Supreme Court: State Insurance Compensation Fund must cover claims against collapsed insurer Setanta

About this case:

• Judgment:
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Delivering the judgment of the 5:2 majority, Justice O’Donnell found that on a proper interpretation of the MIBI Agreement, that MIBI was not obliged to cover claims to be met by an insolvent insurer.

Background

The appeal was concerned with the potential liability either the State’s Insurance Compensation Fund or the Motor Insurers’ Bureau of Ireland in respect of the compensation of parties injured in motor accidents due to the negligence of drivers who had policies of insurance with the now insolvent Setanta Insurance company

Opposing the MIBI appeal, The Law Society of Ireland argued that a finding that liability lay with the insurance fund, and not the MIBI “would be to the benefit of insurers at the expense of victims” due to the fact that coverage by the insurance fund was capped at 65% of the claim awarded.

In the course of the Supreme Court judgment, it was noted by Justice O’Donnell that other companies which had failed, and been the subject of payments through the insurance fund, namely the ICI, PMPA, and Quinn Insurance Ltd., all had substantial businesses and the amount of the deficiencies involved were €139m, €164m and €1.158bn respectively. Faced with such substantial claims, Justice O’Donnell opined that the MIBI as a limited company would simply be wound up if it were to be held liable.

The MIBI Agreement

The MIBI Agreement was introduced to address the problem in the case of uninsured or untraced drivers, at least. The issue to be resolved by the Supreme Court was the possibility of ‘recovery by the MIBI against the insured whose insurer has become insolvent’. Therefore, it was explained that the purpose of the MIBI from its inception has been designed to at least partly fill the gap in cases where persons are injured due to the negligence of drivers who are not insured.

In considering the MIBI Agreement, Justice O’Donnell stated that one of the purposes of compulsory insurance was to protect drivers from the costs of compensation which might otherwise be ruinous – given that, it might be expected that if it was intended that there should be recovery from the MIBI rather than the insurance fund, then the parties to the Agreement would have addressed the apparent injustice of treating a person who has complied with the obligation to obtain insurance (but where insurer becomes insolvent after the accident) in the same way as a person who for example had not obtained insurance or left the scene of an accident.

Justice O’Donnell held that it was not possible to arrive at a conclusion that the Agreement, in which MIBI would be liable for uninsured or untraced drivers could be extended to insurers.

Liability for claims against drivers whose insurance company has become insolvent raised different issues of law, procedure and fact, and moreover involved significantly different risk and exposure – Justice O’Donnell did not accept that had such an extension of liability been intended on each occasion on which the Agreement was made or renewed or amended, that detailed provisions would not have been included for the different factual and legal scenarios, and that explicit provision would be made for the interaction between satisfaction by the MIBI and recovery from the insurance fund, and indeed the possibility of recovery of portion of the amount from the liquidator of the insolvent insurer.

In those circumstances, Justice O’Donnell concluded that the Agreement must be interpreted as applying only to the limited class of cases as asserted by the MIBI and does not extend generally to cases where an insurer is insolvent.

Justices Denham, McKechnie, Charleton and O’Malley concurring, Justice O’Donnell allowed the appeal and held that the declaration made in the Court of Appeal should be set aside.