An insurer's interpretation of a "get-out" clause, used to escape paying compensation for material damage in certain road accidents, has been held as unsustainable by a Circuit Court judge.

In a decision that has far reaching consequences for the Motor Insurers' Bureau of Ireland, Judge Bryan Mc Mahon rejected its argument that it was not obliged to pay out any compensation when the driver of a stolen vehicle remained unknown. He said Clause 7 (2) of a 1988 Agreement between the Minister for the Environment and the Bureau stated "the liability of MIBI for damage to property shall not extend to damage caused by a vehicle the owner or user of which remains unidentified or untraced"

The MIBI had argued it was not obliged to compensate Dublin Bus for two accidents caused by stolen cars because their "users" remained unidentified or untraced. For any liability to arise both owner and user had to be identified and traced. If one remained unidentified or untraced there was no liability.

Judge Mc Mahon said that in the cases before him the owners of the stolen cars had been identified and traced but the drivers had not been located. He said the clause had been drafted to give effect to a provision of an EU directive introduced to protect national schemes such as that operated by the MIBI against fraudulent claims.

The directive allowed an exception only when "the vehicle" was unidentified. It did not justify attempts to exclude payments of compensation when "the owner or user" was unidentified or untraced, even though the vehicle had been located and identified.

Judge Mc Mahon said the MIBI fund had been made available from insurers to compensate victims of road traffic accidents caused by uninsured or stolen vehicles or by unidentified or untraced drivers.

In respect of hit-and-run accidents, compensation had initially been provided only for personal injuries and restrictions applied in relation to property damage to protect the fund against fraudulent claims.

The main fear was that a person who damaged h is own vehicle might claim it had been damaged by an untraced hit-and-run motorist and claim property loss against the fund.

The EU had recognised this problem and its Directive provided that member States, in their national schemes, could restrict liability to a limited extent when "the vehicle" remained unidentified.

Judge McMahon said the clause in dispute was more extensive that that which had been permitted by the Directive and was a wrong or improper attempt to transpose EC obligations into Irish Law. The MIBI had long accepted the error contained in its agreement with the Minister in transposing the EU directive into Irish law and had been on record as not having enforced the clause since April 1996.

In spite of public statements to the contrary, the MIBI was still relying on the terms of the clause when it suited them.

"EU law obliges member states not only to transpose EU measures properly into their national law, it also obliges them to remove, by positive action, incorrect transpositions or erroneous statements of the law once they are known and identified," Judge Mc Mahon said.

Had the directive been properly implemented then there was no doubt Dublin Bus would have recovered their property damage from the MIBI. It was equally clear an individual could sue the State for damages suffered as a result of its failure to implement the directive.