The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Motor vehicle insurance premiums will “increase across the board” if a judgment, which the Court of Appeal president admitted “may cause some consternation in the motor insurance industry”, ultimately stands.

Industry executives yesterday told Tribune Business that the verdict, handed down on Friday, has “really huge implications” for both insurers and businesses/consumers, as it renders “invalid” the ‘restricted driver’ clauses contained in most Bahamian auto policies.

Bahamas-based auto insurers mitigate their risk exposure by restricting who drives the vehicle underwritten by the policy.

This means that Bahamian property and casualty insurers’ liabilities will be restricted just to accidents involving drivers who appear on the Certificate of Insurance and insurance policy. No payouts will be incurred if ‘unauthorised drivers’ are responsible.

But the Court of Appeal’s judgment, in a case involving Insurance Company of the Bahamas (ICB), the carrier through which BISX-listed J. S. Johnson places much of its general business, ruled that such ‘restricted driver’ clauses were invalid and “of no effect”.

Hinting that ICB would likely appeal the ruling to the Privy Council, Tom Duff, its general manager, told Tribune Business: “That particular judgment is of interest to us and the whole insurance industry.

“It has great significance to the way we do motor insurance business in the Bahamas. It’s something we’ll have to look very closely at.”

Analysing the implications, Mr Duff said that if ‘restricted driver’ clauses were no longer valid, the Bahamian auto insurance industry’s risk/loss exposure would increase markedly.

And, because the sector’s risk profile had increased, underwriters would have little choice but to substantially increase the premiums paid by businesses and individual vehicle owners to compensate.

“It revolves around the ability of motor underwriters to restrict the drivers - who should/should not drive - under any given policy,” Mr Duff said. “This judgment could restrict our ability to do that.

“Until now, we’ve worked on the basis that if you restrict drivers under the policy, you can restrict your exposure. It’s a critical part of underwriting.”

Asked whether the Court of Appeal ruling, if it went unchallenged or was not overturned at the Privy Council, would result in increased premiums for Bahamian motorists, Mr Duff replied: “I would say that would be inevitable if that’s the route we have to go.

“The implications are really huge. The judgment, if it went unchallenged, it would prevent underwriters restricting drivers on any policy. The ability of insurers to select drivers, and underwrite those drivers, is a critical part of underwriting and pricing risk.

“If insurance companies are prevented from doing this, there’ll be no option but to increase premiums across the board. There’ll be no alternative.

“I’m sure that’s not what the learned judges wanted to see, but that will be a consequence of this ruling.”

Mr Duff added that he was set to discuss the matter with industry colleagues to potentially form a common response and position.

The Court of Appeal’s ruling relates to a case brought by one Eric Antonio, described as “the innocent victim” of a January 29, 2004, road traffic accident.

“The appellant was seriously injured in a traffic accident caused by the negligence of the driver of bus 304, owned by Convenient City Transit Services Company,” Court of Appeal president, Justice Anita Allen, wrote in her judgment.

“The bus at the time was insured by the respondent [ICB}, and was being driven with the authority and consent of the insured by an employee, Stevan Edgecombe, who, it was admitted, was not specifically named as an authorised driver in the Certificate of Insurance.”

ICB, as result, denied it was liable for Mr Antonio’s injuries, and he subsequently entered a judgment against Convenient and Mr Edgecombe for $521,807.

The matter went to trial before Chief Justice Sir Michael Barnett, and “it was determined that as the bus was not being driven at the material time by a person authorised to drive the vehicle in accordance with the Contract and Certificate of Insurance, there was no effective policy in place, and the appellant could not recover from [ICB] for the injuries suffered in the accident”.

The contract exempted ICB from liability ‘paying out’ when the vehicle was not driven by an ‘authorised’ person, such as Mr Edgecombe, but Justice Allen said statute law also played a part.

Mr Antonio’s attorney had argued that Section 12 (1) of the Road Traffic Act required ICB to pay the judgment sum, but the insurer stuck to its position that this did not apply, and that it was only liable for accidents caused by ‘authorised drivers’.

Noting that the policyholder, Convenient, was a company, Justice Allen found: “It follows that if one accepts that the policyholder is a limited liability company and not a natural person, and that the policy is in effect when the vehicle is being driven or used by Convenient, the only conclusion which one can logically come to is that Edgecombe, as an employee of Convenient, operating the bus during the course of Convenient’s business and with its consent, is by implication covered by section 2 of the policy..........

“To deny liability for Edgecombe’s negligence would be to deny that Convenient was insured under the policy. That fortifies my view that the construction of the policy I advocate is correct, and the respondent [ICB] is obliged to indemnify Edgecombe.”

Justice Allen then turned to the issue of “greater general public importance” - whether the Road Traffic Act’s section 12 (1) “invalidates so much of any policy which purports to limit the insurer’s third party liability”.

She added: “Put another way, the question is whether under section 12 (1) the defence of unauthorised driver is available to insurers vis- a’- vis third parties, and if so, in what circumstances.”

Nothing that third party rights in auto insurance contracts had “troubled the courts of many jurisdictions”, Justice Allen said there were two conflicting issues - the freedom to contract, and the “statutory objective to protect innocent users of the road who are strangers to the motor vehicle contract of insurance”.

And she added: “If insurers are able to limit their liability according to their whims and fancies, it means many unfortunate victims of negligent but uninsured drivers would not be protected by the Act, and would remain un-compensated for their loss.”

The key question, Justice Allen said, was whether the Road Traffic Act’s section 12 (1) allowed “parties to enforce their judgments against insurers, despite conditions in the policy which purport to limit the insurers’ liability.

“Can parties to contracts of motor vehicle insurance by agreement still negate, circumvent or override the stated objective of Part 3 of the Act, namely, the protection of third parties against risks arising out of the use of motor vehicles on the road?”

Noting that the policy in the Convenient case covered injuries to third parties, Justice Allen said: “The restriction in question purports to limit this liability to the named authorised drivers.

“In as much as Edgecombe falls within the class of persons covered by the terms of the policy and is not, in any event, in breach of any terms which would entitle the insurers to avoid or evade liability, the insurer, under section 12(1), is liable to indemnify him as the restriction would have no effect.”

Setting aside the Supreme Court decision, Justice Allen ordered ICB to pay Mr Antonio the $521,807 with interest at 6 per cent per annum from September 2010, when the judgment from Convenient was obtained.

“I realise, of course, that the conclusion reached in this judgment may cause some consternation in the motor insurance industry, and indeed will have a sizeable impact on ordinary persons who must buy insurance if they are to drive or use their vehicles on the road,” Justice Allen concluded.

“But to decide otherwise would be plainly wrong in light of the law as it stands, and indefensible in the face of an innocent and hapless victim, who has suffered personal injury and loss caused by a vehicle that was insured at the material time.

“I am satisfied, however, that the decision reflects the true meaning of the specific provision of the Act; accords with the objective of Part 3 of the Act, namely, the protection of third parties; and meets the justice of the case.”