Language teachers refer to faux amis, or false friends, as those words which appear the same in different languages but which in fact have very different meanings.
The ostensibly similar motor insurance regimes of the UK & Ireland were examined by the Irish High Court on 4 September 2015 in connection with Setanta Insurance. Both countries’ regimes give effect to the EU Motor Insurance Directives. Both regimes set out the scopes of (a) their respective Motor Insurers’ Bureaux’ obligations and (b) of their respective insurance compensation funds.
Setanta, which offered motor policies in Ireland, went into liquidation in April 2014. Some 1,700 to 2,000 claims were outstanding, valued in aggregate at around €90 million. Had the insolvency happened in the UK, the FSCS would have picked up the claims in full, with the UK’s MIB having no role. The question for Mr Justice Hedigan in the Setanta case (Law Society of Ireland v MIBI) was where, as a matter of Irish law, should the liability for these claims lie? Should they fall to the general insurance insolvency compensation scheme or should they be met by the MIBI?
The importance of this case is to be found in the nuances of the insurance insolvency protection arrangements in Ireland and in the differences when compared to the UK’s FSCS & MIB. If the insurance compensation fund was liable, the payouts would be restricted to the lower of either 65% of the claim or €825,000. If, however, the MIBI was required to pay it’s liability for personal injury claims would, as required by the EU Directives, be unlimited.
Given this possibility of less than full awards being made to injured plaintiffs, it probably comes as no surprise that the Law Society of Ireland argued in favour of the MIBI being required to be liable in full. In essence, it contended that the Setanta claims were to be treated as uninsured claims. The MIBI rejected this, arguing that its remit was more limited and covered only claims arising from uninsured driving, untraced incidents, stolen vehicles and repudiated policies.
A lengthy passage in section 4 of the MIBI’s 2009 Uninsured Drivers Agreement would be critical. The bold and italic emphasis has been added.
… if Judgement/Injuries Board Order to Pay in respect of any liability for injury to person or death or damage to property which is required to be covered by an approved policy of insurance under Section 56 of the Act is obtained against any person or persons in any court established under the Courts (Establishment and Constitution) Act, 1961 (No.38 of 1961) or the Injuries Board established by the PIAB Act, 2003 whether or not such person or persons be in fact covered by an approved policy of insurance and any such judgement is not satisfied in full within 28 days from the date upon which the person or persons in whose favour such judgement is given become entitled to enforce it then MIBI will so far as such judgement relates to injury to person or damage to property and subject to the provisions of this Agreement pay or cause to be paid to the person or persons in whose favour such judgement was given any sum payable or remaining payable thereunder in respect of the aforesaid liability including taxed costs (or such proportion thereof as is attributable to the relevant liability) or satisfy or cause to be satisfied such judgement whatever may be the cause of the failure of the judgement debtor.
The judge was also taken to a passage from the MIBI’s Director’s report of 2012 which stated that: “In the event of the insolvency of any of its members, the Bureau is required, under its agreement with the Minister of Transport, to pay claims, to the extent that its insolvent member us unable to do so.”
The MIBI gave evidence that this statement was, in its view, incorrect and could not be regarded as an interpretation of the 2009 agreement (above).
The judge accepted that this extract was inadmissible as to the truth of what it stated, but he regarded it admissible as to the understanding and conduct of the parties (the MIBI and the Ministry) in relation to the MIBI’s obligations. This is, perhaps, a very fine distinction.
The legislative framework of the insurance compensation fund, The Insurance Act 1964 (as amended), was also critical. Section 3 sets down the relevant conditions, which restrict payment from the fund to instances of “an insurer in liquidation” and allow the Court to can sanction payments from the fund only if “it is unlikely that the claim can be met otherwise than from the Fund”. Furthermore, section 3(7) does not allow payment from the fund if the MIBI is liable in full or in part. The judge observed that the 1964 Act “explicitly recognises at s.3(7) a liability of the MIBI to make payments in the event of an insolvency” and added that this, “far from supporting the [MIBI’s] case, goes the opposite way in my view.”
Outcome – MIBI liable
The judge concluded that the proper analysis was that MIBI should be liable for the Setanta claims. He found that “the wording of the 2009 Agreement means that the MIBI have a liability to pay out in respect of claims against persons who were insured by an insurer which has become insolvent.” It was his view that this liability had been apparent as far back as the 1964 Act (above). That Act had been passed by the Irish Parliament to bolster protection following the liquidation of Equitable Insurance Company in 1963 and, in the judge’s view, MIBI’s liability for insolvent insurers was “front and centre … at the time of the liquidation of EIC and was not denied or subsequently altered by the members of the MIBI or the Ministry”.
As it stands, the decision places the estimated €90 million liability for the Setanta claims on the MIBI and its member companies. In several places in the judgment it is stated that no provision had been made for such claims, including a direct quote to that effect from the MIBI’s auditor’s 2012 report. Based on the regulator’s data, the Irish motor market turns over around €1 billion premium income annually. The €90m liability for Setanta claims therefore approximates to 9% of that.
The decision comes at a challenging time for insurers in Ireland. The regulator reported in its June 2015 Macro Financial Review that “The motor, liability and property classes of the business performed particularly poorly, with the combined ratio for each risk class in excess of 100 per cent.”
It is not yet known if the MIBI plans to appeal or, indeed, if there may be plans to prepare a new Uninsured Drivers’ Agreement so as to exclude liability for insolvent motor insurers. If that were done, the Insurance Compensation Fund would be triggered, much in the same way as the FSCS would be in the UK. It is notable that this second possibility was alluded to by Mr Justice Hedigan at the end of his judgment:
“It may well be that developments in the insurance market on a European level have now altered the parameters of risk contemplated by the MIBI agreements. That cannot however affect the meaning of those agreements as understood until quite recently. It may well result in their alteration to limit such liability.”
About the Author
Alistair Kinley is BLM’s Director of Policy & Government Affairs.
Alistair is responsible for BLM’s engagement with government departments and regulators on policy and public affairs issues and consultations affecting the firm and its customers. He coordinated BLM’s market-facing activities in connection with the Insurance Act 2015 and the consultations which preceded its publication and introduction in Parliament.
He is a member of the Civil Justice Council (CJC), a regular speaker and experienced commentator on legal and procedural reforms and was a contributing editor to the Law Society’s Litigation Funding Handbook (September 2014).