Dr Nicholas Bevan

Dr Nicholas Bevan
www.nicholasbevan.com

Tuesday, 17 October 2017

EU CONSULTATION ON MOTOR INSURANCE

Public consultation on REFIT Review of Directive 2009/103/EC on motor insurance


DEADLINE FOR SUBMISSIONS EXPIRES ON 20 OCTOBER


The European Commission are seeking your views on reforming its legislation on motor insurance.

I have been consulted by a number of firms and special interest groups on this important consultation exercise.  

I am happy to share my consultation views with anyone interested in submitting their own proposals for reforming the law of motor insurance so that it is better suited to meet the challenges of the 21 century. Email me at mail@nicholasbevan.com 

Responses should be submitted using the online questionnaire form. 


Follow this link to find out more and to submit your views: https://ec.europa.eu/eusurvey/runner/motor-insurance-2017?surveylanguage=en 



Tuesday, 10 October 2017

FARRELL V WHITTY 2017 (Case C‑413/15)

Landmark European Court of Justice ruling:
  • on the direct effect of the Motor Insurance Directives and
  • the legal status of the Irish Motor Insurer’s Bureau


 Click here to read the judgment in Elaine Farrell v Alan Whitty,Minister for the Environment, Ireland, Attorney General and the Motor InsurersBureau of Ireland (Case C413/15) which was delivered today. 

This is a very far reaching and important ruling on the conditions necessary to trigger direct effect of a directive against a body or legal entity not obviously part of the state. 

The Court of Justice's ruling confirms that national courts should not apply the criteria for direct effect set out in paragraphs 18 and 20 of Foster (C-188/89) as though they are rigid statutory formula.  Furthermore it appears to have deliberately refrained from devising an free standing definition of what constitutes an emanation of the state for these purposes. It validates my previously expressed views that the Foster criteria should be applied in the light of the underlying rationale that justifies direct effect as an exception to the basic rule (that directives do not have horizontal effect and so cannot be invoked in claims between private individuals).  This exception is intended to prevent member states from taking advantage of their own failure to implement EU law.  

This ruling supports much of what I have argued previously concerning the Motor Insurers' Bureau's liability for gaps in the compensatory protection of accident victims within the Road Traffic Act 1988 and the EC Rights Against Insurers Regulations 2002 for several years (albeit with some differences).  

The judgment certainly increases the prospects that any properly informed court, applying its ratio, will find the MIB is subject to the direct effect of Article 10 of the Consolidated Directive 2009/103/EC on motor insurance. Article 10 requires every member state to set up or authorise a body to compensate victims of uninsured or unidentified vehicles at least to the standard of the Article 3 motor insurance requirement.  The broad and holistic scope of this obligation is much wider than provided for under our national law provision in the UK. 

Indeed I have argued elsewhere that any body charged with discharging the public service role of the Article 10 compensating body (for victims of uninsured and unidentified vehicles) is prima facie subject to the direct applicability of Article 10.

The Court of Justice ruled that any organisation or body charged by a state with discharging its obligations under Article 10 is performing a public service and that if it also enjoys special powers for this purpose beyond those enjoyed by ordinary individuals then it to be treated as though it were part of the state and thus subject to the direct vertical effect of Article 10 of the Consolidated Directive 2009/103/EC on motor insurance.  It is not necessary to establish that the body is under the control of the state; but where this exists the entity is to be treated as an emanation of state.  This contrasts with Flaux J's finding in Byrne v MIB [2007] EWHC 1268 (QB) that the MIB was not an emanation of the state because it was not under the control of the state.  

Although the Court of Justice ruling is set in its usual oblique style, and whilst it fails to go quite as far as the Advocate General's recommendations for simplifying and explicating the test for direct effect, it should be sufficient to allow a fresh legal challenge in the UK that could open up a new route of redress in this jurisdiction for victims denied their compensatory entitlement due to the government's failure to properly implement EU law.   This will involve suing the MIB in an action based on the wording of the Directive as opposed to the terms of its private law agreements with the Secretary of State for Transport (aka the MIB agreements).

At paragraph 34 the Court of Justice reformulates the criteria indicative of any organisation so closely associated with the state as to warrant liability for the state's failure to implement a directive. Applied to the MIB, all that needs to be established is either (i) it is under the control or authority of the state, presumably not generally but in respect of its public service role it is discharging as the authorised compensating body, or (ii) that in addition to being responsible for a public service it has been given special powers for that purpose.

In Byrne Flaux J found that the although the MIB did discharge a public service, it did not possess any special powers (in addition to not being under the control of the state). I have argued elsewhere that he erred in his findings on the last two points. This (second) preliminary ruling from the Court of Justice in Farrell tells us that it is not necessary to establish all three criteria listed in paragraph 20 of Foster (public service, control by the state and special powers).  Clearly, where all three elements are established then it will automatically qualify.However there is ample evidence that not only does the Minister for Transport have ultimate control and influence 

The MIB is likely to continue to argue that it possess no special powers, as it succeeded in doing so in Byrne. However, I do not believe that the court was fully acquainted with all the relevant facts and that were a different court properly informed of the MIB's actual powers then this would be readily established.  

See my earlier blog:  Putting Wrongs To Rights Part 2 

It is noteworthy that in Farrell the Court of Justice took the view that the statutory requirement that every Irish motor insurer must be a member of the Irish MIB and also to fund it's compensatory role, effectively conferred it with a special power: to enforce these contributions. The Irish and UK mandatory membership and funding requirements for the compensating body, whilst not identical, are remarkably similar in all important respects. Given that any court will be required to apply this ruling purposely and in keeping with the underlying principle (of preventing the state from exploiting its own failure to fully implement the Directive) then I think it likely that such differences as there are will be deemed to be superficial and so fail to avail the MIB of this defence in future.

The potential implications for the motor insurance industry and individual victims affected by the UK's default are huge. This is due to the extensive number and range of infringements that speckle the UK's transposition of this Directive. 

Motor accident victims injured by off-road vehicles that do not conform with the statutory definition in section 185 of the 1988 Act or by motor vehicles on private property or from incidents caused by mechanical or software defects that the user is not responsible for, (which are not subject to compulsory insurance under a conventional construction of s145 of the 1988 Act) should all benefit from this ruling.  The MIB will be obliged to step in and compensate instead.  There is one important caveat to this though: the EU law doctrine of direct effect along with other EU law remedies look set to lapse on Brexit.

I will be offering a more detailed commentary of this decision in the New Law Journal shortly.


Sunday, 8 October 2017

UK AND EU MOTOR COVER COMPARED

The following national law provision fails to conform to the minimum standard of compensatory protection mandated by Directive 2009/103/EC on motor insurance.  This undermines the social policy objectives underlying compulsory third party insurance.  

It affects the following:

·         Extensive tracts of Part VI of the Road Traffic Act 1988
·         The EC Rights Against Insurers Regulations 2002
·         The Uninsured Drivers Agreements 1999 and 2015
·         The Untraced Drivers Agreements 2003 and 2017

The problem is compounded by an extensive body of case authorities misinterpreting the above including (but not confined to) the following:

·         Delaney v Pickett [2011] EWCA Civ 1532
·         EUI Ltd v Bristol Alliance Ltd Partnership [2012] EWCA Civ 1267
·         Sahin v Havard & Riverstone Insurance (UK) Ltd [2016] EWCA Civ 1202


I paste below a couple of my lecture slides that offer a comparative law overview.

The first slide contrasts the qualified and restricted nature of the UK legislative provisions imposing compulsory third party motor cover with the holistic and absolute standard required under EU law.

European law insists that once a policy has been issued, then subject to the single permitted exclusion set out in Article 13 that applies to a passenger who enters a vehicle knowing it has been stolen, the insurer is liable to compensate the victim come what may.

This obligation is a free standing one. A third party motor accident victim's entitlement is impervious to any contractual limitation, exclusion or restriction not permitted by the Directive.


 This slide compares the Motor Insurers' Bureau's role according to conventional understanding with the highly prescriptive and limited role permitted under EU law.

I discuss these issues at some length in my forthcoming feature in Section 3 of Part 9 of the Encyclopedia of Insurance Law, published by Sweet & Maxwell (ISBN:  9780421281509).

I provide professional consultancy services on motor insurance as well as in house training on this and other related legal topics.

07968 427134






MIB LIABILITY FOR DEFECTIVE LEGISLATION

I have recently joined the editorial team of the Encyclopedia of Insurance Law.  What follows is an extract from the forthcoming update in the EIL that I prepared in July and which is due to be released in November 2017.

Publisher details

ENCYCLOPEDIA OF INSURANCE LAW


Reproduced here with kind permission of Sweet & Maxwell


Part 9: The Motor Insurers’ Bureau

Section 3: The MIB’s extra-statutory liability


Section 2 considers the MIB’s rights and responsibilities in two areas:  first, within two separate compensatory schemes agreed between it and the Secretary of State for Transport (the MIB Agreements) acting under his executive powers conferred under section 2 European Communities Act 1972 and secondly, pursuant to the Motor Vehicles (Compulsory Insurance) (Information Centre and Compensation Body) Regulations 2003 that implements the fourth EC Directive (2000/26/EC) on motor insurance.

This section is entirely new and it considers the MIB’s potential liability to compensate third party victims independently of the aforementioned domestic rules and regulations, through the application of EU law, as opposed to the UK’s transposition of the same EU law on motor insurance[1]

Overview

·         The current orthodoxy as to the role and status of the MIB is that it is independent of government control; that whilst the state has devolved to it its responsibility for ensuring that motor accident victims are compensated either through insurance provision or by an authorised compensating body in accordance with European directives on motor insurance, this of itself is said to confer no special status, rights or responsibilities on the MIB beyond those that apply to any other subcontracting provider of such services.  This account limits the MIB’s compensatory responsibilities to those it has agreed to under the terms negotiated with the Secretary of State, allegedly at arm’s length: no more; no less.  These views were largely endorsed by Flaux J in Byrne v MIB [2007] EWHC 1268 (QB).  However, further analysis suggests that such an outlook is overly simplistic; erroneous even[2].
·         This section will consider the way the MIB’s legal status under EU law is influenced by the compensatory role it has assumed.  It will also assess the effect this has in practical terms on the scope and extent of the MIB’s liability to compensate individual claimants.  There is growing support for the contention that a proper analysis of the MIB’s relationship with the Department for Transport reveals a much closer interdependency between the state on the one hand and the MIB and its membership on the other.  It is becoming increasingly apparent that the UK state has always exerted a very considerable degree of de facto control and influence over the MIB and its membership as well as the various public services it discharges on the state’s behalf in the context of motor insurance and in its capacity of compensator of victims of uninsured and untraced drivers[3].  It is argued here that both these factors[4] have important implications for the MIB’s legal status and its responsibilities under EU law.  It is contended that these factors, independently of one another, are each capable of fixing the MIB with additional liabilities to those it has contracted to meet within its private law agreements with the Secretary of State for Transport.  This derives from the application of well-established EU law principles that appear, hitherto at least, not to have been properly addressed by the UK courts.
·         It follows from the above that an appreciation of the relevant European law is an important prerequisite to any proper understanding of the MIB’s legal status and responsibilities.  Accordingly, this section begins by outlining the relevant European law and principles before attempting to explain the constitutional responsibilities that devolve upon the MIB independently of its contractual responsibilities by virtue of its role as the UK’s authorised body charged with discharging the public service roles prescribed by Articles 10, 23 to 25 of EC Directive 2009/103/EC on motor insurance (the Directive).  
·         This European law analysis produces some interesting hypotheses:
o   The first of which is that the MIB agreements, considered above in Section 2, serve a dual role.  Not only do they define the MIB’s contractual obligations to fund and manage the two compensatory schemes for victims of uninsured and untraced drivers but they also constitute part of the state’s rules and laws implementing the Directive.  It is in this latter capacity that these private agreements appear to fall within the purview of the principle of European law consistent construction: whereby national provisions adjudged to be inconsistent with the rights intended to be conferred on individuals under a Directive are capable of being brought into line with the European requirement through a process of Marleasing-style[5] purposive interpretation.
o   Secondly, the MIB’s legal status and role as the UK state’s authorised body entrusted with discharging the public service role of compensating victims in accordance with the terms of its agreements with the Secretary of State for Transport may expose the MIB itself, to the direct and binding effect of the wording of the relevant provisions of the Directive they are intended to implement; independently of the agreements themselves.  Indeed, it is likely that any organisation entrusted by a member state with the task of discharging its obligations under the Directive to compensate motor accident victims will be considered so closely associated with the state to warrant its provisions having direct effect.  This has important implications for cross border claims within the European Union.  If the European principle of direct effect applies here, it has the potential to enable ordinary individuals adversely affected by a statutory or contractual limitation, restriction or exclusion of civil liability cover that is not permitted by the Directive to invoke the superior authority of the Directive’s legislative aim to ground a civil claim against the relevant authorised compensating body (in the UK, the MIB) and to secure redress.  In practical terms it enables individuals to invoke the wording of the Directive directly against the MIB, as though the directive was a domestic statutory provision.  Ordinarily, EU directives do not have direct effect in this way but EU law has developed certain exceptions to the rule to prevent member states from evading their responsibilities and to ensure the effectiveness of this form of secondary legislation.  This has been extended to embrace bodies that are not obviously part of central government (such as the MIB) in certain specific circumstances[6].  There is a growing body of evidence to suggest that these circumstances apply to the MIB’s role in compensating victims of uninsured and unidentified vehicles.
·         In consequence of the above the MIB faces potential additional liabilities resulting from:
§  The nullification of various provisions within the MIB agreements which purport to confer on the MIB an entitlement to restrict, limit or exclude liability in circumstances that are not permitted by the Directive[7];
§  The direct effect of Articles 10 and 23 to 25 of the Directive itself, independently of the UK legislative framework for compulsory third party motor insurance and / or the MIB agreements themselves.  This could expose the MIB to a new liability to compensate for loss or injury caused by incidents that do not currently fall within the scope of the UK insurance requirement as defined by Part VI of the Road Traffic Act 1988, namely: (i) the use of unusual ‘off-road’ transport and motor vehicles; (ii) the use of vehicles on private land and (iii) claims arising out of a vehicle defect not caused or contributed by the user or owner’s negligence but by virtue of some other third party[8], product or software defect.
·         In practical terms the potential impact of the EU law doctrine of direct effect would be to severely restrict the MIB’s ability to avoid or limit its liabilities under its existing arrangements as well as fixing the MIB with an autonomous liability to compensate victims sustaining loss or injury caused by motor vehicle use on private property or otherwise from motor vehicles which, hitherto, were not thought to be subject to the insurance requirement prescribed by Article 3 of the Directive.





[1] The analysis in this section of Part 9 are the views of Dr Nicholas Bevan, its author.  His views are explained in greater depth in the following articles: Nicholas Bevan, ‘Mind The Gap’, British Insurance Law Association Journal, January 2016 and Nicholas Bevan, ‘Bridging The Gap’, British Insurance Law Association Journal, March 2016
[2] See Nicholas Bevan, Putting wrongs to rights, Part I: New Law Journal, 27 May 2016 and Part II of 3 June 2016
[3] See Nicholas Bevan, ‘Bridging The Gap’, British Insurance Law Association Journal, March 2016.  Note also the fact that the MIB owes its existence to the principal agreement dated 31 December 1945 between the Minister for War Transport and every motor insurer authorised to conduct sell motor insurance in the UK whereby the state required the formation of a compensating body, funded by the industry and subject to such terms as the minister might from time to time impose on it.   Although the parties have changed many times, the agreement was never terminated and, it is reasonable to suppose that its essential nature is preserved at the very least as an informal understanding and modus operandi that informs the present relationship between the Secretary of State for Transport and the MIB.
[4] i.e. (i) the state’s influence over and control of the MIB as well as (ii) the state’s control over the public services it discharges
[5] (Case C-106/89) Marleasing SA v La Comercial Internacional de Alimentacion SA [1990] ECR I-4135 as developed by (Case C-397/01) Bernhard Pfeiffer et al v Deutsches Rotes Kreuz, Kreisverband Walshut eV [2004] ECR I-8835
[6] See the references to (Case C-188/89) Foster v British Gas below.
[7] Take for example the unlawful exclusions of liability for loss or injury caused by acts of terrorism or damage to uninsured vehicles; both removed for this reason with effect from 1 March 2017 but not retrospectively, and the purported exclusions of liability under the Untraced Drivers Agreement 2003 for failing to report the incident giving rise to the claim in clause 4 (3) that the MIB wrongly seek to apply to any incident predating 1 March 2017.
[8] E.g. garage mechanic or software manufacturer or ICT technician

Thursday, 5 October 2017

MOTOR ACCIDENT VICTIMS DENIED JUSTICE

Genuine motor accident victims are being denied their proper entitlement to compensation


Motor accident injuries on private land or featuring vehicles that are not subject to compulsory insurance are relatively rare.  However, they do happen and (in the case of infants and child victims) they can often have tragically catastrophic results.

In early 2013 the government was alerted to the problem that serious injuries were occurring every year in circumstances that (wrongly) fall outside the scope of the UK provision for compulsory third party cover. Unfortunately the Minister for Transport chose to do nothing about it.   Although there are no official statistics to confirm or refute this phenomenon, I have been consulted in at least ten instances in recent months and this leads me to suppose that these incidents are not uncommon.

Without compulsory third party insurance, a victim is exposed to recovering a nugatory share of their full entitlement to damages and sometimes nothing at all.

This injustice stems from the failure of the government to properly implement the more generous scope of third party cover mandated by EC Directive 2009/103/EC on motor insurance in the Road Traffic Act 1988, The EC Rights Against Insurers Regulations 2002 and in the Minister for Transport's private law arrangements with the Motor Insurance Bureau (MIB) set out in the two eponymous schemes that apply to victims of uninsured and untraced drivers.

The unlawful gaps in protection occur in various scenarios:

(i) accidents caused by motor vehicle accidents on private property (e.g. on driveways, parking bays, privately owned country lanes) where EU law requires compulsory third party cover to apply but which fall outside the statutory definitions within the Road Traffic Act 1088.

(ii) accidents caused by vehicles that ought to be covered either by compulsory third party insurance or by the MIB compensation scheme, under EU law, but where due to the minister’s inaction are not covered by the Road Traffic Act 1988 or either of the MIB compensation schemes.  This exposes victims injured in a wide range of off-road vehicles to being denied their proper compensatory guarantee (e.g. victims of any mechanically propelled ‘off road’ vehicles such as segways, mini-bikes, go-carts, quad bikes, mobility scooters, quarry trucks and tractors).

(iii) accidents caused by a mechanical or software defect not attributable to the driver or owner’s misuse or negligence but attributable to some other party such as a design or manufacturing defect or negligence when undergoing a service.  The Road Traffic Act 1988 only imposed third party cover for the personal liability of the vehicle’s user. The motor insurance requirement under EU law extends to product liability, in fact to any civil liability arising out of the vehicle’s use.

(iv) claims arising from events that UK law requires to be covered by third party cover and where a policy is in place but where the vehicle’s insurer seeks to invoke against the victim a contractual limitation, exclusion, or restriction of its liability in circumstances that are not permitted under European law.

Victims of accidents occurring in these instances are exposed to the risk that the defendant is uninsured without there being any compensatory guarantee to ensure that they recover their damages from an impecunious defendant.

Last week I was distressed to learn of yet another case where a vehicle insurer managed to browbeat a victim who was knocked down and seriously injured on a school driveway into accepting a token payment on the basis that their policy restricted cover to use in public spaces (even though the restriction was unlawful).  Effective EU law remedies exist that could have prevented this outcome.

THREE ERRONEOUS RULINGS

Three unanimous but erroneous Court of Appeal rulings. 

  • Delaney v Pickett [2011] EWCA Civ 1532

  • EUI Ltd v Bristol Alliance Ltd Partnership [2012] EWCA Civ 1267
  • Sahin v Havard & Riverstone Insurance (UK) Ltd [2016] EWCA Civ 1202


·         In Delaney v Pickett [2011] the court failed to question whether the insurers’ staple defence of seeing a court declaration under s152(2) Road Traffic Act 1988 that the policy is null and void due to a material non-disclosure or misrepresentation could be invoked against a third party accident victim.  It then proceeded to compound its error by failing to disapply both s152 (2) and the MIB’s exclusion of liability because it failed to attempt a European law consistent construction of either the s152 or the Uninsured Drivers Agreement by interpreting these provisions in the light of the European Motor Insurance Directives they are supposed to implement. 

My case commentary in the Journal of Personal Injury Law explained why the court had fallen into error on both counts.  Since when, the Court of Justice’s ruling in Fidelidade Case C-287/16 in July 2017 has completely vindicated my contention that s152 (2) infringes Article 3 of this Directive and the Department for Transport has since been forced to remove the offending exclusion of MIB liability.


·        In both EUI Ltd v Bristol Alliance Ltd Partnership [2012]  and Sahin v Havard & Riverstone Insurance [2016]  I have been openly critical of the way the court refused to engage properly with the extensive line of European Court of Justice (ECJ) rulings that preclude member states from permitting any exclusions or restrictions of liability to be relied on against a third party claimant (as opposed to the policyholder).  In my JPIL article ‘Marking the Boundary’ I explained in 2012 why EUI was made per incuriam because it wrongly sought to restrict the general application of the protective purpose principle, first propounded in Ruiz Bernaldez (Case C-129/94) in 1996, when it clearly has a wide and general application as is evidence from the consistent line of subsequent rulings culminating in Vnuk (Case C-162/13) in 2014 and Fidelidade (Case C-287/16) in 2017.  

In my New Law Journal article ‘Third Time Lucky’ in January 2017 I explain why the Court of Appeal erred in Sahin in following EUI.  Unfortunately, both of these erroneous rulings continue to act as a deadweight for those seeking to uphold their proper entitlement under European law to a compensatory guarantee from a motor insurer: one that is free from any policy breaches or contractual restrictions that apply between the insurer and policyholder.  

 The profound incompatibility with European law remains.  It has been raised as a ground within the ongoing judicial review by RoadPeace against the Secretary of State for Transport.  More news about this soon, hopefully. 

UNFAMILIARITY CAUSES INJUSTICE

Lack of awareness of the EU law remedies

In my earlier posts I indicate the extensive degree to which our UK provision for compulsory third party motor insurance fails to meet the minimum standard of compensatory protection required under EC Directive 2009/103/EC on motor insurance.  Yet the proper application of EU law and its remedies is still capable of enabling genuine claimants to recover their full compensatory entitlement either from the insurer direct or from the Motor Insurance Bureau - through well tried and tested EU law principles. 

In my article ‘Bridging the Gap’ published in the British Insurance Law Journal in 2016  I argue that the Motor Insurance Bureau (MIB) is subject to Article 10 of the Directive’s direct effect, entitling victims to rely on its more generous provisions in preference to conflicting provisions set out within the four current MIB Agreements. I argue that Byrne v MIB & Secretary of State for Transport [2007] EWHC 1268 (QB) erred in ruling to the contrary.  See also my New Law Journal articles ‘Putting Wrongs To Rights’ of 27 May and 3 June 2016.   

In ‘Bridging the Gap’ and in my more recent contribution to Part 9 of the Encyclopaedia of Insurance Law I advance a controversial argument that any organisation, such as the MIB, appointed by the state to discharge its obligations under Article 10 is by definition caught by the direct effect of its provisions.  This amounts to an exception to the basic rule (that European directives cannot be invoked in national courts in claims between private individuals) and it stems from well-established European jurisprudence relating to accountability and state liability for failing to implement EU law and from Becker Case 8/81 and Haim C-424/97 as much as from Foster Case C-188/89. However, Byrne’s shadow continues to act as a deterrent for many practitioners.  I am not aware of a single instance of a claimant seeking to rely on the more generous wording of Article 10 against the Motor Insurers Bureau on the basis that Article 10 has direct effect against it. This is something that needs to change.

The European Court of Justice is expected to deliver an important ruling on the proper test for the direct effect exception in a case referred to it by the Irish Government’s reference for a preliminary ruling in Farrell v Whitty (Case C413/15). This could have profound implications not only for the Motor Insurance Bureau but also for the motor insurers who own and control it.

So watch this space!

IGNORANCE IS NOT BLISS

Lack of awareness of EU law standards and remedies within the legal profession

EU Directive 2009/103/EC on motor insurance


I have been consulted by a number of law firms on cases featuring one or more of the above mentioned lacunae (see MOTOR ACCIDENT VICTIMS DENIED JUSTICE) and I have been concerned to see how genuine claimants are being browbeaten into wrongly accepting the rejection of or a substantial reduction in their proper compensatory entitlement. 


As might be expected, insurers rely on our national law provisions where they suits them; that is entirely their prerogative.  However, this affords them numerous loopholes they are not entitled to under EU law, nor indeed, under our national law if properly construed in a European law consistent manner.  It is unfortunate that the defects in our national law provision are so extensive: they permeate extensive tracts of Part VI the Road Traffic Act 1988, the EC Rights Against Insurers Regulations 2002 as well as pervading the confusing panoply of private law agreements, supplementary revisions and often contradictory guidance notes that govern the Motor Insurers Bureau’s compensatory role. The illegality is so prevalent and egregious as to be scandalous. 

Wednesday, 4 October 2017

INCEPTION DECEPTION

Fidelidade-Companhia de Seguros SA v Caisse Suisse de Compensation 2017 

New Law Journal article: Inception Deception

Link to transcript of judgment: (Case C-287/16)

  • s152(2) Road Traffic Act 1988 is rendered obsolete 
  • European Court of Justice ruling effectively abolishes a staple defence commonly invoked by insurers 
  • EU law mandates the creation of a separate inviolate guarantee: one that obliges an insurer to meet a third-party claim arising out of an actionable loss resulting from its use.  
  • The Court of Appeal's reasoning in EUI v Bristol Alliance  and Sahin v Havard is impossible to reconcile with the Court of Justice's judgment in Fidelidade


Published in the NLJ on 1 September 2017

Link













Can a motor insurer invoke its policyholder’s fraud to defend a third-party claim?


‘Yes’ according to the Court of Appeal’s approach to interpreting Part VI of the Road Traffic Act 1988 (RTA) in both EUI Ltd v Bristol Alliance Ltd Partnership [2012] EWCA Civ 1267 and Sahin v Havard & anor [2016] EWCA Civ 120’.  According to this line of unanimous rulings, even the statutory guarantee imposed by Section 151 RTA can be circumvented by contractual exclusions and restrictions in cover. 

However, this orthodoxy was tuned on its head by the European Court of Justice (ECJ) on 20 July 2017.  

The ECJ has ruled that a national laws that permit motor insurers to deny a third-party claim on the ground that the policyholder’s misrepresentation render it void ab itio conflict with EU law.

The pervasive nature of fraud

Fraud poses an obvious threat to insurers and increases the cost of premiums.  Despite savage cuts to recoverable legal costs, motor premiums continue to rise inexorably and they are already unaffordable for some consumers.  Automatic number plate recognition and related technologies discourage overtly uninsured vehicles.  Unfortunately, all that has achieved is to shift the problem elsewhere.   

One tactic employed by unscrupulous drivers is to induce insurers to offer cover, or to do so on better terms, by making misleading or false representations: whether concerning the ownership of the vehicle, the identity of its main driver or a host of other matters relevant to the decision to offer cover or its pricing.  In Cameron v Hussain [2017] EWCA Civ 366 a credulous insurer issued cover to a phantom policyholder.  Claims against uninsured drivers are ultimately borne by law abiding motorists who fund the Motor Insurers’ Bureau (MIB) through their premiums.

New European ruling on motor insurance

In (Case C-287/16) Fidelidade-Companhia de Seguros SA v Caisse Suisse de Compensation 2017 the Court held that a motor policy, once issued, must meet the assured’s civil liability to third parties even where the contractual rights were vitiated at the inception of the policy by the policyholder’s fraudulent misrepresentations. 

The case facts

The facts in Fidelidade are not recounted in detail but it appears that Mr Seemann, a Swiss domiciled motorcyclist, was killed in a motor accident in Portugal 13 years ago.  The vehicle responsible was driven by a Mr Pereira and it was insured with Fidelidade-Companhia de Seguros (Fidelidade), a Portuguese insurer. 

The deceased estate’s claim was met by the Swiss National Guarantee Fund (Swiss NGF) for EUR 285,980.54.   The fund appears to have been acting under the terms of a reciprocal arrangement with its Portuguese counterpart, the Fundo de Garantia Automóvel (FGA) whose terms replicate much of Articles 20 to 25 of Directive 2009/103/EC that govern cross border motor claims within the EU.  Under this scheme, a victim’s local compensating body is entitled to recoup its outlay from the foreign compensating body of the responsible party.  However, when the Swiss NGF sought to recover its outlay from the FGA and the vehicle’s owner, they argued the claim was coved by Fidelidade’s policy.  

When Fidelidade were joined in the proceedings they contended that their policy had been induced by fraud due to the policyholder’s false statements at its inception: concerning the vehicle’s ownership and the usual driver.  They argued that under Portuguese law such a policy was null and void ab initio.


Portuguese law

Fidelidade relied on Title XV of the Portuguese Commercial Code on insurance.  Article 428 provides that a policy is null and void if the assured does not have an interest in the property insured, and where the policy is not stated to be on behalf of someone other than the policyholder, it is deemed to be taken out on behalf of the contracting party.  Article 429 renders null and void a policy where the policyholder has made an inaccurate statement or deliberate non-disclosure that might influence the terms or the existence of the contract. 

The ruling

The Portuguese Supreme Court referred the question whether this law was consistent with the Motor Insurance Directives to the ECJ.

The ECJ reaffirmed that the dual aim of the directives is first to ensure the free movement of vehicles and people and secondly to guarantee that accident victims receive comparable treatment; irrespective of where in the EU the accident occurred.  In (Case C-162/13) Damijan Vnuk v Zavarovalnica Triglav d. d. [2014] All ER (D) 121 (Sep) the ECJ decreed that these objectives were of equal importance.  The Court rehearsed a consistent line of earlier rulings including (Case C-442/10) Churchill v Wilkinson and Evans [2013] 1 W.L.R. 1776 and confirmed that member states have no discretion to permit motor insurers to rely on statutory provisions or contractual clauses to enable them to avoid their liability to meet third party claims, save where expressly permitted by the Motor Insurance Directives.  It also ruled:
‘27      Accordingly, it must be held that the fact that the insurance company has concluded that contract on the basis of omissions or false statements on the part of the policyholder does not enable the company to rely on statutory provisions regarding the nullity of the contract or to invoke that nullity against a third-party victim so as to be released from its obligation under Article 3(1) of the First [Motor Insurance] Directive to compensate that victim for an accident caused by the insured vehicle.
28      The same is true regarding the fact that the policyholder is not the usual driver of the vehicle.  …’

The Court acknowledged that whilst the construction of an insurance contract is governed by the domestic law, not EU law, it reaffirmed two well established principles: that member states must exercise their powers consistently with EU law and that national laws must not deprive the Motor Insurance Directives of their effectiveness.

It concluded by ruling that the Motor Insurance Directives precluded legislation that has the effect of nullifying their protection where a policyholder has made false statements as to the identity of the owner; the usual driver or whether the assured has any economic interest in the vehicle.

Autonomous quality of the protection

It is clear from Fidelidade that once an insurer certifies that a vehicle is covered for these purposes, EU law mandates the creation of a separate inviolate guarantee: one that obliges an insurer to meet a third-party claim arising out of an actionable loss resulting from its use.  The existence of a motor policy is merely a contiguous factor that triggers this protection. 

A third-party victim’s entitlement is impervious to any contractual limitation, exclusion or restriction that bind the policyholder and the insurer inter se, save where expressly permitted by the directives . This is consistent with a line of ECJ rulings from (Case C-129/94) Ruiz Bernaldez 1996 to Damijan Vnuk in 2014.  This social policy imperative strikes a chord with Gloster VP and Lloyd Jones LJ’s observations on to the Parliamentary intention of the RTA in their majority decision in Cameron v Hussain

UK provision on policyholder misrepresentations
Our national provision in this area was recently reformed and codified within the Consumer Insurance (Disclosure and Representations) Act 2012.  The old common law principles are substituted by a new statutory obligation to act honestly and reasonably.  Section 2 (2) imposes a duty to on consumers to ‘take reasonable care not to make a misrepresentation to the insurer’.  Section 3 prescribes an objective standard of reasonable care. 

The Act imposes a broad dichotomy between inadvertent misrepresentations and deliberate or reckless misrepresentations.  In the former case, an insurer can only avoid the policy if it can prove that it would not otherwise have offered cover on any terms; otherwise it is entitled to reduce its contractual indemnity to its policyholder, applying a formula set out in Schedule 1 Part 1.8 of the Act.  Whereas, in the latter case, it is entitled to avoid the policy if it can establish that the consumer either knew or did not care that the misrepresentation was (i) untrue or misleading and (ii) that it concerned a matter that was relevant to the insurer (i.e. the it was a material misrepresentation), regardless of whether it might have been prepared to offer cover on different terms, see Section 5(2) and Schedule 1 Part 1 (2) of the Act.  Commercial policies are regulated separately under the Insurance Act 2015.

These provisions are incorporated into Section 152 (2) of the RTA.  Accordingly, the sanction of revocation ab initio is primarily now restricted under Section 152 to inadvertent misrepresentations of material facts that are instrumental to the motor insurer’s decision to offer cover, or to fraudulent misrepresentations of material facts.

Motor insurers have relied increasingly on Section 152 (2) RTA in recent years, particularly I high value claims.  It is a uniformly accepted convention that once a court declaration under Section 152 (2) is made, the insurer is released from any direct liability to meet a third-party claim, whether contractually or statutorily imposed (i.e. under either Section 151 of the 1988 Act or Regulation 3 of the Rights Against Insurers Regulations 2002).  The claim is then treated as one against an uninsured party and so handled under the less advantageous terms of one or other of the MIB Uninsured Drivers Agreements or 2015 as amended.  This author first criticised this approach for being inconsistent with the protective purpose of the Directives in his JPIL commentary on Delaney v Pickett [2011] EWCA Civ 1532 and again in this journal on 8 February 2013 in On the right road? (Part II). Fidelidade has vindicated an opinion was hitherto perceived as an unorthodox.


Implications for UK insurers

The legacy of Churchill v Wilkinson, (Case C 409/11) Gábor Csonka v Magyar Állam [2014] 1 CMLR 14, Vnuk and now Fidelidade is to provide legal certainty for accident victims and insurers alike.  Once a certificate of motor cover is issued it should be good for any third-party claim arising out of the use of motor vehicle on land that is consistent with its normal function; regardless of whether it was induced by fraud; regardless of any contractual restrictions or exclusions of liability that are inconsistent with the holistic nature of of the protection prescribed under EU law.  The only exception being the single exclusion of liability permitted by Article 13.2 of the sixth Motor Insurance Directive 2009/103/EC which applies to passengers who know their vehicle is stolen.  The policyholder’s liability to the insurer remains.

Section 152 (2) must be construed consistently with Fideledade, with the result it is effectively made otiose, at least for all claims arising out of an accident predating the UK’s official secession from the EU. 

The financial implications for motor insurers will be modest, as they already meet these claims in their capacity as Article 75 insurers.  The most significant impact will be to third party victims who are spared the rigmarole of their claim being misallocated as an uninsured claim.

Future uncertainty


The UK’s implementation of these directives is systemically defective and the government’s July 2016 consultation on Vnuk amounts to a partial admission of this.  It is also the subject of a wide-ranging judicial review initiated by RoadPeace.  Whether Fidelidade will have any enduring legacy beyond Brexit remains to be seen.  Lord Neuberger’s interview with the BBC on 8 August emphasises the need for much greater clarity than is provided within the Repeal Bill.

Reproduced with kind permission of the New Law Journal.


BREAKING A SILENCE

I suspended this blog last year for several reasons.  The chief of which had to do with my close involvement in what is probably the widest ranging judicial review of the UK implementation of European law in legal history.  I refer to the ongoing judicial review in R (on the application of RoadPeace) v Secretary of State for Transport & MIB 2017 that challenges the UK's transposition of the EU Directive 2009/103/EC on motor insurance. 

In mid-2015 I briefed a leading road safety charity RoadPeace on the urgent need for reform and I introduced them to the wonderful Richard Stein at Leigh Day solicitors.  Richard assembled a first-rate team led by Jeremy Hyam QC from 1 Crown Office Row to challenge the UK’s failure to implement the Motor Insurance Directives so there seemed little point in continuing to blog from the side-lines when I was providing academic advice in proceedings that raised the same challenges.

So why after over a year’s silence am I resuming this blog? 

Here are some of the reasons:

1. The need to counteract the continuing uncertainty caused by the delayed judgment in the R (on the application of RoadPeace) v Secretary of State for Transport .  The case was heard over 2 days in mid February 2017 and was largely confined to academic / black letter comparative law matters, without the need for lay testimony or expert evidence. It is to be hoped that the Hon Mr Justice Ouseley will deliver his judgment soon.

2. The increasingly imminent prospect of Brexit and the potentially limited shelf life of EU law rights and remedies.  See my New Law Journal Article ‘Catching An Ebbing Tide’, 9 June 2017.


3. The misinformation within the Department for Transport’s official report into its 2016 consultation on Damijan Vnuik. The report omits any reference to the concerns expressed by a number of informed respondents about the government continuing failure to undertake a proper and wide-ranging review of its national law implementation of the European Motor Insurance Directives and / or to remedy these defects; consultation on a discrete aspect of its failings is no answer to the need for full and proper implementation. See my New Law Journal article ‘Car Crash Consultation’ 27 January 2017

4. The European Commission’s consultation on reforming Directive 2009/103/EC on motor insurance.  Several law firms have asked me to advise on how to respond.

 5. The need to draw attention to new European Court of Justice rulings, including Fidelidade Case C-287/16) (see my New Law Journal Article ‘Inception Deception’ of 1 September 2017)  and to a spate of references for preliminary rulings seeking further clarification on the Motor Insurance Directives.

6. Advances in automated vehicle technology require a more comprehensive review of UK law than is apparent from the previous government’s flawed proposals set out in the Vehicle Technology and Aviation Bill 2017.See my New Law Journal Article ‘The Road Ahead’ 2 September 2016.

7. Lastly and by no means least, the concern that many experienced personal injury and insurance lawyers and members of the judiciary are still not properly acquainted with the correct EU law standard of compensatory protection, the UK’s defective transposition of this law and an even greater number of lawyers who appear to be unfamiliar the relevant EU law remedies.  

These are some serious allegations here that I will make a start in justifying some of this in the following posts:



Monday, 2 October 2017

PICKING UP THE REINS

I am about to renew posts in this blog.

I set up this blog in April 2013 with two key objectives in mind.

1. A campaigning blog


The original intention was to augment the campaign I was running in the New Law Journal (NLJ) and elsewhere (including the Journal of Personal Injury law)  in which I argue the case for an extensive reform of our national law provision on compulsory third party motor insurance and for extensive revisions to be made to the Motor Insurers' Bureau (MIB) schemes for compensating victims of uninsured and untraced drivers.  See 'Why the MIB Uninsured Drivers' Agreement 1999 needs to be scrapped', JPIL 2011.  See ‘On The Right Road? which the NLJ serialised throughout February 2013.


Achievements to date

This campaign has already succeeded in a number of ways.  These include:


  1. Inducing the government to publish its 2013 consultation on reforming the MIB Agreements which allowed the the numerous infringements of EU law in this area to be raised and this facilitated a wider debate on the defective provisions  within the Road Traffic Act 1988 and the Rights Against Insurers Regulations 2002.  This step appears to have been triggered by my four-part feature in the New Law Journal (On the Right Road) that also attracted the Law Commission's interest.  When the Commission approached the Department for Transport the minister blocked their further involvement.  
  2. In July 2015 the MIB were deprived of a number of oppressive procedural strike-out clauses many of which it introduced unopposed in 1999.  These clauses enabled it to evade its proper liability (imposed under Article 10 of Directive 2009/103/EC on motor insurance) by rejecting genuine claims for the least procedural infraction of mostly pointless and trivial notice provisions; regardless of the wider merits of the claim. The MIB had strenuously resisted numerous calls for their removal, since my meeting with them in 2009. Their removal from the Uninsured Drivers Agreement 2015 has taken much of the sting out of the tail resulting from the systematic misallocation of insured claims wrongly treated as uninsured claims following Ward LJ's erroneous judgment in EUI v Bristol Alliance Limited Partnership 2012. 
  3. After publicly declaring in July 2015 that it refused to agree to any further changes to the Uninsured Drivers Agreement 2015, the MIB were finally forced (in late 2016) to concede that it is not entitled to reject passenger claims under the uninsured and untraced drivers schemes where the accident victim did not have actual knowledge that the vehicle they were travelling in was uninsured.  I had argued for years that EU law insisted on actual, not constructive, knowledge. Hitherto this clause had been relied on to exclude liability to credulous and impetuous teenagers who were unwise enough to agree to travel in a vehicle that a wiser passenger would have known was probably uninsured.
  4. As recently as March 2017 the MIB was forced to remove further unlawful exclusions of liability within both schemes, one of which was the terrorist incident exclusion.  This was first introduced to the Untraced Drivers Agreement in 2003 (again unopposed) and then extended to victims uninsured drivers under the Uninsured Drivers Agreement 2015. Although I advised the government that these exclusions were illegal in 2013, in response to its own consultation on the MIB Agreements, it chose to do nothing. It only took action when this illegality was raised within the ongoing judicial review by RoadPeace.  Some of the victims of the London and Westminster bridge incidents will now be fully compensated by the insurers of the responsible vehicle. 
  5. After alerting the Department for Transport, again in response to its 2013 consultation on the MIB Agreements, that the geographic scope of compulsory insurance and the technical definition of the vehicles subject to this requirement were too narrowly defined, the government was finally compelled to concede this point in 2016.  It is regrettable that it only did so after these discrepancies were cited as grounds of complaint within the ongoing judicial review by RoadPeace. Even so, the government has not taken any steps to remedy this illegality, other than to consult on the implications of the Court of Justice's ruling in Damijan Vnuk from September 2014 (which fully supports the earlier criticism).  However,  the fact that the government was made fully aware of this illegality back in the Spring of 2013 ought to make it much easier for victims affected by this long standing illegality to claim damages from the government under Francovich principles.
  6. A number of other exclusions of liability in the Untraced Drivers Agreement 2003 have also been removed or modified to bring the scheme into closer conformity with Article 10 of Directive 2009/103/EC that it is supposed to implement.  These include unlawful property damage exclusions and preconditions as well as the illegal exclusion for not reporting the accident to the police.  Here again, these were only conceded in 2017 and as a result of these infringements being cited as grounds of complaint within the RoadPeace judicial review.
  7. The government has also conceded, again in response to the same judicial review, that procedural measures should be introduced to protect minors and the mentally handicapped from unfair treatment and under-settlement of their claims of under the Untraced Drivers Scheme.  Unfortunately, the government has failed to live up to its promises by introducing suitable measures.  
  8. My own infringement complaint to the European Commission, which anticipated the Court of Justice's rulings in Vnuk and Fidelidade rulings, has resulting in the Commission incepting a European wide review of the regulatory sufficiency of Directive 2009/103/EC, click here for the consultation.

Additional breaches of EU law

Although the reforms and concessions listed above represent probably the most significant reforms to the compensatory safeguards for motor accident victims since the MIB's inception in 1946, more needs to be done to close other unlawful loopholes.
  • It should be noted that many additional irregularities in the UK's transposition of Directive 2009/103/EC on motor on insurance exist: where the protection afforded to motor accident victims falls below the minimum standard of protection required under EU law. 
  • These have already been highlighted in earlier posts and they will be reviewed again in this post in due course
  • A number of these additional infringements have been cited within the ongoing judicial review, R (on the application of RoadPeace v Secretary of State for Transport.  I have been closely involved in this challenge.  The Hon. Mr Justice Ouseley heard the case in mid February 2017 and his judgment is eagerly awaited.

2. Sharing expertise on European law and remedies


A second objective of this blog, pending the reforms I have been campaigning for, is to provide a know-how resource for legal practitioners and special interest groups representing individual victims affected by the government’s longstanding failure to fully implement the European law governing this facet of our affairs and which confers a higher standard of compensatory protection.

My published articles and blog entries aim:
  • To explain the minimum standard of  compensatory protection required under EU law
  • To identify where our legislation and extra-statutory provision fails to meet this standard
  • To present a simple heuristic approach that allows practitioners to quickly identify inconsistent UK provisions 
  • To clarify the EU law remedies that are available and how to deploy them.

The problem is acute because the UK transposition of this EU law is so defective that it is often impossible to determine a party's rights under the law from the ordinary meaning of the words used in the UK provision.  This is why I advise practitioners to apply the heuristic approach as a matter of routine, whenever a motor insurer seeks to deploy a defence based on its policy conditions.

This second objective has acquired a new urgency. 

This is partly due to the fact that the Court of Appeal has consistently shown itself to be unequal to the task of resolving the many serious conflicts of law that pepper our national law provision in this area.  Indeed two Court of Appeal compounded the problem in EUI Ltd v Bristol Alliance Ltd Partnership [2012] EWCA Civ 1267 and again in Sahin v Havard & Riverstone Insurance (UK) Ltd [2016] EWCA Civ 1202.  I was the first (only) practitioner and commentator to offer the heretical view that these unanimously derived and highly influential rulings were made per incuriam and so are bad law.

The prospect of Brexit adds to the urgency, since if the UK fully secedes from the EU,  then the EU law remedies will be extinguished and the opportunity for judicial led reform lost.

This is why I have decided that it is once more time to pick up the reigns and to blog on…