Motorists could be liable for claims if their insurer goes bust

Motor insurance policyholders in Ireland could be left personally liable for a portion of any claim against them if they have an accident and their insurer goes bust.

This has emerged as the liquidation process continues following the collapse of Setanta Insurance in 2014. In a letter seen by The Irish Times to former policyholders, a solicitor instructed to act on behalf of those policyholders suggests they could be held personally liable as a result of the shortfall to claimants involved in an accident.

While concerning in itself for former Setanta clients, it could have wider ramifications for all insured car drivers if an insurance company was to cease doing business.

One former policyholder, who asked to remain anonymous, said when they got the letter they were “totally stressed”.

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“Nobody has told me anything and we were told that a judgment could be made against our house after we die.

“I would like people to be aware of what can happen. When you’re insured, you think ‘great, I’m insured’, but you don’t realise what can happen.”

Setanta was incorporated in Malta and, as it was an insolvent insurer registered in another European Economic Area member state, its liquidator has access to the Insurance Compensation Fund (ICF).

As a result, each eligible claim for compensation from the fund will be limited to a payment of 65 per cent of the claim or €825,000, whichever is less. This means that any policyholders involved in a crash could have to pay up to 35 per cent of a claimant’s damages and solicitor’s costs.

Claimant

That prospect isn't, however, limited to those who held policies with Setanta. As Shane Neville, insurance partner with law firm LK Shields, explains, when there are proceedings by a claimant, it's not the insurer that gets sued, it's the person who holds the policy. If the insurer hasn't gone out of business, then that is not an issue because the insurer stands behind the policyholder. However, in the case of Setanta – and any future insurers that go bust – any undischarged portion of a judgment brought by an injured party could be enforced against the policyholder personally.

“People need to realise that it’s not just about finding the cheapest insurer out there, it’s about looking at their track record in the market and their credit rating,” Mr Neville warned.

“If you look at an insurer that’s new to the market and one that’s established, you have to give some weight to the fact that one has been here for so long,” he added.

While insurance companies are regulated by the Central Bank of Ireland, the issue of personal liability is something that would have to be altered through legislation.

As to whether that could change, a review of the framework for motor insurance compensation, completed in June 2016, suggested that the level of compensation under the ICF should be increased to 100 per cent. That suggestion is now with an Oireachtas committee for pre-legislative scrutiny.

"The Minister for Finance accepts that this is a difficult position for all parties to this process. As indicated in recent parliamentary questions, he believes it is important to establish what the consequences of Government intervention would be before he can make an informed decision on this matter," a Department of Finance spokeswoman said.

Earlier this year, the Supreme Court ruled that the State's ICF should be liable for the compensation. This reversed a previous High Court ruling that the Motor Insurers' Bureau of Ireland (Mibi) should pick up the bill.

Mibi, which was originally set up to meet the cost of claims involving uninsured drivers, would have been liable for 100 per cent of the Setanta claims.