Tuesday, 2 January 2018
On the scope and nature of the compulsory insurance requirement
When Article 3 of EC Directive (2009/103/EC) on motor insurance is read in the light of the underlying principles that feature in the consistent line of Court of Justice judgments from Bernaldez in 1996 through to Csonka in 2013, Vnuk in 2014 and Fidelidade in 2017 the third party cover required by the Directive is capable of being distilled into the following simple propositions:
1. All motor insurance policies are required to provide a holistic guarantee for the assured's civil liability arising out of the insured vehicles' use. Article 3 requires each member state to ensure that its national law requires such cover for:
a. Any motor vehicle conforming with the wide definition in article 1 (mechanically propelled vehicle and intended for travel on land)
b. Any use made of that vehicle that is consistent with the normal function of the vehicle
c. Anywhere on land
d. That the third party victim's entitlement to the insurance guarantee extends to:
(i) liability for defects in the vehicle itself and
(ii) liability for unauthorised users and
(iii) liability for other non-contractual use
2. The user’s duty to insure and the scope of cover that the insurer is required to provide are coextensive.
3. Member states have no discretion to introduce their own restrictions, exclusions or limitations.
· Only one exclusion of cover is permitted: this applies to a passenger who voluntarily enters the vehicle knowing that it has been stolen (Article 13 of the Directive).
· Subject to this single derogation, once issued, the policy must confer on third party victims an irrevocable guarantee of their compensatory entitlement, up to the minimum levels prescribed by Article 9, regardless of any breaches of policy term or misinformation or fraud at the policy's inception
The CJEU ruled in Candolin that any other exclusion of insurer liability, whether contractual or statutory, is void. As CJEU rulings have direct effect, this principle is capable of being applied as part and parcel of our national law provision. The CJEU explained the rationale thus:
‘18 In view of the aim of protecting victims, the Court has held that Article 3(1) of the First Directive precludes an insurer from relying on statutory provisions or contractual clauses in order to refuse to compensate third-party victims of an accident caused by the insured vehicle (Ruiz Bernáldez, paragraph 20)
‘20 By way of derogation from that obligation, the second subparagraph of Article 2(1) [NCB note: this is now set out in Article 13 of the Directive] provides that certain persons may be excluded from compensation by the insurer, having regard to the situation they have themselves brought about (persons entering a vehicle which they know to have been stolen) (Ruiz Bernáldez, paragraph 21).
21 However, as it is a provision which establishes a derogation from a general rule, the second subparagraph of Article 2(1) of the Second Directive must be interpreted strictly.’
The rationale in Candolin is just as capable of being applied to the MIB scheme as it is to a contractual or statutory provision regulating compulsory insurance.
It is a surprising fact that it does not appear to have occurred to any claimant to invoke Candolin to challenge an unlawful exclusion of liability, within a motor insurance policy, the Road Traffic Act or one of the MIB Agreements. If all exclusions and restrictions in liability that are not expressly provided for within the Directive are void, then our national courts would appear to be bound by the horizontal effect of the Court of Justice's ruling in Candolin to excise the unlawful term when construing the policy terms. This issue has been referred to the Court of Justice by Ireland in David Smith v Patrick Meade & anor; FBD Insurance PLC (Case C-122-17) for a preliminary ruling.
It is clear from the CJEU judgments in Churchill and Csonka that the Directive requires the compensatory protection to be provided at an anterior stage, namely within the insurance policy itself. It follows that the Article 10 compensating body responsible for compensating victims of uninsured and unidentified vehicles (which in the UK is the Motor Insurers’ Bureau) is a’ last resort’; not a catch-all for insufficiently insured vehicles.
I am working a series of lectures on this important topic that will also explain how best to deploy the three main EU law remedies that enable private individuals to invoke, in a cost effective and proportionate manner, the superior authority of EU law in ordinary civil actions against insurers, the MIB and the Secretary of State for Transport.