On 20 December 2016, the Government issued a consultation paper to address the broadened scope of compulsory motor insurance following the Court of Justice of the European Union (CJEU) decision in Vnuk –v- Zavarovalnica Triglav. The consultation paper sets out two options to deal with the decision that the Government refers to as a 'game-changer as far as motor insurance is concerned.' Stratos Gatzouris takes a look at the proposals and considers how they will affect motor insurance in the UK.
The claimant was a Slovenian national working at a farm when he was knocked down off a ladder by the trailer of a reversing tractor and was injured. The CJEU interpreted the Motor Insurance Directive to find that the tractor should have been insured to cover its use in such circumstances. It held that compulsory cover for third party liability should be determined by the ‘use’ of a vehicle, regardless of where it is being used. A vehicle that is being used for a purpose ‘consistent with its normal function’ requires insurance against third party liabilities, even if it is being used on private land.
This interpretation was considerably wider than many member states, including the UK, had perceived it to be. Insurance would be compulsory for all mechanically propelled vehicles used on public or private land and this could therefore potentially include children’s motorised ride-on toys, ride-on lawnmowers, electronically assisted pedal cycles, agricultural vehicles, mobility scooters and vehicles used for motor sports.
English law previously limited the scope of compulsory motor insurance to the use of a vehicle ‘on a road or public place’ (s143 of the Road Traffic Act 1988). The CJEU interpretation of the Directive broadens this so that English law is no longer compatible.
The European Commission (EC) has recognised the significant consequences of the decision and has indicated a willingness to review the Directive. In June 2016 the EC published four options and the UK Government has taken two of the ‘more advanced’ options as the subject of the consultation.
The comprehensive option
This option requires no change to the Directive which would continue to be interpreted in accordance with Vnuk. There would be no change to the definition of ‘motor vehicle’ but compulsory motor insurance will be required when a vehicle is used in a way that is ‘consistent with the normal function of the vehicle’, even if used on private land. Member states will need to amend their domestic legislation to comply with this.
The amended directive option
Under this option, the EC will amend the Directive to mitigate the effect of the Vnuk judgment, and member states will follow suit. The EC has proposed that the Directive be amended to limit the requirement for insurance to use of the vehicle ‘in traffic’. While the categories of vehicle that require insurance will be widened as per the decision in Vnuk, the limitation of ‘in traffic’ would include areas where the public has access but would not extend to purely private land.
Burden on users
One of the concerns with the Vnuk decision is the financial burden it would place on users of a ‘newly in scope’ vehicle. For example, a person who requires a mobility scooter may be unable to afford insurance and their independence could be severely affected. From a wider perspective, it is estimated that motor sport adds £10 billion to the UK economy and, given the risks involved, compulsory motor insurance could render it economically unviable.
The amended directive option is likely (but not guaranteed) to exclude motor sports from requiring compulsory insurance but would still include the likes of golf buggies and mobility scooters used on land to which the public has access.
It will always be more difficult for insurers to investigate accidents that occur on private land. There are less likely to be witnesses, CCTV or other means of corroborating claims and this could create opportunities for fraud. The consultation seeks views on the nature of the fraud that could be expected and how it could be combatted.
Enforcement and penalties
Extending the scope of compulsory insurance also creates problems for enforcement. The ‘newly in scope’ vehicles are not subject to the same licensing and registration requirements as cars and lorries and keeping track of them is much more difficult. The consultation queries whether a less rigorous approach to enforcement for these vehicles could be justified along with lower penalties for failure to comply.
Under either option, the Government will still be able to derogate certain vehicles so that users would not need to take out insurance. However the member state must still compensate the victim of any accident involving the vehicles, and so the Motor Insurers Bureau (MIB) would be liable for any successful claims involving those vehicles. The MIB would then be left to recover the liability from the user of the vehicle. The consultation requests input on what types of ‘low risk’ vehicles could be excluded via its powers of derogation. The concern with derogation is that the MIB is funded by insurers and if MIB payments increase, the cost may be passed onto insurers and ultimately other policyholders.
Until Brexit is complete, the UK is subject to EU law and bound by CJEU decisions. The consultation requests views on whether any regulations introduced to align ourselves with the EU should be subject to a review or sunset clause.
Whilst it is not yet clear what approach the EC will take, the Government makes it clear that the amended directive option is the preferred approach. Opinions from stakeholders are also likely to vary depending on their interests and it is likely that the Department of Transport will be caught between a rock and a hard place!