The Motor Insurers Bureau of Ireland is potentially liable for hundreds of outstanding claims following the collapse of the Setanta insurance firm, according to the Court of Appeal.
The ruling has important implications for motor insurance premiums as well as parties involved in claims concerning Setanta.
The MIBI had asked the court to set aside a High Court judgment that it must pay out on claims against persons insured with Setanta when that firm was liquidated in 2014.
It had argued it should not have to pay out the claims.
Opposing the appeal, the Law Society said it was envisaged, in all various agreements governing the MIBI since it was established in the 1950s, it would have to pay out if a member became insolvent.
The appeal was unanimously rejected by President of the Court of Appeal Mr Justice Sean Ryan, Ms Justice Mary Finlay Geoghegan and Mr Justice Gerard Hogan.
The court also directed that the sides should pay their own costs of the case.
The High Court ruling meant the MIBI had to pay out after it was asked to determine whether the MIBI or the Insurance Compensation Fund, used until now to cover the claims of insolvent insurance companies, was liable for the claims.
The MIBI is operated under the terms of an agreement between the Government and those companies underwriting motor insurance in Ireland to deal with claims related to uninsured drivers.
Around 1,750 claims by and against Setanta policyholders remained in existence following the company's liquidation.
The case was initially brought by the Accountant of the Courts of Justice who has statutory responsibility for administering the Insurance Compensation Fund.
The High Court later directed the Law Society act as the claimant and the MIBI should be the respondent.
The Accountant of the Courts of Justice was neutral in the proceedings.
'Decision has significant implications for the MIBI'
Speaking after the decision by the Court of Appeal, MIBI CEO Patrick O'Brien said the "decision has significant implications for the MIBI and the wider motor insurance industry."
Mr O'Brien said if the MIBI is required to provide for the claims, it will "further exacerbate the cost of premiums paid by insured motorists".
He added that they will be seeking urgent discussions with the incoming government.
Insurance Ireland also said the judgment has "far reaching implications for customers, claimants and the sector."
In a statement, Insurance Ireland said it means "liquidation becomes a viable option for imprudent insurers who will be able to “dump” their losses on surviving insurers".
The Law Society has welcomed the decision, saying "a route to justice has been provided for people who have suffered injury and loss through the fault of drivers insured with an insurance company that has gone into liquidation."
Ken Murphy, Director General of the Law Society, said it is good news for those involved in accidents that were the subject of claims with Setanta.