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
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.
Reproduced with kind permission of the New Law Journal.
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