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Motoring on - the bumpy road to MID reform

Background

In May 2018 the European Commission published its legislative proposal for changes to the EU rules on motor insurance. This followed its 2017 REFIT consultation which sought views on updating a number of areas of the Motor Insurance Directive (2009/103/EC "MID"). One of those areas concerned the scope of the MID and was prompted by the CJEU's decision in Vnuk and subsequent cases. The Commission's proposal on the issue of scope came as a surprise to many, given the previous indication of a preference for the MID to apply compulsory cover to only vehicles "in traffic". The Commission instead then favoured retaining the court's interpretation in Vnuk subject to that approach being codified in a revised MID.

In July 2018 DWF and others provided feedback on the proposals, highlighting the disproportionality of the financial and administrative cost to risk in the Commission's approach.

The next stage in the legislative process is for the European Parliament and the Council to examine the proposal. To that end, the Internal Market Consumer Protection Committee (IMCO) of the European Parliament has now published its draft report (opens in pdf), prepared by an appointed MEP known as a rapporteur. The report significantly changes direction back to the "in traffic" route. Here, we take a look at the rapporteur's suggested amendments.

IMCO draft report

Use of a vehicle

In a marked shift from the European Commission approach, the rapporteur's draft proposal is that compulsory cover should be required for those vehicles "in traffic".  In traffic means "in circulation" on a public or private road, and private roads include driveways, parking lots and docking and loading stations or equivalent areas which are accessible to the public. 

Significantly, vehicles used exclusively in "closed areas," not accessible to the public, would not be "in traffic" and would not therefore need to be insured under the compulsory regime.

However, if a vehicle falls within the category of those vehicles requiring cover because it is used "in traffic" at some point, any liability arising from its use would be required to be covered whether or not such use was in an area accessible to the public or within a closed area. This requirement is subject to the proposed exception for motorsports. In addition Member States may limit non-traffic related cover where there "can be no reasonable expectation of cover". The example given is the machine function of a vehicle such as a tractor.

Motorsports

There has been widespread and well publicised opposition to a Vnuk approach from the motorsport industry. The rapporteur takes on board the concerns raised and excludes vehicles used in motor sports from the requirements of compulsory insurance under the proposals. The basis for this exemption is said to be the limited risk to unrelated vehicles and persons associated with motorsport given it is conducted in a controlled environment. Reference is also made to more specific insurance usually being carried by motorsports, though there is no requirement that any other insurance should be in place.

Small and new types of vehicles

The rapporteur believes that the MID should not cover new types of vehicles such as Segways and electric bikes, making reference again to the disproportionality of compulsory cover to the very limited risk associated with such vehicles. The potential detriment to the market for such vehicles of imposing compulsory insurance is also highlighted. Instead, the proposal is that only vehicles which are subject to type-approval requirements should be covered, the rationale being that type-approval is limited to vehicles which travel at above 25kph.

Comment

  • The IMCO proposed amendments revert to a two-tier regime in which only certain motor vehicles must be insured. Those engaged in motorsports and new types of vehicles are to be excluded automatically. In addition, those vehicles only to be used in closed areas, that is, not on a public or private road, would not need to carry compulsory cover. Private road is given a broad interpretation. However, all of the areas described in the draft are those where members of the public may be expected to drive. Although therefore the draft is wider in scope than the current Road Traffic Act, the geographical limitation envisaged considerably contracts the regime imposed by a Vnuk approach.

  • There is no explanation of how the question of whether a vehicle may at "some point" be used "in traffic" is to be addressed. Reference may be made to the subjective intended use of the owner and other users. Alternatively, the hypothetical possible uses of the vehicle may be decisive. Either approach appears likely, in our view, to move away from the 2017 post-Vnuk English decision of Lewington v MIB which considered the possible uses of a vehicle even if such use was by a thief.

  • The proposal creates a regime where those vehicles requiring compulsory insurance will be covered even within closed areas. However, there is provision for the Member States to limit cover applicable to vehicles when not "in traffic" where there can be "no reasonable expectation of cover". The suggestion is of limitations of cover for the machine function of a vehicle (or what may commonly be referred to as tool of trade function in England and Wales). The provision would potentially create a regime similar to that which exists under the Road Traffic Act, in that insurers would be able to restrict the use of the vehicle covered so long as insurance was in place for the "circulation" uses on public and private roadways.

IMCO's proposed amendments bring the direction of travel back in line which where most insurance practitioners and advisors thought we were heading before May of this year. If the amendments are adopted there will be some comfort that whilst there is likely to be some uncertainty and consequent litigation in many areas, the draft has some similarities to the current Road Traffic Act in that it requires only particular vehicles to be covered (currently under the Road Traffic Act those intended or adapted for use on road) and would allow some restrictions of the uses to be covered.  

We are now waiting to see whether the rapportuer's proposals will be adopted by the full European Parliament, following which they will have to go to the Council for review and potentially through additional stages depending on whether further amendments are required. There is already evidence of disagreement between members of IMCO at a recent meeting to discuss the draft report, highlighting a tension between the need to protect victims of road traffic accidents, the need for legal certainty and the desire to avoid an over-burdensome regime for small vehicle users and the farming industry.

The rapporteur will now complete her report before the Parliament votes on adopting the report as its "first reading position." Depending on the extent of any further amendments, the proposal runs the risk of not completing its legislative process before the European Parliament elections in May 2019.

All of this, of course, leaves aside for now the uncertainty surrounding Brexit, the extent to which there is the intention or the ability to negotiate an agreement to extend the provisions of the MID to the UK, and what any such agreement would look like. But we shall continue to monitor progress of the proposal as any amended MID may well still apply at least during any post-Brexit transition period.

Contact

For further information, please contact Amy Jeffs, Director, Commercial Insurance on 0151 907 3303 or at amy.jeffs@dwf.law

With thanks to Vassilis Akritidis, DWFs Brussels Office Head, for his contribution in relation to EU legislative procedures.

By Amy Jeffs

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This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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