in the cases of PMPA and Quinn Insurance.
The liquidator of Maltese-registered Setanta, which sold insurance policies exclusively in Ireland before it collapsed in 2014, has determined the cost of claims could be about €90 million. The number of claimants are estimated at 1,750.
Last March the Court of Appeal upheld a High Court finding that the MIBI, which has 40 insurers as members, was potentially liable for the cost of these claims.
Interpreting agreement
The MIBI is operated under the terms of a 2009 agreement between the Government and companies underwriting motor insurance in Ireland to deal with claims related to uninsured drivers.
The core issue in the appeal is the interpretation of that agreement.
If the court finds the MIBI is liable, it will consider how that impacts on the power of the High Court to approve payments out of the Insurance Compensation Fund if the High Court believes that is the only way of meeting such claims.
The Law Society opposes the MIBI appeal and contends the MIBI agreement envisaged it would pay out if a member became insolvent.
Opening the appeal today, Mr Gallagher argued that a proper interpretation of the agreement does not include providing a guarantee in the event of a MIBI member becoming insolvent.
There were no valid grounds for rejecting that argument, and both the High Court and Court of Appeal erred in their interpretation of this commercial agreement, he said.
There was no basis for construing the agreement so as to cover insolvency, he argued.
The basis on which the High Court and Court of Appeal reached a different conclusion, Mr Gallagher argued, was by focusing on clause 4.1 of the agreement, which concerns payments to those not covered by insurance.
While that was an important clause, he said, the focus on it “distorted” the proper approach to interpretation because other clauses received insufficient attention.
The references to certain exceptions concerning compensation for victims of uninsured or stolen vehicles was “critical”. The MIBI’s case was that the wording of the agreement did not create an obligation on it to indemnify where an insurer became insolvent, counsel said.
The appeal continues.
