Michael Noonan (Limerick City, Fine Gael)

Section 4 replaces section 3 of the Insurance Act 1964 and introduces three new sections: 3A on the application by the liquidator of an insolvent insurer; 3B on an application where the insurer in liquidation is an insurer authorised in another member state; and 3C on the payments out of the fund where an administrator is appointed. These provisions are designed to facilitate payments out of the fund to policyholders with regard to risks in the State where an Irish authorised or an EU authorised insurer goes into liquidation and the approval of the High Court has been obtained for such payments.

This section also provides that a body corporate or an incorporated body of persons may not be paid out of the fund unless the sum is due to an individual. The intention of this limitation is to confine the benefits of the scheme to consumers.

In more detail, section 3 is inserted into the 1964 Act and applies general terms to payments out of the fund.

Subsection (1) provides the general power to make payments out of the fund in respect of payments due under a policy issued by an insurer in liquidation. Subsection (2) operates to restrict payments from the fund where payment is available from other sources, for example where the claim is guaranteed by a party other than the insurer in liquidation. Subsection (3) elaborates on subsection (2) and provides that where the assets of the insurer in liquidation partially meet the claim the fund will take up the balance. This ensures that the fund is not used to meet the whole of the claim in a manner which would subsidise the assets available to meet the claims of other creditors. Subsection (4) retains the existing limits on the amount which can be paid out of the fund to the lesser of 65% of the total sum due under the policy or €825,000. These limits operate in addition to any payments received from the assets of the insurer or other sources, so where 35% of a claim was met from other sources the fund would contribute 65%, so that the policyholder would receive the total amount she was entitled to, assuming the €825,000 claim limit was not met. Subsection (5) clarifies that the limits imposed under subsections (3) and (4) also apply to liabilities to third parties. For example - where a payment from the fund is payable to a person injured by an insured driver, rather than payable to the policyholder, the limitations in subsections (3) and (4) will also apply. Subsection (6) retains the existing limitation of the scheme in respect of payment to legal persons. Legal persons are entitled to receive compensation under the scheme only in circumstances where the sum due is in respect of a liability to a human person or in respect of liabilities towards the legal person from a human person's insurance. Subsection (7) elaborates on subsection (2) and retains the existing limitation in respect of payments from the fund where the Motor Insurers' Bureau of Ireland, MIDI, meets the claim. It provides that the fund will contribute only towards any shortfall where a part payment is made by the MIDI. Subsection (8) defines "insurer in liquidation" for the purposes of the section. This definition means that subsection (1) operates in respect of Irish authorised insurers when a liquidator has been appointed by the High Court, or in respect of insurers authorised in another member state when an equivalent person is appointed.

Section 3A, application by liquidator of insolvent insurer, provides for the mechanics of payments being made out of the fund to the liquidator of an Irish authorised insurer which has gone into liquidation. Subsection (1) empowers the liquidator to apply to the High Court for payments to be made out of the fund under section 3, to meet the claims of policyholders of the liquidated insurer. Subsection (2) provides that where a liquidator receives money in respect of policyholders under subsection (1) it must be paid over by the liquidator to the policyholder concerned, so that it cannot be used to meet the claims of other creditors. The subsection also provides that the fund shall be a creditor of the insurer in respect of the amount paid over, and so will be entitled to recover any portion of the debt available to unsecured creditors in respect of the insurer's debts generally. Subsection (3) provides that where persons who receive payments from the fund also receive other sums in respect of the claim so that in total they receive in excess of 100% of the claim, they are obliged to repay the fund in the amount of the overpayment. The subsection also clarifies that where the accountant receives sums under the winding up of the insurer he shall not pay over those sums to the policyholder to the extent of any excess. Subsection (4) creates an offence where a person fails to make a repayment as required under subsection (3). Subsections (5) and (6) apply the standard provisions for the criminal responsibility of management if the offence under this subsection is committed by a legal person. Subsection (5) provides for the criminal liability of officers of a corporate body, where the corporate body commits the offence under subsection (4), in circumstances where they consent or connive in the offence or the offence is attributable to their wilful neglect. Subsection (6) applies the equivalent rules as apply under subsection (5) to offences committed by members who manage a body corporate, for example, members of a club. Subsection (7) provides that the Central Bank can bring summary prosecutions for the offence, as well as the DPP.

Section 3B deals with application where the insurer in liquidation is an insurer authorised in another member state. It provides for the mechanics of payments out of the fund which are due to policyholders of an insurer authorised in another member state. Subsection (1) provides that where the insurer concerned is in the equivalent of liquidation in another member state the accountant to the insurance compensation fund, who manages the fund on behalf of the High Court, can apply on behalf of the persons concerned for payment to be made, once in every six months. The limitation on the frequency of the applications is included to ensure that excessive legal costs are not imposed on the fund and to enable claims to be made in respect of a number of policyholders at a time, rather than in respect of each policyholder individually. This section also makes provision to allow the accountant of the High Court to receive a payment from the fund for the costs of any application to the insurance compensation fund he or she makes to the High Court on behalf of policyholders of insurance companies authorised outside the State, whether the application is successful or not.

Subsection (2) provides that where an amount is paid out of the fund under subsection (3), the accountant will pay over the amount due to the person concerned, and the fund and the accountant will be a creditor of the insurer concerned in respect of the amount paid over. Subsection (3) provides that where a person receives an overpayment in respect of the claim, between payments made by the fund and payments from other sources, the amount of excess must be repaid to the fund. This will mean that the fund covers a shortfall in the claim, subject to the limits imposed in section 3, but will not cover overpayments which would result in a windfall for the person concerned. Subsection (4) provides for an offence equivalent to that which applies under section 3B, where a person fails to make a repayment as required under subsection (3). Subsections (5) and (6) apply the standard provisions for the criminal responsibility of management if the offence under this subsection is committed by a legal person.

Subsection (5) provides for the criminal liability of officers of a corporate body, where the corporate body commits the offence under subsection (4), in circumstances where they consent or connive in the offence or the offence is attributable to their willful neglect. Subsection (6) applies the equivalent rules as apply under subsection (5) to offences committed by members who manage a body corporate, for example, members of a club. Subsection (7) provides that the Central Bank can bring summary prosecutions for the offence, as well as the DPP.

Section 3C deals with payments out of fund where an administrator is appointed. Section 3C provides for the mechanics of payments out of the fund in respect of administrations. Subsection (1) provides for payments out of the fund in respect of administrations. Where, in the opinion of the Central Bank, the average business of the insurer was at least 70%; in respect of Irish risks, then the current rules will apply and sums required to enable the administrator to carry on the business of the insurer and to perform his or her functions can be paid out of the fund. Where the average proportion of the insurer's business over three years that concerns risk in the state is less than 70% then payments from the fund will only be available to defray the expenses of the administrator in circumstances where those expenses are unlikely to be defrayed from other sources. Subsection (2) retains existing provisions which apply to payments made to administrators, so that the amount paid from the fund is an unsecured debt of the insurer. There is also a provision to enable the Minister for Finance to waive such a debt in certain circumstances. The provision mirrors the existing provisions in both respects. Subsection (3) relates to the existing restriction on payment of dividends or making other distributions to shareholders, while an administrator is appointed to an insurer remains. The restriction would continue to apply after an administrator ceases to be appointed to the insurer, while the debt remains outstanding. Subsection (4) mirrors the substance of the existing provisions in respect of the matters to which the High Court shall have regard in exercising its discretion under subsection (1).

Members can see the section is technical. It deals with how the fund will operate. I wanted to read it into the record in order that a full explanation is provided for Members and the industry.

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