The long-awaited decision in the case of RoadPeace v Secretary of State for Transport and Motor Insurers' Bureau [2017] EWHC 2725 has finally landed. The case concerned whether domestic legislation in relation to compulsory motor insurance and compensation for victims of uninsured and untraced drivers is compatible with EU law, namely the Sixth Motor Directive (the Directive). The claim was pursued against the Secretary of State for Transport (the defendant) and the Motor Insurers' Bureau was involved as an interested party.

The Issues

At the hearing, three groups of issues remained to be determined.

The first group of issues concerned the compatibility of UK statutes with the Directive, specifically:

  1. Sections 143, 145 and 151 of the RTA, which permit insurance policies to include limitations and exclusions on the use insured, such as confirming the insured use of the vehicle to "social, domestic or pleasure use";

  2. Regulation 3(2) of the European Communities (Rights Against Insurers) Regulations 2002 (the Regulations), which permits insurers to rely on breaches of the policy by the policyholder and if so, whether that qualified the absolute protection required by the Directive;

  3. Section 153(3) of the RTA and section 2(4) of the Third Parties (Rights Against Insurers) Act 2010 (TPRAIA) which enabled the insurer to raise rights which the insurer had against the policyholder and again, whether that qualified the absolute protection required by the Directive

The second group of issues concerned the findings in the European case of Vnuk v Zavarovialnica Triglav [2014]. The defendant did not dispute that Vnuk widened the scope of the compulsory insurance obligation to include vehicles used off road such that the requirement for compulsory insurance to only extend to the use of a motor vehicle "intended or adapted for use on roads" and "on a road or public place" is incompatible with the Directive. It was accepted that amendments would be required. The issue concerned what remedy should be available whilst the European Commission decides whether the Directive should be amended and the Government decides what legislative changes are required.

Also related to this was the interpretation of the meaning of "accident".

The third group of issues related to the compatibility of various, specific provisions of the Uninsured Drivers' Agreement and Untraced Drivers' Agreement with the Directive.

The Determination

In relation to the first group of issues, it was concluded that:

  1. There is no incompatibility between a restriction on the scope of the use covered in an insurance contract, including "road rage" and "deliberate damage" and the requirements of the Directive. It is not the intention for compulsory insurance to cover any use which can be made of a motor vehicle. This would make insurance more expensive and could be an incentive to avoid insurance at all;

  2. Regulation 3(2) permits a Claimant to bring proceedings directly against the insured person's insurer. It was submitted that the words which make the insurers liable "to the extent that he is liable to the insured person", permit the insurer to raise against the victim any breaches of condition or warranty perpetrated by the policyholder. It was not considered that this created any conflict with the Directive

  3. Again, section 153(3) of the RTA and section 2(4) of the TPRAIA which enabled the insurer to raise, against the innocent third party, rights which the insurer, was not considered to create any conflict with the Directive.

In relation to the second group of issues and the effect of Vnuk, whilst it was accepted that Vnuk widened the scope of the compulsory insurance obligation, it was considered that the scope of the judgment in Vnuk is unclear. For instance, what exactly is meant by the "normal function" of the vehicle. A consultation process had taken place and a legislative amendment to the Directive is being considered although the timeframe is as yet unknown. Meanwhile, there is already a recognised remedy in the form of Francovich damages in claims which would have been met, had there been proper implementation of the Directive.

The Judge held that a declaration should be made to this effect. Further submissions would be required if the parties cannot agree its terms. There should be written submissions on whether there should be a timetable for legislative amendment, so that this is not left solely in the control of the defendant.

The defendant accepted that the limitation of the definition of "accident" breached the Directive and that a declaration should also be made on that issue.

In relation to the third group of issues, all of the Claimant's arguments in relation to the compatibility of the MIB Agreements with the Directive were dismissed.

Consequences and the Future

This decision confirms that it is perfectly permissible for insurance policies to allow exclusion to cover, such as deliberate damage or road rage. This follows the decisions in the cases of Bristol Alliance Ltd Partnership v Williams [2012] EWCA Civ 1267 and Sahin v Havard [2016] EWCA Civ 1202.

Following the decision in Vnuk however, compulsory insurance should be extended beyond vehicles used on roads. An appropriate form of declaration should be made, to this effect. Until such time as any amendments are made and are effected in domestic law, any Claimant can still pursue Francovich damages against the Government in claims which would otherwise have been successful.

It appears likely that the RTA will require some amendment, for instance to redefine the classes of vehicle that require compulsory, third party cover.

Indeed, it is also likely that the RTA will need to be reconsidered in light of the recent ECJ decision in the Portuguese case of Fidelidade-Companhia de Seguros SA v Caisse Suisse de Compensation & Ors Case C-287-16, The Court determined that insurers were not permitted to rely on statutory provisions deeming the policy null and void where the policyholder has made an inaccurate statement or deliberate non-disclosure that might influence the terms or existence of the contract.

This case is of concern to insurers in the UK, given its potential implications. Further to section 152(2) of the RTA, if insurers obtain a Declaration deeming a policy null and void from inception because it was obtained by the non-disclosure of a material fact, or a representation of fact that was false in some material particular, then insurers will avoid statutory liability to deal with a third party claim. Further to Fidelidade, the indication is that this would be deemed to be incompatible with European Law. It is hoped that insures would still have the benefit of avoiding statutory liability where a policy is avoided before an accident.

Whilst the decision in RoadPeace has firmed up on some of the issues of compatibility between domestic and EU law, other areas are still open to potential challenge. It remains to be seen what changes will ultimately be enacted to domestic law.