The Roadmap acknowledges the disquiet which has been well publicised following the Court of Justice of the European Union ruling in Vnuk on 4 September 2014 (read more in the DWF update). To recap, the Court ruled that the concept of ‘use of vehicles’ as prescribed by the Directive covers any use of a motor vehicle that is consistent with the normal function of that vehicle. As a result, there would be no difference between private or public properties as regards the obligation of cover, and all types of vehicles (even those not road legal) would require insurance. It is widely acknowledged that the Road Traffic Act 1988 is inconsistent with the ruling.
The Roadmap is only the start and the initiative labelled “Adaption of the scope of Directive 2009/103/EC on motor insurance” aka “addressing the consequences of the Vnuk judgment” precedes a wider REFIT review (the European Commission’s Regulatory Fitness and Performance Programme) which will look at the different approaches taken by the member states to all aspects of the Directive, which is due to take place in the third quarter of 2016.
No doubt motor insurers will welcome the news that the Commission appears to have listened to their clear concerns about the Vnuk ruling. In particular the Commission is troubled by:
In light of the above, the Commission advanced four options in response to the Vnuk ruling. Three of the four appear to have been raised only to be dismissed in the next breath, albeit technically, all four options do remain open for consideration.
The first option is to do nothing and leave the Directive untouched. On the basis of the Vnuk decision those member states whose statutes do not accord with the interpretation, including the UK, will need to amend their legislation to fit with the wider interpretation of the Directive or face Francovich actions.
Whilst perhaps the easy option for the Commission, it has already come under a significant amount of pressure to resolve the problems caused by Vnuk. The Commission acknowledges that requiring each Member State to increase the extent of compulsory motor insurance is clearly going to result in premium increases and / or activities such as motor sport becoming unviable to insure. Whilst the purpose of the Directives is to protect individuals and to support the free movement of people through the common protections, to do nothing would leave the people the Directives seek to protect, paying too high a price.
The second option is to establish guarantee schemes specifically to deal with activities caught by the ruling in Vnuk which were otherwise exempt from compulsory motor insurance. Mentioned throughout the Commission’s Roadmap are agricultural, construction, industrial, motor sports and fairground activities.
The Commission expressed the view that requiring an EU imposed definition for compulsory insurance for each of the activities identified would infringe of the principle of subsidiarity and result in too much interference in national law.
The examples of activities taking place on private land cited throughout the Roadmap are those which have been well publicised as being negatively impacted by Vnuk. There are bound to be others (whether immediately identified or emerging as technology develops) which fall outside any guarantee funds established. Adapting the law in this way seems to us likely to result in further litigation and a complex and ever changing system of guarantee funds.
Limit scope of Directive to “traffic”
The third option which clearly has the current backing of the Commission (and supported by a number of insurance-related associations in the UK) is that the Directive be amended to limit compulsory cover to vehicles “in traffic”. This could be defined as vehicles being “used for the transportation of goods or persons whether stationary or in motion in areas where the public has access”.
The restriction of the Directive to vehicles “in traffic” is currently used by many of the Members States including France. Of course, the Road Traffic Act 1988 utilises “use of a vehicle”. Adaptation of the Directive in this way is aimed at alleviating the concerns of the UK and other governments following Vnuk and hopefully at avoiding the need for significant amendment of the Road Traffic Act. The phrase is certainly not commonly used in the UK, and in light of that, we expect that when consulted, insurers will carefully consider the impact of the use of any new terminology. Otherwise we envisage the usual raft of litigation in the future seeking to determine the scope and interpretation of it, for instance, will “where the public has access” be interpreted as the same as “road or public place”?
The fourth option is to exclude certain vehicles from the requirement for compulsory cover including, for instance, tractors, cranes, fork lift trucks and those used in motor sport. The Commission expressed the view that excluding certain vehicles would erode protection if these vehicles were in use ‘in traffic’.
Again it appears to us that amending the Directive in this way is likely to result in future dispute as vehicles falling outside the exclusions are identified.
Given the potential significant impact of Vnuk on policyholders, insurers and Member States work is to start immediately on the review of this aspect of the Directive, with a targeted consultation for insurers and guarantee funds.
The Commission goes onto say that this exercise does not prejudge the REFIT exercise later this year at which point a public consultation will take place.
The Commission’s discussion of the four options produced a clear favourite. Option 3 would result in a change to the EU Directive which is closest to UK current law and therefore it has been already heralded by many as a success.
Vnuk highlighted the inconsistencies across member states such as the wide scale use of exclusions of vehicle types such as tractors in some member states and exposed the discrepancy in protection... Exclusion of vehicle classes is permitted by the Directive but has been used to varying effect across Europe. The wider REFIT may require member states which have made liberal use of the ability to exclude classes of vehicle to amend their laws to ensure greater consistency of protection for vehicles in public places across Europe. Whether the deliberations of the Commission and the REFIT exercise have a long term impact on the Road Traffic Act in light of the UK's decision to leave the EU remains to be seen.
Impact assessment: Revision of material and geographical scope of the Motor Insurance Directive with the aim to focus only on traffic related accident (pdf 262kb)
By Nicola Dunk and Amy Jeffs