Insurance Update: 2015 Review
27 January 2016
2015 was another challenging year for the Irish insurance industry. The media spotlight fell on increasing premiums, particularly in the area of motor insurance. Underwriters blamed the increases on higher Court awards and legal costs.
Key topics in 2015 included:
From a legal perspective, there are three notable decisions that were given in the High Court and Court of Appeal during 2015 which will impact significantly on cost of claims and reserving policies.
The first decision involved the collapse of the Malta registered insurance company named Setanta. Following the liquidation of Setanta on 30 April 2014, about 1,750 claims by and against Setanta policyholders remained in existence. An issue had arisen as to who was liable to cover these claims - the Motor Insurers Bureau of Ireland ("MIBI") or the Insurance Compensation Fund - and the Law Society asked the court to determine the matter.
The cost of these claims was €90 million. On 4 September 2015, the High Court determined that the MIBI was liable to pay out the claims against persons who were insured with Setanta at the time of its entry into liquidation.
The role of MIBI, which is wholly funded by motor insurers according to their market share, has been to compensate victims of road traffic accidents caused by uninsured and unidentified vehicles. Insurers have described the decision as a “severe blow”. The MIBI is appealing the High Court’s decision and is currently awaiting a date for the matter to be heard before the Court of Appeal.
On 5 November 2015, the Court of Appeal delivered its much anticipated Judgment in the case of Gill Russell v HSE relating to the “real rate of return”. The real rate of return is the investment return that a Plaintiff is assumed to obtain should he invest his lump sum settlement award. Simply put, the higher the real rate of return applied to a lump sum, the lower the award, and vice versa.
The Judgment, delivered by Ms Justice Irvine, effectively upholds the High Court judgment of Mr Justice Cross, which reduced the real rate of return from the traditional 3% to between 1 and 1.5%. The impact of the Judgment on the significance of lump sum settlement awards is hugely significant. The State Claims Agency has estimated that the application of a 1 - 1.5% real rate of return would increase the cost of meeting medical negligence claims by circa €100 million per annum. It will have a similarly significant effect on private insurers, particularly motor insurers.
To demonstrate the impact, we take a theoretical case of a 20 year old Plaintiff with a life expectancy of 71. An award for care costs of €6.2 million under the old 3% regime would become an award for €9.5 million using the new 1% rate.
The third Judgment was given by the Court of Appeal in December and for once is heartening news for the insurance defence industry and employers. We represented the Board of Management of a school in its successful appeal against a High Court decision which awarded a Special Needs Assistant at the school €255,000 for alleged bullying in the workplace.
The High Court judgment had expanded the accepted definition of bullying but the Court of Appeal reversal of the award has affirmed the status quo. The Court of Appeal judgment demonstrates that, even if a Plaintiff can illustrate an entirely unsatisfactory or “botched” disciplinary process, this will not in itself be enough to meet the requisite standards for a successful bullying claim.
For more information, please contact a member of our Insurance & Professional Risks team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.