Friendly Societies in Bermuda: Driving Without Insurance?

By: Alex Potts and Caitlin Conyers, Sedgwick Chudleigh, Bermuda

Friendly Societies in Bermuda have their origins in Britain’s industrial revolution in the 18th and 19th centuries, when mutual self-help organizations were first established to provide affordable welfare benefits and financial assistance to their members, including unemployment benefits, health insurance, pension benefits, and funeral expenses.

Although Friendly Societies may still have a role to play in 21st century Bermuda, the Supreme Court of Bermuda recently ruled that their role does not stretch so far as the unregulated provision of liability insurance for third-party motor risks, on a true interpretation of section 1 of Bermuda’s Friendly Societies Act 1868 and section 57(1)(a) of Bermuda’s Insurance Act 1978, and taking into account Bermuda’s status as a “financially sophisticated” insurance/reinsurance market.

In his recent judgment in the case of Bentley Friendly Society v Director of Transport Control Department [2016] SC (Bda) 65 Civ, dated 15 June 2016, Mr. Justice Hellman held that the provision by a Friendly Society of motor vehicle insurance with respect to third-party motor liability risks is “insurance business” within the meaning of the Motor Car Insurance (Third-Party Risks) Act 1943 and, therefore, it must be authorized by the Governor of Bermuda in compliance with that Act.

In the Judge’s view, it would be for the Governor of Bermuda — when determining whether or not to grant approval — to consider public policy matters such as whether a Friendly Society would be able to satisfy any reasonably foreseeable third-party claims, and whether the interests of third parties would be adequately protected.  The Court noted, however, that the Bentley Friendly Society had not produced any audited financial statements (making it difficult for the Governor of Bermuda to assess its ability to satisfy third-party claims), and that it had not yet been authorized to conduct insurance business by the Governor.  The Court also pointed out that any person who conducts “insurance business” without proper authorization commits an offence.

The Court’s judgment upheld the position taken by the Government of Bermuda in April 2014, that approximately 50 motor insurance policies issued by the Bentley Friendly Society were legally invalid, as the Governor of Bermuda had not authorized the plaintiff to undertake such insurance business when the liability policies were issued.

The Bermuda Monetary Authority previously had recommended a repeal of section 57(1)(a) of the Insurance Act 1978 by its Consultation Papers dated June 2014 and October 2014, with a view to bringing Friendly Society insurance business into the regulatory, prudential, and legislative framework set out in the Insurance Act 1978, and under the supervision of the Bermuda Monetary Authority.  The Bermuda Monetary Authority’s proposed amendments have not yet been enacted, although the Court’s judgment has highlighted the need for regulatory reform in this area.  The Court noted, however, that different standards of regulatory oversight might apply to Friendly Societies with respect to first-party risks because, unlike third parties, “the members have the opportunity to inform themselves … and take an informed decision.”

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