Motor insurance costs set to rise after High Court ruling

Motorists face a significant increase in the cost of insurance premiums following a High Court ruling on the liquidation of insurance company Setanta, which collapsed last year.

The court ruled that the Motor Insurance Bureau of Ireland has to cover nearly 1,800 outstanding claims with an estimated liability of up to €90 million.

Setanta Insurance was established in Malta but only ever wrote motor insurance business in Ireland.

At one stage 75,000 motorists were insured with the company.

However, it went into liquidation in April 2014 – and the Malta-based liquidator is still attempting to unravel the affairs of the company – including who actually owns it.

Meanwhile there has been a dispute as to whether the MIBI or the Insurance Compensation Fund should meet the claims.

The MIBI had argued that it only had liability for uninsured drivers, and that at the time of the relevant accidents, the motorists in question were validly insured with Setanta.

They argued that the Insurance Compensation Fund should pick up the bill.

However, the decision was important for claimants.

Where the MIBI is deemed liable, the claimant receives 100% of their compensation award. However, where the Insurance Compensation Fund is liable, the claimant’s entitlement to recover losses is capped at 65%.

The Law Society took a case to the High Court seeking clarity as to which body should be responsible.

In his judgment delivered this morning, Mr Justice John Hedigan ruled that the MIBI was liable to pay out in respect of claims against persons who were insured with Setanta at the time of its entry into liquidation in April 2004.

The MIBI said it was studying the judgment. However sources said that given the E90 million scale of the potential liability, it was likely to be appealed.

However, it brings claimants – many of whom have suffered significant injury and loss – a little closer to securing compensation.

High Court decision a severe blow – Aviva

Insurance company Aviva has described today’s High Court decision as a severe blow to insurers and their customers.

In a statement the company said the cost of this decision will ultimately be borne by customers who will face additional premium increases – on top of substantial increases already imposed this year.

Aviva said the decision means that uniquely in this economy, the insurance sector is being asked to cover the failures of competing entities.

It said it was “entirely unacceptable” that MIBI’s liability should be extended to include the losses of an imprudent competitor who had failed to provide for the costs of its claims – adding that this was not a sustainable platform for any business.

Aviva claimed the decision could potentially drive reckless behaviour among certain insurers, who would know that with their competitors acting as their safety net, such entities would have little incentive to set aside funds to meet their claims costs.

They said today’s High Court decision puts prudent insurers operating in the Irish market in the impossible position of having to set aside capital to pick up the tab for a reckless competitor.