Dispute Resolution Update: Setanta Insurance Decision – Pieces in a Jigsaw
11 July 2017
The Motor Insurers’ Bureau of Ireland (“MIBI”) was established to compensate victims of road traffic accidents caused by uninsured and unidentified vehicles.
In the Law Society of Ireland v the Motor Insurers’ Bureau of Ireland case, the Supreme Court found that the MIBI agreements were not designed to cover claims attributable to an insolvent insurance company.
Judge O’Donnell’s judgment overturned the earlier Court of Appeal’s interpretation of the MIBI agreements and drilled into the relevant principles to consider when interpreting an agreement.
Both President Ryan and Ms Justice Finlay Geoghegan in the Court of Appeal decided that they could not depart from the ordinary and natural meaning of a provision or clause. As a result, if another provision was not compatible with the natural and ordinary meaning of the words under consideration, any consequent injustice must simply be accepted. Applying this approach to the facts would result in the situation where a driver held an insurance policy with an insurer that became insolvent and was involved in an accident, the MIBI would pay out on a claim made in respect of the policy. However, the MIBI would then, in turn, be able to pursue the policy-holder.
Judge O’Donnell determined that where there is an incompatibility between two provisions and an obvious injustice, that would be a reason to consider if a contextualised meaning should be given to the words.
He explained that when faced with ambiguity within an agreement, it is necessary to depend to a certain degree on perception. The agreement should be afforded the meaning which both parties are taken to have agreed on in terms of the agreement as a whole and not the specific term in dispute.
He likened this scenario to a freeform jigsaw that could be arranged in two different patterns. Both arrangements have attractive elements but some pieces might be difficult to fit into the overall pattern. In these circumstances, it is necessary to stand back and consider the overall picture. He thought that it was not possible for an agreement to be attributed a meaning that neither of the parties intended. In this instance, he held that if the parties intended that the MIBI would cover the liabilities of an insolvent insurance company, they would have addressed this point in the agreement.
A well-drafted agreement should create certainty for the parties involved. If there is an ambiguity surrounding a particular clause which leads to litigation, the court will take a holistic approach by seeking to understand the overall intention of the parties when looking at specific provisions.
For more information on the implications of this decision, please contact a member of our Dispute Resolution team.
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