Nicholas Bevan
Solicitor and
consultant on EU law and motor insurance
07968 427134
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 7th 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:
- The civil liability cover provided to third
party victims must be good for:
- Any motor vehicle conforming with the
article 1 definition[6]
- Any use consistent with the normal
function of the vehicle[7]
- Anywhere on land[8]
- The user’s duty to insure and the insurer’s
scope of cover are coextensive[9]
- Member states have no discretion to
introduce new restrictions, exclusions or limitations[10].
- 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 8th
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 3rd 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
[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
[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
