Haunted by the burnout of VCI General

Insurance Helpline With Cedric Stephens

Question: I was involved in a motor accident about 10 years ago. A pedestrian was seriously injured. My car was insured with VCI General Insurance Company.

The accident was reported to the insurers via my brokers. In 1998, the insurance company was placed under judicial management.

Earlier this year, I learned that the injured person had filed and won a lawsuit against me. The court made an award against me in the sum of J$6 million. I have been scrambling around to find the money to settle the claim since VCI General is no longer around. Could you please share my experience with your readers and, at the same time, fill in the details so that they can take steps to avoid what happened to me?

- MR, Spanish Town, St Catherine

Answer: Morris Cargill was absolutely correct. The former columnist for this newspaper, who died 10 years ago, predicted in an article dated March 29, 1999, that "there will be ... no question of any bailout by FINSAC" in relation to VCI.

Your case is one example of what he called a "heartbreaking story" that we would hear about after that company collapsed three years after its launch.

financial difficulties

The Supreme Court appointed a judicial manager to oversee VCI's affairs in July 2008. This was after then regulator, the Office of the Superintendent of Insurance, had found out that the company had run into financial difficulties.

A report published in this newspaper on March 17, 1999, said some J$236 million in funds that formed part of the capital of the company when it started in 1995 "mysteriously disappeared".

The company's founder also went missing. The company was wound up, leaving policyholders, claimants - including you - creditors and shareholders holding the bag.

The lessons to be learned from your experience are:

1. Buyers of motor insurance who cause accidents can end up paying claimant's awards plus legal fees to injured persons if the insurer were to go bust.

2. Persons who suffer injuries because of the fault of drivers that cause accidents can end up being uncompensated where the insurer becomes insolvent and the owner/driver does not have the financial resources - unlike you - to pay the claim.

3. With the delays in our court system, claims involving personal injuries can have very long 'tails'.

4. It is a principle of law that brokers do not guarantee the performance of markets they use to place their clients' business. Brokers are, however, under a duty to exercise "reasonable skill and care" in the selection of insurers, which are generally financially sound, and satisfying themselves that the security used is reasonably appropriate for the business that is being insured.

5. Insurance, buying decisions should not be based solely on which company offers the lowest premium given the things learned in items 1, 3 and 4.

6. Where a lawsuit alleging negligence is filed, the defendant - in your case, you - has a personal duty to regularly follow up what is happening to prevent nasty surprises like having a bailiff visit your home or office to seize goods to satisfy a court judgment.

Some countries run insurance-guarantee schemes.These schemes, or funds, provide bailouts when insurers go bust and the courts order them liquidated, as was the case with VCI.

Money for the funds come from three sources. One is the remaining assets of the busted insurer. In the case of VCI, this was about J$600,000

The other is the cash that was previously deposited with the regulator. This turned out in the case of VCI to be a piece of paper saying it was worth J$236 million.

guarantee scheme

The third source is assessments levied on the insurers that are authorised to conduct business. If there was a system like this here at the time, you would not have had to find J$6 million when VCI - a company that the state authorised and regulated - died so quickly after it went into business.

Government runs a guarantee scheme for some of the money that is lodged with our commercial banks. Accounts of certain types are insured, subject to pre-set limits, by the Jamaica Deposit Insurance Corporation. The Financial Services Commission is empowered under Section 122 of The Insurance Act 2001 "to establish a scheme or may require registered insurers to contribute to a scheme approved by the Commission, for the collection of monetary contributions from registered insurers and registered intermediaries, if the Minister (of Finance), on the recommendation of the Commission, determines that it is in public interest "

You were slapped in the face with a bill for J$6 million. This occurred even though you played by the rules and bought and paid for motor insurance from a company that was regulated by the State. Surely, this is a matter of public interest.

Cedric E. Stephens provides independent information and free advice about the management of risks and insurance. aegis@cwjamaica.com . Text (SMS) message to 812-7233.