European Union: REFIT For Purpose? European Commission Proposes Changes To Motor Insurance Directive

The European Commission (EC) has published its response to its REFIT consultation on the Motor Insurance Directive (MID) which commenced last year.

The consultation focused on five issues with the current MID, with the objectives of simplification and cost reduction:

  1. Scope of compulsory motor insurance (following Vnuk)
  2. Insurance checks
  3. Minimum obligatory amounts of cover
  4. Insolvency of motor insurers
  5. Claims history statements

Whilst the last 4 are relatively uncontroversial, the first is certainly more contentious and could be challenging to implement.

Scope of compulsory motor insurance

Currently, the MID requires "insurance against civil liability in respect of the use of motor vehicles."  However, the definition of the use of a motor vehicle is not provided within the MID.

In the absence of a definition, recent jurisprudence of the European Court of Justice, specifically Vnuk and Rodrigues de Andrade, extended the scope of 'use' to any activity consistent with the 'normal use' of the vehicle regardless of the location. 'Normal use' should be construed as any means of transport, excluding agricultural use.

To that end, the EC proposes to codify these decisions by making an amendment to Article 1 of the MID, defining the 'use of a vehicle' as:

"...any use of such vehicle, intended normally to serve as a means of transport, that is consistent with the normal function of that vehicle, irrespective of the vehicle's characteristics and irrespective of the terrain on which the motor vehicle is used and of whether it is stationary or in motion."

It is apparent that the definition will remain limited to vehicles used as a means of transportation. Nonetheless, the proposed change extends the scope of compulsory insurance to off road / private land and dual use vehicles.

It had been expected that the scope of any change to the MID would be limited to those vehicles used 'in traffic'. This was heavily favoured by insurers and by the EC itself within its June 2016 road map document, but the EC has clearly moved away from this proposal.

The definition does not specifically exclude agricultural use, despite the EC referencing this exclusion within the explanatory memorandum.  Furthermore, it does exclude vehicles being used for motor sport, despite requests from stakeholders in that motor sport sector for an exclusion from the MID.

The codification of the jurisprudence of the ECJ should allow for greater certainty, and should reduce the need for further referrals to the ECJ for interpretation of use of a vehicle, recently illustrated again in the Juliana case.

However, the proposed definition may have the unintended effect of bringing additional vehicles within the scope of the MID, including mobility scooters, as they could be considered as a 'means of transport'. As the ABI have noted, the implementation of this proposed amendment into UK law will have "significant implications for uninsured driving, enforcement and potential fraudulent claims."

The decision in the case of RoadPeace confirmed that the Vnuk ruling had already rendered the provisions of the Road Traffic Act 1998 non-compliant with the MID.  The proposed changes to the MID would inevitably result in additional non-compliance unless the RTA was amended.

Given the ongoing negotiations regarding Brexit and the unclear timescales regarding the end of the Article 50 period and additional transitional period, it is unclear what action the Government will take to make the RTA compliant with the MID.  Any action will be dependent on whether or not the Government intends to maintain harmonisation with European Union for the equivalency of motor policies.

Other issues

Insurance checks

The MID will be redrafted to allow technology-based checks (ANPR linked to motor insurance databases), which are currently prohibited, and a provision will be added to ensure compliance with the recently introduced General Data Protection Regulation.

Minimum obligatory amounts of cover

For personal injuries, the minimum amount of cover required will be increased to €6,070,000 per accident (rather than claim) or €1,220,000 per victim; and for damage to property, €1,220,000 per claim.

Insolvency of motor insurers

Member states will be required to create authorised bodies ensuring compensation for damage / injury caused by an insured vehicle, in the event that the relevant insurer is insolvent or refuses to deal with a claim.

Claims history statements

The content and format of claims history statements will be standardised to contain - the identity of the insurer, the identity of the policyholder, the vehicle insured, the period of cover, and the number and value of the declared liability claims during the period of cover.

The EC also proposed that insurers be obligated to not discriminate according to policyholders' nationality or previous Member State of residence.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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