Dr Nicholas Bevan

Dr Nicholas Bevan

Friday, 28 February 2020


On 13 February the Supreme Court refused the Motor Insurers' Bureau (MIB) permission to appeal against the unanimous decision of the Court of Appeal in MIB v Lewis [2019] EWCA Civ 909.

The clarity resulting from this final decision frees a number of pending actions against the Motor Insurers Bureau and the Secretary of State for Transport, to proceed; I am involved in two of these.

The Court of Appeal's ruling last year resolved a long-standing controversy concerning the MIB’s true legal status under European law principles.  Its two principal findings were: (i) the MIB is an emanation of the state and (ii) that it is bound by the direct effect of Articles 3 and 10 of the Sixth Motor Insurance Directive 2009/103 (the Directive), which prescribe the nature and extent of compulsory third-party motor insurance. I had been alone in consistently arguing for both these outcomes for a number of years.

In practical terms, this ruling fixes the MIB  with an entirely new category of liability, independently of those under (i) its contractual obligations with the Secretary of State for Transport, currently set out in the Uninsured Drivers Agreement 2015 (UDA) and the Untraced Drivers Agreement 2017 (UtDA) and (ii) its statutory obligations under the Motor Vehicles (Compulsory Insurance) (Information Centre and Compensation Body) Regulations 2003.

This new liability is based on directly applicable European law, which will survive as retained EU law unless and until this outcome is reversed by the Secretary of State for Transport after the Brexit implementation period.  

Under this new law the MIB is obliged to compensate motor accident victims who have been wrongly denied a compensatory guarantee through compulsory insurance due to the government’s failure to implement fully Article 3 of the Sixth Motor Insurance Directive 2009/103 (the Directive) within the provisions of Part VI of the Road Traffic Act 1988 (the 1988 Act) and the EC Rights Against Insurers Regulations 2002.

Article 3’s direct effect

The Article 3 requires every member state to ‘take all appropriate measures to ensure that civil liability in respect of the use of vehicles normally based in its territory is covered by insurance’. In Part 1 of this feature, Article 3’s broad and inclusive scope was compared with the UK’s narrower transposition within sections 143 and 145 of the 1988 Act and found to be wanting.

This non-conformity is likely to generate the following new classes of action against the MIB:

The first and most obvious category in the light of the Lewis case facts are claims caused by uninsured vehicles on private land and inside private premises. The 1988 Act wrongly confines the scope of compulsory motor insurance to roads or other public places.

In the next category, are accidents caused by a wide range of motor vehicles that are wrongly excluded from the Directive’s compulsory insurance requirement.  Section 185’s definition of ‘motor vehicle’ is confined to vehicles that are ‘adapted or intended for road use’.  Whereas the Article 3 insurance requirement is much wider and applies to ‘any motor vehicle intended for travel on land …’.
Accordingly, the MIB is exposed to a new raft of claims for loss or injury caused by a bewilderingly wide range of off-road motorised transport, some of which were not envisioned when the Road Traffic Act was reiterated, in 1988.  These range from huge construction site dumpsters to the diminutive segways; even kinetically powered bicycles.

A third category arises out of the way section 145 of the 1988 Act only requires the personal liability of the policyholder to be covered.  In Driverless vehicles: future perfect? (Pt 2), New Law Journal, 30 November 2018 this author argued that the government’s failure to ensure that mechanical or software defects is included in nits compulsory third-party motor requirement infringed the Directive.  This is because Article 3, by contrast, is set in much broader terms with its requirement ‘that civil liability in respect of the use of vehicles … is covered by insurance’. Although this hypothesis is untested, it is consistent with a ruling by Court of Justice of the European Union (CJEU) on 20 June this year in Línea Directa Aseguradora, SA v Segurcaixa, Sociedad Anónima de Seguros y Reaseguros [2019]. Here the CJEU held that the scope of Article 3’s insurance requirement embraces a liability arising from a vehicle spontaneously bursting into flames after it had been parked inside a garage for at least 24 hours. It held that the vehicle’s parked status was an integral part of its use as a means of transport. It also ruled that to establish liability under Article 3, it was not necessary to identify the particular fault responsible for the fire or the particular function that part performed. The ruling also bears out part of this author’s criticism of the Supreme Court’s ruling in Pilling v UK Insurance Ltd [2019] UKSC 16: see Phoneix in Flames, New Law Journal,17 May 2017.

A fourth application of the direct effect of Article 3 would appear to be cases where some insurance was in place for the vehicle responsible but where the insurer has been able to rely on non-conforming provisions of UK law to evade its contractual liability (under the policy) as well as its statutory liability (under section 151(5) of the 1988 Act) due to one or other of the following: (i) the policy being declared void under s152(2) on the grounds of fraudulent misrepresentation at the policy’s inception, for example: see Colley v Shuker & ors [2019] EWHC 781 (QB) or (ii) where the policyholder has breached a policy term whose effect against a third party claim is not nullified by sections 148 or 151 of the 1988 Act, as occurred in EUI v Bristol Alliance Limited Partnership [2012] EWCA Civ 1267 and Sahin v Havard [2016] EWCA Civ 1202. Hitherto, such claims have been treated as uninsured or untraced driver claims under the UDA or the Untraced Drivers Agreement 2017 (UtDA).  This practice was endorsed recently by the Supreme Court in Cameron v Liverpool Victoria Insurance Co Ltd [2019] UKSC 6; wrongly so in this author’s view.  These domestic authorities flout three consistent CJEU rulings to the effect that the Article 10 body (whose role the MIB discharges) has no authority to intervene if the vehicle responsible had policy was in place at the time of the incident giving rise to the claim. The MIB’s role is confined to situations where the vehicle responsible is (i) unidentified or (ii) where no policy is in place at the time of the incident, see Gábor Csonka v Magyar Állam Case C 409/11 [2013] (paragraphs 30 to 32) and Fidelidade-Companhia de Seguros SA v Caisse Suisse de Compensation (Case C-287/16) [2017]. Only one policy exclusion can be invoked against a third party and this only applies to a passenger who gets into the vehicle knowing it to have been stolen; not otherwise: see Katja Candolin (Case C-537/03) [2015].  Thanks to the Lewis appeal, the direct effect of Articles 3 and 10 allows the Supreme Court’s erroneous decision in Cameron to be challenged and, if necessary, referred to the CJEU for a preliminary ruling under Article 267 TFEU.

All these claims are based on directly effective rights conferred under the Directive. They are not UDA claims, see below.

Article 10’s direct effect

Because the MIB has been officially classified as an emanation of the state and because both Articles 3 and 10 have direct effect against it, any non-conforming provisions within both the UDA and the UtDA are now much easier to challenge, at least during the Brexit implementation period whilst the supremacy of European law subsists. 

The MIB agreements still retain restrictions and exclusions of liability that are not permitted under the Directive and these are now subject to judicial scrutiny by direct comparison with the wording of Articles 3 and 10 of the Directive.  This new remedy circumvents the problem caused by the House of Lords ruling in White v White, [2001] UKHL 9 where it that held because the MIB schemes were not legislation they were not susceptible to a Marleasing style remedial construction to bring them into line with the Directive’s objectives. Arguably the White ruling had been superseded by Pfeiffer v Deutsches Rotes Kreuz (C-297/01) [2004], which extends the courts obligation to undertake a consistent / purposive construction of any national rule or law implementing a directive.  The MIB’s emanation of state status precludes it from relying on the CJEU ruling in Smith v Meade Case C-122/17 [2018] that prevents a the Directive from having a ‘horizontal’ direct effect against a private organisation, such as an insurer. 

Potential Article 10 challenges

I list a few of the most obvious examples, these are merely indicative of a wider range of potential construction challenges of the MIB Agreements, based on the direct effect principle:

The first arises from the way the MIB breaches the equivalence principle, considered above, in cl 6 of both the UDA  and the UtDA by asserting the right to offset other sources of recovery and or under cl 6 (3) ibid for failing to present a claim against another insurer potentially liable to make a payment in respect of the same incident; when no such right exists under the normal civil liability rules that apply to insured defendants. Arguably this breaches the equivalence principle mentioned below.

A second example concerns the way the MIB has subverted the legislative intention of Article 10(3)’s permission to exclude liability for property damage in an untraced vehicle claim where there has been no ‘significant injury’ sustained in the incident giving rise to the claim.  The MIB Agreements define ‘significant injury’ in terms that amount to a ‘grievous’ or ‘serious’ injury threshold in cl 1 of the UtDA 2003 and cl 7 of the UtDA 2017. Whereas the European Commission’s explanatory memorandum made it clear this is intended as an anti-fraud measure; not a serious injury threshold. 

A third example: concerns the way cl 8(1)(b) of both the UDA and the UtDA purport to exclude liability to a passenger who at the time of the accident knew that the vehicle had been unlawfully taken and had not attempted to alight from it as soon as reasonably possible.  The only permitted exclusion in Article 10 requires actual knowledge when entering the vehicle (not later) that it has been stolen.

What sort of claim?

These newly coined direct effect actions are an admixture of conventional tort law and public law principles.  However, because the need for such actions results from the government’s failure to bring the accident circumstances within the UK’s compensatory guarantee, they should be run as ordinary personal injury claims. 

Limits of liability

In the first instance decision in Lewis it was mooted that the minimum level of compensatory award set by Article 9 of the Directive (currently EUR 1.2m) might serve as a cap on the MIB’s liability under direct effect principles.  That is not correct, due to the application of the European law principle of equivalence, see (Case C-63/01) Evans v Secretary of State for Transport [2003] . Accordingly, the 1988 Act’s property damage limit of £1.2m applies but there is no financial limit to the personal injury damages.

Brexit’s effect

The Court of Appeal’s finding that the 1988 Act fails to conform with the unrestricted geographic scope of the Directive, that the MIB is an emanation of the state and that both Articles 3 and 10 of the Directive have direct effect against it, will all endure as retained EU law under s4(1) of the EU Withdrawal Act 2018. Individual claimants will continue to be able to invoke they direct effect of these principles during the Brexit transition period (which expires on 31 December 2020) and beyond (as retained EU law), notwithstanding that abolition of the primacy of EU law under s5.

However, it should be noted that the amendments introduced in 2020 to the European Union (Withdrawal) Act 2018 confer a ministerial discretion to modify, after the implementation period,  various statutory instruments such as the EC Rights Against Insurers Regulations 2002 under s7 of the amended Act of 2018. There are also wide powers to revise retained EU law under s8 where a minister of state considers that there is a deficiency in EU law or where, in the minister's view, it is not operating effectively.  Furthermore, the amendments to s6 are arguably even more radical in the way they licence a departure from retained EU case law. It confers a constitutionally unprecedented power on ministers to prescribe by regulation a mandatory test that the courts must apply when deciding whether it is appropriate to exercise their new power under s6(4) to depart from retained EU case law.  Two obvious candidates for revision are the CJEU's rulings in Damijan Vnuk C 162/13 [2014] and Farrell v Whitty and Others (no 2) Case C413/15 [2017]. Both of these decisions exposed the UK's contumacious infringement of EU law and they were critical to both the first instance decision and appellate ruling in Lewis.  Given that the government has failed to honour its repeated assurances to bring the geographic scope of the Road Traffic Act 1988 into line with the EU law for over four years , it seems highly likely that, by one route or another, the Lewis ruling will be effectively reversed.

In the meantime, it remains to be seen where the courts will draw the line on the wider implications of this ruling, especially where a different domestic non-conforming provision is challenged (i.e. one that has not yet been recognised as such by a domestic court).