INCEPTION DECEPTION

Fidelidade-Companhia de Seguros SA v Caisse Suisse de Compensation 2017 

New Law Journal article: Inception Deception

Link to transcript of judgment: (Case C-287/16)

• s152(2) Road Traffic Act 1988 is rendered obsolete 

• European Court of Justice ruling effectively abolishes a staple defence commonly invoked by insurers 

• EU law mandates the creation of a separate inviolate guarantee: one that obliges an insurer to meet a third-party claim arising out of an actionable loss resulting from its use.  
• The Court of Appeal's reasoning in EUI v Bristol Alliance  and Sahin v Havard is impossible to reconcile with the Court of Justice's judgment in Fidelidade

Published in the NLJ on 1 September 2017

Link

Can a motor insurer invoke its policyholder’s fraud to defend a third-party claim?

‘Yes’ according to the Court of Appeal’s approach to interpreting Part VI of the Road Traffic Act 1988 (RTA) in both EUI Ltd v Bristol Alliance Ltd Partnership [2012] EWCA Civ 1267 and Sahin v Havard & anor [2016] EWCA Civ 120’.  According to this line of unanimous rulings, even the statutory guarantee imposed by Section 151 RTA can be circumvented by contractual exclusions and restrictions in cover. 

However, this orthodoxy was tuned on its head by the European Court of Justice (ECJ) on 20 July 2017.  

The ECJ has ruled that a national laws that permit motor insurers to deny a third-party claim on the ground that the policyholder’s misrepresentation render it void ab itio conflict with EU law.

The pervasive nature of fraud

Fraud poses an obvious threat to insurers and increases the cost of premiums.  Despite savage cuts to recoverable legal costs, motor premiums continue to rise inexorably and they are already unaffordable for some consumers.  Automatic number plate recognition and related technologies discourage overtly uninsured vehicles.  Unfortunately, all that has achieved is to shift the problem elsewhere.   

One tactic employed by unscrupulous drivers is to induce insurers to offer cover, or to do so on better terms, by making misleading or false representations: whether concerning the ownership of the vehicle, the identity of its main driver or a host of other matters relevant to the decision to offer cover or its pricing.  In Cameron v Hussain [2017] EWCA Civ 366 a credulous insurer issued cover to a phantom policyholder.  Claims against uninsured drivers are ultimately borne by law abiding motorists who fund the Motor Insurers’ Bureau (MIB) through their premiums.

New European ruling on motor insurance

In (Case C-287/16) Fidelidade-Companhia de Seguros SA v Caisse Suisse de Compensation 2017 the Court held that a motor policy, once issued, must meet the assured’s civil liability to third parties even where the contractual rights were vitiated at the inception of the policy by the policyholder’s fraudulent misrepresentations. 

The case facts

The facts in Fidelidade are not recounted in detail but it appears that Mr Seemann, a Swiss domiciled motorcyclist, was killed in a motor accident in Portugal 13 years ago.  The vehicle responsible was driven by a Mr Pereira and it was insured with Fidelidade-Companhia de Seguros (Fidelidade), a Portuguese insurer. 

The deceased estate’s claim was met by the Swiss National Guarantee Fund (Swiss NGF) for EUR 285,980.54.   The fund appears to have been acting under the terms of a reciprocal arrangement with its Portuguese counterpart, the Fundo de Garantia Automóvel (FGA) whose terms replicate much of Articles 20 to 25 of Directive 2009/103/EC that govern cross border motor claims within the EU.  Under this scheme, a victim’s local compensating body is entitled to recoup its outlay from the foreign compensating body of the responsible party.  However, when the Swiss NGF sought to recover its outlay from the FGA and the vehicle’s owner, they argued the claim was coved by Fidelidade’s policy.  

When Fidelidade were joined in the proceedings they contended that their policy had been induced by fraud due to the policyholder’s false statements at its inception: concerning the vehicle’s ownership and the usual driver.  They argued that under Portuguese law such a policy was null and void ab initio.

Portuguese law

Fidelidade relied on Title XV of the Portuguese Commercial Code on insurance.  Article 428 provides that a policy is null and void if the assured does not have an interest in the property insured, and where the policy is not stated to be on behalf of someone other than the policyholder, it is deemed to be taken out on behalf of the contracting party.  Article 429 renders null and void a policy where the policyholder has made an inaccurate statement or deliberate non-disclosure that might influence the terms or the existence of the contract. 

The ruling

The Portuguese Supreme Court referred the question whether this law was consistent with the Motor Insurance Directives to the ECJ.

The ECJ reaffirmed that the dual aim of the directives is first to ensure the free movement of vehicles and people and secondly to guarantee that accident victims receive comparable treatment; irrespective of where in the EU the accident occurred.  In (Case C-162/13) Damijan Vnuk v Zavarovalnica Triglav d. d. [2014] All ER (D) 121 (Sep) the ECJ decreed that these objectives were of equal importance.  The Court rehearsed a consistent line of earlier rulings including (Case C-442/10) Churchill v Wilkinson and Evans [2013] 1 W.L.R. 1776 and confirmed that member states have no discretion to permit motor insurers to rely on statutory provisions or contractual clauses to enable them to avoid their liability to meet third party claims, save where expressly permitted by the Motor Insurance Directives.  It also ruled:

‘27      Accordingly, it must be held that the fact that the insurance company has concluded that contract on the basis of omissions or false statements on the part of the policyholder does not enable the company to rely on statutory provisions regarding the nullity of the contract or to invoke that nullity against a third-party victim so as to be released from its obligation under Article 3(1) of the First [Motor Insurance] Directive to compensate that victim for an accident caused by the insured vehicle.

28      The same is true regarding the fact that the policyholder is not the usual driver of the vehicle.  …’

The Court acknowledged that whilst the construction of an insurance contract is governed by the domestic law, not EU law, it reaffirmed two well established principles: that member states must exercise their powers consistently with EU law and that national laws must not deprive the Motor Insurance Directives of their effectiveness.

It concluded by ruling that the Motor Insurance Directives precluded legislation that has the effect of nullifying their protection where a policyholder has made false statements as to the identity of the owner; the usual driver or whether the assured has any economic interest in the vehicle.

Autonomous quality of the protection

It is clear from Fidelidade that once an insurer certifies that a vehicle is covered for these purposes, EU law mandates the creation of a separate inviolate guarantee: one that obliges an insurer to meet a third-party claim arising out of an actionable loss resulting from its use.  The existence of a motor policy is merely a contiguous factor that triggers this protection. 

A third-party victim’s entitlement is impervious to any contractual limitation, exclusion or restriction that bind the policyholder and the insurer inter se, save where expressly permitted by the directives . This is consistent with a line of ECJ rulings from (Case C-129/94) Ruiz Bernaldez 1996 to Damijan Vnuk in 2014.  This social policy imperative strikes a chord with Gloster VP and Lloyd Jones LJ’s observations on to the Parliamentary intention of the RTA in their majority decision in Cameron v Hussain. 

UK provision on policyholder misrepresentations

Our national provision in this area was recently reformed and codified within the Consumer Insurance (Disclosure and Representations) Act 2012.  The old common law principles are substituted by a new statutory obligation to act honestly and reasonably.  Section 2 (2) imposes a duty to on consumers to ‘take reasonable care not to make a misrepresentation to the insurer’.  Section 3 prescribes an objective standard of reasonable care. 

The Act imposes a broad dichotomy between inadvertent misrepresentations and deliberate or reckless misrepresentations.  In the former case, an insurer can only avoid the policy if it can prove that it would not otherwise have offered cover on any terms; otherwise it is entitled to reduce its contractual indemnity to its policyholder, applying a formula set out in Schedule 1 Part 1.8 of the Act.  Whereas, in the latter case, it is entitled to avoid the policy if it can establish that the consumer either knew or did not care that the misrepresentation was (i) untrue or misleading and (ii) that it concerned a matter that was relevant to the insurer (i.e. the it was a material misrepresentation), regardless of whether it might have been prepared to offer cover on different terms, see Section 5(2) and Schedule 1 Part 1 (2) of the Act.  Commercial policies are regulated separately under the Insurance Act 2015.

These provisions are incorporated into Section 152 (2) of the RTA.  Accordingly, the sanction of revocation ab initio is primarily now restricted under Section 152 to inadvertent misrepresentations of material facts that are instrumental to the motor insurer’s decision to offer cover, or to fraudulent misrepresentations of material facts.

Motor insurers have relied increasingly on Section 152 (2) RTA in recent years, particularly I high value claims.  It is a uniformly accepted convention that once a court declaration under Section 152 (2) is made, the insurer is released from any direct liability to meet a third-party claim, whether contractually or statutorily imposed (i.e. under either Section 151 of the 1988 Act or Regulation 3 of the Rights Against Insurers Regulations 2002).  The claim is then treated as one against an uninsured party and so handled under the less advantageous terms of one or other of the MIB Uninsured Drivers Agreements or 2015 as amended.  This author first criticised this approach for being inconsistent with the protective purpose of the Directives in his JPIL commentary on Delaney v Pickett [2011] EWCA Civ 1532 and again in this journal on 8 February 2013 in On the right road? (Part II). Fidelidade has vindicated an opinion was hitherto perceived as an unorthodox.

Implications for UK insurers

The legacy of Churchill v Wilkinson, (Case C 409/11) Gábor Csonka v Magyar Állam [2014] 1 CMLR 14, Vnuk and now Fidelidade is to provide legal certainty for accident victims and insurers alike.  Once a certificate of motor cover is issued it should be good for any third-party claim arising out of the use of motor vehicle on land that is consistent with its normal function; regardless of whether it was induced by fraud; regardless of any contractual restrictions or exclusions of liability that are inconsistent with the holistic nature of of the protection prescribed under EU law.  The only exception being the single exclusion of liability permitted by Article 13.2 of the sixth Motor Insurance Directive 2009/103/EC which applies to passengers who know their vehicle is stolen.  The policyholder’s liability to the insurer remains.

Section 152 (2) must be construed consistently with Fideledade, with the result it is effectively made otiose, at least for all claims arising out of an accident predating the UK’s official secession from the EU. 

The financial implications for motor insurers will be modest, as they already meet these claims in their capacity as Article 75 insurers.  The most significant impact will be to third party victims who are spared the rigmarole of their claim being misallocated as an uninsured claim.

Future uncertainty

The UK’s implementation of these directives is systemically defective and the government’s July 2016 consultation on Vnuk amounts to a partial admission of this.  It is also the subject of a wide-ranging judicial review initiated by RoadPeace.  Whether Fidelidade will have any enduring legacy beyond Brexit remains to be seen.  Lord Neuberger’s interview with the BBC on 8 August emphasises the need for much greater clarity than is provided within the Repeal Bill.

Reproduced with kind permission of the New Law Journal.

BREAKING A SILENCE

I suspended this blog last year for several reasons.  The chief of which had to do with my close involvement in what is probably the widest ranging judicial review of the UK implementation of European law in legal history.  I refer to the ongoing judicial review in R (on the application of RoadPeace) v Secretary of State for Transport & MIB 2017 that challenges the UK's transposition of the EU Directive 2009/103/EC on motor insurance. 

In mid-2015 I briefed a leading road safety charity RoadPeace on the urgent need for reform and I introduced them to the wonderful Richard Stein at Leigh Day solicitors.  Richard assembled a first-rate team led by Jeremy Hyam QC from 1 Crown Office Row to challenge the UK’s failure to implement the Motor Insurance Directives so there seemed little point in continuing to blog from the side-lines when I was providing academic advice in proceedings that raised the same challenges.

So why after over a year’s silence am I resuming this blog? 

Here are some of the reasons:

1. The need to counteract the continuing uncertainty caused by the delayed judgment in the R (on the application of RoadPeace) v Secretary of State for Transport .  The case was heard over 2 days in mid February 2017 and was largely confined to academic / black letter comparative law matters, without the need for lay testimony or expert evidence. It is to be hoped that the Hon Mr Justice Ouseley will deliver his judgment soon.

2. The increasingly imminent prospect of Brexit and the potentially limited shelf life of EU law rights and remedies.  See my New Law Journal Article ‘Catching An Ebbing Tide’, 9 June 2017.

3. The misinformation within the Department for Transport’s official report into its 2016 consultation on Damijan Vnuik. The report omits any reference to the concerns expressed by a number of informed respondents about the government continuing failure to undertake a proper and wide-ranging review of its national law implementation of the European Motor Insurance Directives and / or to remedy these defects; consultation on a discrete aspect of its failings is no answer to the need for full and proper implementation. See my New Law Journal article ‘Car Crash Consultation’ 27 January 2017

4. The European Commission’s consultation on reforming Directive 2009/103/EC on motor insurance.  Several law firms have asked me to advise on how to respond.

 5. The need to draw attention to new European Court of Justice rulings, including Fidelidade Case C-287/16) (see my New Law Journal Article ‘Inception Deception’ of 1 September 2017)  and to a spate of references for preliminary rulings seeking further clarification on the Motor Insurance Directives.

6. Advances in automated vehicle technology require a more comprehensive review of UK law than is apparent from the previous government’s flawed proposals set out in the Vehicle Technology and Aviation Bill 2017.See my New Law Journal Article ‘The Road Ahead’ 2 September 2016.

7. Lastly and by no means least, the concern that many experienced personal injury and insurance lawyers and members of the judiciary are still not properly acquainted with the correct EU law standard of compensatory protection, the UK’s defective transposition of this law and an even greater number of lawyers who appear to be unfamiliar the relevant EU law remedies.  

These are some serious allegations here that I will make a start in justifying some of this in the following posts:

• THREE ERRONEOUS RULINGS 
• MOTOR ACCIDENT VICTIMS DENIED JUSTICE
• IGNORANCE IS NOT BLISS
• UNFAMILIARITY CAUSES INJUSTICE

PICKING UP THE REINS

I am about to renew posts in this blog.

I set up this blog in April 2013 with two key objectives in mind.

1. A campaigning blog

The original intention was to augment the campaign I was running in the New Law Journal (NLJ) and elsewhere (including the Journal of Personal Injury law)  in which I argue the case for an extensive reform of our national law provision on compulsory third party motor insurance and for extensive revisions to be made to the Motor Insurers' Bureau (MIB) schemes for compensating victims of uninsured and untraced drivers.  See 'Why the MIB Uninsured Drivers' Agreement 1999 needs to be scrapped', JPIL 2011.  See ‘On The Right Road?’ which the NLJ serialised throughout February 2013.

Achievements to date

This campaign has already succeeded in a number of ways.  These include:

1. Inducing the government to publish its 2013 consultation on reforming the MIB Agreements which allowed the the numerous infringements of EU law in this area to be raised and this facilitated a wider debate on the defective provisions  within the Road Traffic Act 1988 and the Rights Against Insurers Regulations 2002.  This step appears to have been triggered by my four-part feature in the New Law Journal (On the Right Road) that also attracted the Law Commission's interest.  When the Commission approached the Department for Transport the minister blocked their further involvement.  
2. In July 2015 the MIB were deprived of a number of oppressive procedural strike-out clauses many of which it introduced unopposed in 1999.  These clauses enabled it to evade its proper liability (imposed under Article 10 of Directive 2009/103/EC on motor insurance) by rejecting genuine claims for the least procedural infraction of mostly pointless and trivial notice provisions; regardless of the wider merits of the claim. The MIB had strenuously resisted numerous calls for their removal, since my meeting with them in 2009. Their removal from the Uninsured Drivers Agreement 2015 has taken much of the sting out of the tail resulting from the systematic misallocation of insured claims wrongly treated as uninsured claims following Ward LJ's erroneous judgment in EUI v Bristol Alliance Limited Partnership 2012. 
3. After publicly declaring in July 2015 that it refused to agree to any further changes to the Uninsured Drivers Agreement 2015, the MIB were finally forced (in late 2016) to concede that it is not entitled to reject passenger claims under the uninsured and untraced drivers schemes where the accident victim did not have actual knowledge that the vehicle they were travelling in was uninsured.  I had argued for years that EU law insisted on actual, not constructive, knowledge. Hitherto this clause had been relied on to exclude liability to credulous and impetuous teenagers who were unwise enough to agree to travel in a vehicle that a wiser passenger would have known was probably uninsured.
4. As recently as March 2017 the MIB was forced to remove further unlawful exclusions of liability within both schemes, one of which was the terrorist incident exclusion.  This was first introduced to the Untraced Drivers Agreement in 2003 (again unopposed) and then extended to victims uninsured drivers under the Uninsured Drivers Agreement 2015. Although I advised the government that these exclusions were illegal in 2013, in response to its own consultation on the MIB Agreements, it chose to do nothing. It only took action when this illegality was raised within the ongoing judicial review by RoadPeace.  Some of the victims of the London and Westminster bridge incidents will now be fully compensated by the insurers of the responsible vehicle. 
5. After alerting the Department for Transport, again in response to its 2013 consultation on the MIB Agreements, that the geographic scope of compulsory insurance and the technical definition of the vehicles subject to this requirement were too narrowly defined, the government was finally compelled to concede this point in 2016.  It is regrettable that it only did so after these discrepancies were cited as grounds of complaint within the ongoing judicial review by RoadPeace. Even so, the government has not taken any steps to remedy this illegality, other than to consult on the implications of the Court of Justice's ruling in Damijan Vnuk from September 2014 (which fully supports the earlier criticism).  However,  the fact that the government was made fully aware of this illegality back in the Spring of 2013 ought to make it much easier for victims affected by this long standing illegality to claim damages from the government under Francovich principles.
6. A number of other exclusions of liability in the Untraced Drivers Agreement 2003 have also been removed or modified to bring the scheme into closer conformity with Article 10 of Directive 2009/103/EC that it is supposed to implement.  These include unlawful property damage exclusions and preconditions as well as the illegal exclusion for not reporting the accident to the police.  Here again, these were only conceded in 2017 and as a result of these infringements being cited as grounds of complaint within the RoadPeace judicial review.
7. The government has also conceded, again in response to the same judicial review, that procedural measures should be introduced to protect minors and the mentally handicapped from unfair treatment and under-settlement of their claims of under the Untraced Drivers Scheme.  Unfortunately, the government has failed to live up to its promises by introducing suitable measures.  
8. My own infringement complaint to the European Commission, which anticipated the Court of Justice's rulings in Vnuk and Fidelidade rulings, has resulting in the Commission incepting a European wide review of the regulatory sufficiency of Directive 2009/103/EC, click here for the consultation.

Additional breaches of EU law

Although the reforms and concessions listed above represent probably the most significant reforms to the compensatory safeguards for motor accident victims since the MIB's inception in 1946, more needs to be done to close other unlawful loopholes.

• It should be noted that many additional irregularities in the UK's transposition of Directive 2009/103/EC on motor on insurance exist: where the protection afforded to motor accident victims falls below the minimum standard of protection required under EU law. 
• These have already been highlighted in earlier posts and they will be reviewed again in this post in due course
• A number of these additional infringements have been cited within the ongoing judicial review, R (on the application of RoadPeace v Secretary of State for Transport.  I have been closely involved in this challenge.  The Hon. Mr Justice Ouseley heard the case in mid February 2017 and his judgment is eagerly awaited.

2. Sharing expertise on European law and remedies

A second objective of this blog, pending the reforms I have been campaigning for, is to provide a know-how resource for legal practitioners and special interest groups representing individual victims affected by the government’s longstanding failure to fully implement the European law governing this facet of our affairs and which confers a higher standard of compensatory protection.

My published articles and blog entries aim:

• To explain the minimum standard of  compensatory protection required under EU law
• To identify where our legislation and extra-statutory provision fails to meet this standard
• To present a simple heuristic approach that allows practitioners to quickly identify inconsistent UK provisions 
• To clarify the EU law remedies that are available and how to deploy them.

The problem is acute because the UK transposition of this EU law is so defective that it is often impossible to determine a party's rights under the law from the ordinary meaning of the words used in the UK provision.  This is why I advise practitioners to apply the heuristic approach as a matter of routine, whenever a motor insurer seeks to deploy a defence based on its policy conditions.

This second objective has acquired a new urgency. 

This is partly due to the fact that the Court of Appeal has consistently shown itself to be unequal to the task of resolving the many serious conflicts of law that pepper our national law provision in this area.  Indeed two Court of Appeal compounded the problem in EUI Ltd v Bristol Alliance Ltd Partnership [2012] EWCA Civ 1267 and again in Sahin v Havard & Riverstone Insurance (UK) Ltd [2016] EWCA Civ 1202.  I was the first (only) practitioner and commentator to offer the heretical view that these unanimously derived and highly influential rulings were made per incuriam and so are bad law.

The prospect of Brexit adds to the urgency, since if the UK fully secedes from the EU,  then the EU law remedies will be extinguished and the opportunity for judicial led reform lost.

This is why I have decided that it is once more time to pick up the reigns and to blog on…

Suing an unnamed driver: by description

Cameron v Hussain [2017] EWCA Civ 366

The Court of Appeal recently ruled that some victims of hit and run incidents can avoid the disadvantages of presenting a claim under the Untraced Drivers Agreement 2003 by seeking leave from the court for permission join the untraced driver as an unnamed defendant, identified by a suitable description.  

In Cameron v Hussain the claimant sought leave to pursue a civil action describe the unnamed defendant driver thus: 'The person unknown driving vehicle registration number Y598 SPS who collided with vehicle registration number KG03 ZIZ on 26th May 2013.’  A majority held that the Civil Procedure Rules did not prevent this.  However, unless the vehicle and its insurers have been identified, it seems highly unlikely that a court would exercise its discretion to grant such an order since it would most probably result in an unrecoverable judgment and so offend the overriding objective as well as waste precious court time and resources.

Accordingly, where the vehicle responsible for the injury or loss can be identified and an insurer is on risk for that vehicle, a claim can proceed against an unnamed driver to judgment, making the vehicle’s insurers statutorily liable to meet the judgment under section 151(5) Road Traffic Act 1988.  The fact that the unidentified driver may not have been an authorised driver, is irrelevant for these purposes since s151(2) (b) Road Traffic Act 1988 nullifies the effect of any authorised use policy restriction or exclusion in this context.

Link to the judgment

Link to Pdf of my lecture slides

Lady Justice Gloster's judgment provides a helpful analysis of the legislative aim of Part VI Road Traffic Act 1988 that imposes the compulsory third party motor insurance obligation. 

Anyone seeking to contend that full compliance with the more generous level of cover mandated under EC Directive (2009/103/EC) on motor insurance is not possible to deliver through an EU law consistent construction (on the basis that this would go against the grain of Parliament's legislative intent) is advised to read paragraphs 41 to 43. 

THE UNTRACED DRIVERS AGREEMENT 2017

The MIB's new Untraced Drivers Agreement 2017

Key points to note about the new Untraced Drivers Agreement (UtDA)

• First agreed on 10 January 2017 but later substituted
• Substituted on 2 March by an agreement backdated to 28 February 2017
• Not retrospective: only applies only to incidents on or after 1 March 2017
• Legacy claims: UtDA 2003 continues to apply pre 28 February 2017
• Removes some provisions in the UtDA 2003 that conflict with EU law
• Still not completely compliant with Article 10 of EC Directive 2009/103/EC on motor insurance
• Applies to claims where driver and insurer cannot be traced
• If vehicle identified and an insurer can be traced, it is now possible to sue the uninsured driver by description, see Cameron v Hussain & MIB 2017
• Normal Limitation Act 1980 deadlines apply to the submission of the claim form but it is always best to submit the claim as soon as possible.
• Does not involve a civil action as no party to serve.
• There is a strictly enforced 6 week time limit for appealing an MIB decision by way of arbitration.
• MIB is supposed to undertake the investigation of the claim.  In significantly complicated or serious injury claims, the initiative and conduct of the investigation should not be left to the MIB and should be carefully managed by the client’s legal representatives.

Routine EU law compliance check

As with the Uninsured Drivers Agreements 1999 and 2015 and the UtDA 2003, the benchmark standard of compensatory protection is set by Article 10 of the Directive.

The same basic understanding and application of European Law using the FIVE -STEP approach is required here if one is to accurately interpret a client’s proper legal entitlement to compensatory protection.  Here, as elsewhere in this area of practice, our domestic law simply cannot be taken at face value.

 

Key changes and comparison with the UtDA 2003

• Removed: illegal police reporting conditions precedent (5 and 14 days, c4 UtDa 2003) but there is a new, not unreasonable requirement to make a report when reasonably requested to do so by the MIB as soon as reasonable.
• Removed: illegal terrorism exclusion (c5(f) UtDA 2003)
• Removed: illegal property damage exclusions of uninsured vehicle (cl 5(d) UtDA 2003
• Changed: illegal definition of ‘significant injury’ for property damage criteria – (c1 UtDA 2003) less onerous in c7(2) but arguably still not EU law compliant
• Changed: illegal definition of passengers' guilty knowledge exclusion (c5(1)(c) UtDA 2003)–constructive knowledge rephrased but still not compliant in c8.
• Changed: illegal definition of geographic and mechanical scope (c4 UtDA 2003)– still not compliant in c3.
• Changed: illegal exclusion of derogated vehicles (c5(b) UtDA 2003)– still not fully compliant in some situations in c5.
• Changed: property damage excess up by a third, to £400 in c1 is compliant
• New: provisions for interest on damages and periodical payments orders – arguably not compliant, see c11
• New: limited protection for minors and mentally handicapped – arguably still not compliant, see c14
• New: service requirements relevant to any appeal, c24.
• New: obligations on claimants and evidence requirements, c10
• New: fixed costs, c21
• New: illegal provision for arbitral wasted costs order against solicitors, c22(3).
• Missing: lack of accountability or controls on the MIB’s investigation of claims
• Missing: no adequate protection for minors and mentally handicapped claimants
• Removed on 2 March 2017, unconstitutional provision entitling the MIB to reject an entire claim if the claimant has independent legal representation, c10 now substantially revised by substituted agreement backdated to 28 Feb 2017

Link to online pdf of the 28 February version of the UtDA 2017

Link to my lecture slides from February 2017 and based on the 1 January 2017 version of the UtDA

REFORM AHEAD FOR MOTOR INSURANCE DIRECTIVE 2009/103

Nicholas Bevan

Solicitor and consultant on EU law and motor insurance

07968 427134

This is a copy of the paper I delivered to the APIL Accidents Abroad Conference held at the Law Society on 3 November 2016 

Overview

We are likely to witness some significant reforms to the European law requirement on motor insurance.  Specifically:

• ·         On 8 June 2016 the European Commission has announced its intention to amend the Directive 2009/103[1] (the Directive) by the end of this year to curb the impact of the Court of Justice’s ruling in Damijan Vnuk v Zavarovalnica Triglav d.d., [2014] (Case C-162/13).  However, it this is likely to be postponed for at least a year.
• ·         The Commission also plans to undertake a wide-ranging compliance assessment of all the member states as part of a regulatory review of this directive.  This could lead to a completely revised 7^th Directive in about two years’ time.
•       The Court of Justice of the European Union (JJEU) will shortly provide a second preliminary ruling in Farrell v Whitty and others, this time from the Irish Supreme Court (Case C-356/05) on whether Article 1 of the Third Directive (90/232/EEC) on motor insurance, which extended the Article 3 insurance obligation to ‘cover liability for personal injuries to all passengers, other than the driver, arising out of the use of a vehicle’ (now incorporated in the Directive as Article 12) is capable of direct effect against its Article 10 compensating body (the Irish Motor Insurers Bureau).  This has important implications for domestic and accidents abroad throughout the EEA.

1.Curtailing Vnuk

The Vnuk ruling

On 4 September 2014 the CJEU delivered a controversial ruling in Damijan Vnuk v Zavarovalnica Triglav d.d., [2014] (Case C-162/13) that took most motor claims specialists and many European governments by surprise. 

The facts of the case involved a Slovenian farmworker who was injured when he was knocked off a ladder by a reversing tractor and trailer, whilst he was stacking bales of hay into a barn loft. 

This was clearly an employer’s liability case but could it conceivably also be a motor liability claim?  The tractor was not transporting anyone; merely delivering the next consignment of bales to the loading point.  It was in effect being used a piece of agricultural machinery.  The farmyard was off road and on private land.  

Yet the farmworker pursued his claim against the tractor’s motor insurers.  The claim failed at first instance. It held that the duty to insure did not extend to the use of a motorised machinery.  He appealed and ultimately the Slovenian Supreme Court referred the case to the Court of Justice of the European Union to determine whether the duty to insure ‘the use of vehicles’ within the meaning of Article 3(1) of the First Directive on motor insurance (72/166/EEC) covered the accident circumstances.

A number of member states intervened in the proceedings, including the UK, and they argued that the compulsory insurance requirement should not apply.

Because there were different emphasises discernible from the different language editions of the Directive, the CJEU was obliged to consider the underlying objectives of the directive.  It ruled that the objective of protecting accident victims was of equal importance to the dual aim of freeing the movement of persons and goods within the EU / EEA with a view to achieving the internal market[2]. 

As to the case before it, the Court ruled that the accident circumstances were capable of falling within the scope of insurance cover required under the directives.  It referred the case back to the Slovenian courts to make the necessary factual findings 

On the specific issue as to whether a reversing trailer propelled by a tractor was required to be covered by the article 3 insurance ‘use of vehicles’ requirement, it ruled that it was.  Motor vehicle use covers ‘any use of a vehicle that is consistent with the normal function of that vehicle’ [59]

The Court also ruled that ‘the fact that a tractor, possibly with a trailer attached, may, in certain circumstances, by used as an agricultural machine has no effect on the finding that such a vehicle corresponds to the concept of 'vehicle' in Article 1(1) of the First Directive[3].’

Although the Court’s characteristically elliptical phraseology in its judgment did not expressly rule that the geographic scope of the duty to insure extended to private property, such as the farm yard where Mr Vnuk was injured, this is the inescapable conclusion to be drawn from the Court’s judgment.  It appears to have subsumed considerations as to the location of the accident within a broader concept that any motor vehicle use must be covered by insurance.  This is clear from its concluding paragraph where it ruled that ‘the concept of 'use of vehicles' in that article [viz article 3] covers any use of a vehicle that is consistent with the normal function of that vehicle. That concept may therefore cover the manoeuvre of a tractor in the courtyard of a farm in order to bring the trailer attached to that tractor into a barn, as in the case in the main proceedings, which is a matter for the referring court to determine.’

The implications of Vnuk

When Article 3 of the Directive is read in the light of the underlying principles that feature in the consistent line of Court of Justice judgments from Bernaldez in 1996^[4] to Vnuk^[5] in 2014 the third party protection required by the Directive is capable of being distilled into the following colligate propositions: 

1. The civil liability cover provided to third party victims must be good for:
1. Any motor vehicle conforming with the article 1 definition^[6]
2. Any use consistent with the normal function of the vehicle^[7]
3. Anywhere on land^[8]
2. The user’s duty to insure and the insurer’s scope of cover are coextensive^[9]
3. Member states have no discretion to introduce new restrictions, exclusions or limitations^[10].
4. Only one exclusion of cover is permitted: this applies to a passenger who voluntarily enters the vehicle knowing that it has been stolen^[11].

It is also clear from the CJEU judgments in Churchill^[12]  and Csonka^[13] that the Directive requires the compensatory protection to be provided at the anterior stage, namely within the insurance policy.  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. 

The fall-out from Vnuk

Vnuk’s effect was to expose at least six member states implementation of the geographic scope of the Article 3 insurance requirement as clearly non-compliant, with a number of other jurisdictions (whose implementation was drafted in less specific terms) being at risk of being non-compliant.

The United Kingdom is one of those jurisdictions that whose transposition is clearly defective.  Part VI of the Road Traffic Act 1988, that implements the Article 3 insurance requirement, contains numerous provisions that are inconsistent with the broad scope of both a literal interpretation of Article 3, let alone the additional gloss provided by the CJEU’s interpretation in Vnuk. 

The Vnuk judgment was particularly unwelcome news for the Department for Transport.  By this time, the United Kingdom’s transposition was already the subject of investigation by the Commission following an extensive infringement complaint that cited over forty separate instances of noncompliance spanning the Road Traffic Act 1988, the EC Rights Against Insurers Regulations 2002 and both Motor Insurers’ Bureau agreements.  The Vnuk judgment not only validated a number of the complaints but it went further in extending the scope of the protective purpose beyond normal traffic scenarios into agricultural and potentially industrial machine use.

This resulted in the ABI, MIB and the Department for Transport joining a vociferous international lobby to persuade the Commission to curtail the effect of Vnuk.

Reform proposals

On 8 June the European Commission issued an inception impact assessment roadmap[14] that announced that it was considering whether to take urgent steps to amend the Directive to limit some of the implications of the Vnuk ruling.  It also announced its plans to undertake a wide-ranging re-evaluation of the Directive.

The EC communiqué set out four different options, including taking no action on Vnuk, and there appeared to be a consensus within the Commission and European Council at that time to sanction an urgent amendment of Articles 1 and 3 of the Directive.  The most likely outcome at that time was that the Directive would be revised to:

• reduce the scope of the Article 3 insurance requirement so that its applies only to accidents caused by motor vehicles when used in traffic.  This would require a new Article 1 definition of what is meant by ‘traffic’.  This is likely to encompass the use of a vehicle for the transport of persons or goods, whether stationary or in motion.
• Introduce a new restriction that would restrict the insurance requirement to places where the public has access under national law. 

It was intended that this amendment should be rushed through so it becomes effective late in 2016 or early in 2017.  The change would not have retrospective effect.  

The same communiqué also proposes, as an option, that member states might set up a compensatory guarantee fund to specifically cover purely agricultural, construction, industrial, motor sports or fairground use of uninsured motor vehicles and of the directive specifying that certain types of vehicles (e.g. tractors, cranes, forklifts, motor sports vehicles in regular traffic, or vehicles with a maximum speed below a defined limit) are excluded from the Article 3 requirement, presumably as an alternative to member states exercising their rights to derogate under Article 5.2.

The effect of the first two revisions (bullet pointed above) and which seemed at the time to be most likely to be approved, would be to bring the Road Traffic Act 1988 closer into line with the Directive from the date it comes into effect but not before.  Accordingly, whilst the exclusion of private property implicit in section 143 RTA (the duty to insure), section 145 (the cover required) and section 192 (the definition of road) are currently inconsistent with the unrevised European law as presently formulated and interpreted by Vnuk, this may be set to change. 

However, these reforms will not cure the numerous additional inconsistencies in the UK transposition of the Directive. Take for example the definition of ‘motor vehicle and trailer’ in section 185.  This restricts compulsory third party cover to motor vehicles intended or adapted for use on roads.  This clearly conflicts with the protective purpose and the wide ambit of the Article 3 insurance requirement.

However, following Lord Hill’s resignation as EU Commissioner for Financial Stability, Financial Services and Capital Markets Union, the Commission has recently determined on a different path. 

The Commission’s latest thinking is that a full impact assessment of each of the four options listed in the roadmap is now necessary.  This will involve a process of consultation, evaluation and regulatory scrutiny that could take up to a year to conclude. 

So it seems that whilst the 8^th June road map is still applicable, all bets are off as to what changes will be made.  It is conceivable that the Commission could opt to remove completely from the scope of the Directive certain categories of off-road vehciles.

2. Plans for a seventh directive

The Commission ‘road map’ of 8 June also announced its intention to undertake a far-reaching review of every member state’s compliance and a full review of the Directives itself.  This was triggered by a wide ranging infringement complaint levelled against the United Kingdom in the autumn of 2013 following the Secretary of State’s refusal to respond from numerous calls for extensive reform of third party provision for accident victims to bring the statutory and extra-statutory implementation of the Directive into line with its minimum standards of protection.  The Commissioner then responsible, Baron Hill, decided that it would be unfair to limit the enquiry just to the UK’s transposition and so the complaint has resulted in a much wider enquiry and reform project.

The Commissions regularity fitness and performance programme (aka ‘REFIT’) will consider every member state’s compliance and will review the regulatory fitness of the Directive itself.

It is likely to result in a seventh directive on motor insurance being approved in 2019 / 2020.

The Commission has given no indication as to what its recommendations are likely to be.  It will publish a separate Inception Impact Assessment for this project.  However it seems plausible that we will see a new 7th Directive on motor insurance: one 

• ·         that removes the anomalies that arose from the way in which the Directive comprises five preceding directives that sometimes used inconsistent terminology as well as being influenced by the interpretive gloss given by the Court of Justice from (Case C-129/94) Bernaldez in 1996 through to Vnuk in 2014.
• ·         the incorporation of the Green card scheme for domestic accidents involving foreign EU registered vehicles,
• ·         possibly also some provision for insurer insolvency – following: (Case C 409/11) Csonka from 2013
• ·         possibly also better clarification of the insurance requirement and the circumscribed role of the compensating body, post (Case C-442/10) Churchill in 2011 and (Case C 409/11) Csonka in 2013
• ·         possibly a clearer statement of the free-standing nature of the insurance cover required for third party victims, which seems clear from recital 15 which states) ‘It is in the interest of victims that the effects of certain exclusion clauses be limited to the relationship between the insurer and the person responsible for the accident.’  Whereas, in the UK the limitations attributable to the common law third party rule[15] have only be abrogated to the limited extent provided for in sections 148 and 151 of the Road Traffic Act 1988.

It is interesting to note that the Commission does not anticipate that there will be any need to revise the Article 3 insurance requirement to address the arrival on our roads of semi and fully automated vehicles over next decade or so.  The reason being that Article 3 already encompasses product liability.  This should come as something of a shock to the Department for Transport as section 145 of the 1988 Act only covers the personal liability of the user.

 3. MIB as an emanation of the state

In June 2006 Mr Justice Flaux J ruled in Byrne v Motor Insurers Bureau and another [2007] EWHC 1268 (QB) that the European directives on motor insurance were not capable of direct effect against the MIB (the UK’s Article 10 compensating body for victims of uninsured and unidentified vehicles) as it is merely a private contractor and thus not capable of being an emanation of the state.  In this he was influenced by the weighty authority of Hobhouse LJ’s obiter comments in Mighell v Reading and Another; Evans v Motor Insurers' Bureau; White v White and Another (1998) Times, 12 [1999] 1 LLR 30, a view endorsed by his colleagues. 

In my 3^rd June 2016 New Law Journal article, Putting wrongs to rights (Pt2), I had the temerity to contend that this decision was made per incuriam on the basis that the judge was neither fully informed of the relevant facts nor of the relevant law and so consequently he asked the wrong questions and misapplied the Court of Justice’s guidance[16] on the question of whether Article 10, that defines the role of the compensating body, is capable of having direct effect against the MIB.

One fact that the learned judge appears not to have been appraised of was the Irish High Court’s referral of an almost identical issue to the CJEU in Elaine Farrell v Alan Whitty and MIB [2007] Others (Case C-356/05). In that case, the Advocate General Stix-Hackl opined that because[17] of ‘the Irish Motor Insurance Bureau[18] special public function, there is reason to consider it to be an emanation of the State’.  Furthermore he expressed the view that the predecessor provision under consideration (which is now Article 10 of the Directive) is capable of direct effect.  This was also the view of the European Commission in that case.  None of this is mentioned in Flaux Js judgment in Byrne.  As it transpired, the CJEU declined to make the factual determination but when case was referred back to Birmingham J in Farrell v Whitty and Others [2008] IEHC 124 he ruled that it was an emanation of the state and bound by the direct effect of the earlier directive’s provisions. 

This discrepancy between the UK and Irish authorities on this point caused Waller LJ to observe in Mcall v Pouton & MIB [2008] EWCA Civ 1263: ‘It is difficult to think that a body such as the MIB or its equivalent should be an emanation of the state in one member country and not in another. This furthermore gives cause for concern as to whether the guidance is so clear that it needs no further input from the ECJ.’  He referred the same issue to the CJEU but the case was promptly settled.

This same issue has been revisited by the Irish Supreme Court, once more in Farrell v Whitty 1997/10802P (Appeal number: 145/2008), this time as part of a titanic struggle between the Irish state and the MIBI over who pays for the Irish governments legislative failings.  Instead of asking the CJEU to make a factual determination, the Irish Supreme Court seeks clarification of the CJEU’s so called ‘tripartite test’ in Foster and Others v British Gas plc (Case C-188/89).  The referral is made in the following terms:

‘Questions posed

23. The Supreme Court therefore asks the assistance of the Court of Justice of the European Union by referring the following questions:

1. Is the test in Foster and Others v British Gas plc (Case C-188/89) as set out at para. 20 on the question of what is an emanation of a member state to be read on the basis that the elements of the test are to be applied

(a) conjunctively, or

(b) disjunctively?

2. To the extent that separate matters referred to in Foster and Others v British Gas plc (Case C-188/89) may, alternatively, be considered to be factors which should properly be taken into account in reaching an overall assessment, is there a fundamental principle underlying the separate factors identified in that decision which a court should apply in reasoning an assessment as to whether a specified body is an emanation of the State?

3. Is it sufficient that a broad measure of responsibility has been transferred to a body by a member state for the ostensible purpose of meeting obligations under European law for that body to be an emanation of the member state or is it necessary, in addition, that such a body additionally have (a) special powers or (b) operate under direct control or supervision of the member state?’

I am optimistic, for the reasons set out in my New Law Journal article[19], that the CJEU will clarify the flexible and nuanced nature of the Foster guidance and refer back to the basic principles underscoring state liability set out in Ursula Becker v Finanzamt Münster-Innenstadt [1982] CJEU (Case 8/81) and so clear the way for the Irish Supreme Court to uphold Birmingham J’s first instance finding.  The CJEU is likely to hold that the tripartite test in Foster is to be applied cumulatively but that it is not fatal if one of the criteria are missing provided there is good reason to fix the body with direct effect having regard to the governing rules on state liability for faiing to implement a directive.

The implications of Article 10 having direct effect against the Article 10 compensating body are far reaching.  In this jurisdiction, the MIB will face liability for product liability claims that are not covered by section 145 of the Road Traffic Act 1988 and also for accidents on private property and / or featuring unusual off road vehicles, none of which are caught by the compulsory third party requirement.  It will also make legal challenges of unlawful exclusions and restrictions of liability in the MIB agreements that much easier to challenge[20]. 

What applies to the UK Article 10 compensating body will also apply with equal force to any other EEA compensating body.  This should make it easier to challenge the idiosyncratic approach of many EEA states implementation of the Directive, when considering the local applicable law under Rome II.

On a final related note, the Commission has recently set up an Intelligent Transport Systems working group to consider the implications of automated driver systems and driverless vehicles.

---

[1] The European legislation is set out in Directive 2009/103/EC of the European Parliament and of the Council of 16 September 2009 relating to insurance against civil liability in respect of the use of motor vehicles, and the enforcement of the obligation to insure against such liability

[2] Hitherto, the social aim of providing compensatory protection was widely considered to be subordinate to the wider objective of encouraging free movement within the European Community, now European Union

[3] Article 1 of the sixth Directive 2009/103

[4] Ruiz Bernaldez [1996] CJEU (Case C-129/94)

[5] Damijan Vnuk v Zavarovalnica Triglav d.d. [2014] CJEU (Case C-162/13)

[6] The Article 1 definition of "Vehicle" means any motor vehicle intended for travel on land and propelled by mechanical power, but not running on rails, and any trailer, whether or not coupled”.

[7] Vnuk, paras 56 and 59

[8] Vnuk, para 59

[9] This is the implication of Bernaldez, Katja Candolin and Others. v Vahinkovakuutusosakeyhtiö Pohjola and Others [2005] CJEU (Case C-537/03) , and Farrell v Whitty 2007 CJEU (Case C-356/05)and it is subject only to the single exception permitted by Article 13.1 of the Directive.  However, Ward LJ took a very different view in EUI Ltd v Bristol Alliance Ltd Partnership [2012] EWCA Civ 1267 and it is one that is impossible to reconcile with Vnuk

[10] See Mr Justice Jay’s analysis in Delaney v Secretary of State for Transport 2014 EWHC 1785 para 108 in the context of the MIB Uninsured Drivers’ Agreement.  The same principles apply to primary or secondary legislation implementing the Directive.  This issue of legislative discretion is also important in the context of state liability under Francovich principles, as to which see Clyde LJ’s guidance on what constitutes a serious breach in R v Secretary of State for Transport Ex p. Factortame (No.5) (1999) [1999] 4 All ER 906

[11] See Benaldez paras 18 to 21 (the opinion of Advocate General Lenz of 25 January 1996, paras 25 to 30, provides a helpful analysis of the rationale) and Candolin paras 17 to 23

[12] Churchill v Benjamin Wilkinson and Tracy Evans 2011 Case C-442/10

[13] Gábor Csonka v Magyar Állam [2014] CJEU (Case C 409/11

[14] Available online at: http://ec.europa.eu/smart-regulation/roadmaps/docs/2016_fisma_030_motor_insurance_en.pdf

[15] Note Harman LJ memorable comment: ‘one cannot pick out the plums and leave the duff behind’ in Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363, 376  A view apparently shared by Ward LJ in EUI v Bristol Alliance Partnership [2012] EWCA Civ 1267

[16] Foster and others v British Gas plc [1990] CJEU Case C-188/89

[17] On 5 October 2016

[18] Founded on near identical terms and context to the UK’s MIB

[19] Referred to above.

[20] In White v White & MIB [2001] UKHL 9 the House of Lords ruled that as the MIB agreements are private law contacts they are not subject to a Marleasing style purposive construction.  This was relied on by Flaux J in Byrne, supra, without reference to the CJEU’s judgment in Bernhard Pfeiffer et al v Deutsches Rotes Kreuz, Kreisverband Walshut eV: (Case C-397/01 to C-403/01); [2004] ECR 1-8835 that clearly brings any national rule or law implementing a directive within the scope of the rule