Legal loophole leaves Cayman accident victims exposed to financial ruin

At a glance

• Road accident victims are at risk of financial ruin due to a loophole in Cayman’s motor insurance regime
• Attorney Christopher Perry recommends a change in the law and said, ‘insurers should carry the burden’
• A central compensation fund would be a workable solution, according to the director of the Cayman Islands Insurance Association board

A loophole in Cayman’s motor insurance regime is leaving road accident victims at risk of financial ruin.

Anyone injured by a driver who has no insurance, or whose policy is later ruled invalid, is currently forced to cover their own medical expenses and other financial losses, which in extreme cases can run to millions of dollars.

While some accident victims may be able to claim the cost of medical treatment on their own health insurance, policy limits and other restrictions often mean the insurer will not cover the full amount.

It is also uncommon for insurance to cover other damages, such as lost earnings or careers in cases of serious injury.

Even when another driver is proven to be at fault, including in cases of blatant lawbreaking such as drink-driving, the burden is on the victim to pursue damages through the courts – an often lengthy, uncertain and expensive process.

If a driver has failed to disclose previous convictions or other material information to their insurer, the policy can be voided, meaning there is effectively no insurance coverage in place.

Campaign for change

Legal experts say that leaves a critical gap in protection for innocent victims.

Christopher Perry, of Perry & Anglin Attorneys-at-Law, is recommending a change in the law. He said common protections in other jurisdictions “just don’t exist here”.

Unlike in the UK, for example, Cayman law does not require insurers to compensate third-party victims when a motor insurance policy can be avoided or invalidated.

Under British law, he said, “where an insurer has provided insurance for a vehicle, that insurer is required to settle any third-party claims arising from an accident involving that vehicle, even in cases involving material non-disclosure, fraud or licensing issues, such as driving while disqualified”.

Any dispute between the insurer and the policyholder is addressed afterwards.

“The victim is always protected,” he said.

In Cayman, however, insurers can deny liability where a policy has been breached.

“They can lawfully and reasonably take a step back,” he said, leaving “the victim having to sue the person who was driving, hoping that they have the means to meet the costs of the claim”.

Compensation for catastrophic injuries can run into millions of dollars, yet individual drivers may have no realistic ability to pay, he warned.

Until recently Cayman did not have a no-win, no-fee option for civil cases and the up-front costs of bringing court action presented an additional barrier to justice for victims. A legal change in 2021 opened the way for law firms to accept clients on a contingency fee basis, allowing people to pursue compensation claims without the usual upfront costs.*

Perry: ‘Insurers should carry the burden’

Perry said the solution is for insurers to compensate victims first and then seek recovery from the offending driver.

He noted that insurers can hedge against such losses through their premium structures and are far better equipped to litigate than accident victims.

“Insurance companies are good for the money. That is the real protection,” he said.

He added that the problem is more widespread than many appreciate.

Changing the law to reflect the UK regime would protect victims and the government – which often ends up funding healthcare for those who cannot pay – from such expenses.

The proposals include two key legislative changes that address subtly different problems.

• Amending the law to require insurers to compensate victims first, even where the policy can be avoided due to non-compliance with its terms or material non-disclosure
• Establishing a central compensation fund, similar to the UK’s Motor Insurers’ Bureau, to cover cases involving uninsured or untraced drivers

Perry argues the current system unfairly places risk on victims, who have no control over who injures them.

“You don’t get to choose whether you’re a victim or not. You don’t get to choose whether or not a driver who hits you has complied with the terms of their insurance policy.”

“The United States has no equivalent federal protection, and no central compensation fund. The gap has helped fuel a vast no-win no-fee personal injury litigation industry – an option largely unavailable to Cayman victims, who largely must fund legal action themselves in the first instance.

Insurers support some of the proposals

The insurance industry supports a central fund but has pushed back on proposals to require insurers to pay out on invalid policies.

Jack Leeland, CEO of Saxon Motor Insurance and a director of the Cayman Islands Insurance Association board, acknowledged the problem is real and said he believed a central compensation fund modelled on the UK’s MIB would be a workable solution for Cayman. ‘I believe something like the MIB would be a good solution,’ he said.

But he drew a line at requiring individual insurers to pay out on invalid policies. “In situations where there is no valid insurance in place, I do not agree that any insurance company should have to pay out and then recoup costs themselves,” he said.

In addition to the creation of a central fund similar to the UK model, Leeland emphasised the need to reduce uninsured driving through “education, intervention and enforcement”.

Perry’s proposal goes further by emphasising a key distinction under UK law – that a driver who obtained a policy, even a flawed one, is a different case from one who never insured at all, and that the insurer who accepted the premium is better placed than the victim to pursue recovery. 

Two recent cases fall into that gap. A cyclist won damages against a drink driver in a recent Grand Court Case but received no compensation after the insurance policy was ruled invalid. Under the UK system, the insurer would typically still be required to pay the victim and then pursue the driver for reimbursement.

Another case last year highlighted the human and financial toll, with a Caymanian chef left in a coma for almost a year after a hit-and-run crash. Relatives told the Cayman Compass at the time that they received no payout from the driver after the insurance policy was deemed invalid.

• This story has been amended to reflect the fact that no-win, no-fee lawsuits are now allowed in Cayman