February 19, 2019

European Parliament gives green light for changes to compulsory insurance regime

Definition of 'use of a vehicle' clarified and guidance offered on what is considered to be 'in traffic'.

The European Parliament recently approved draft proposals to amend the Motor Insurance Directive to provide clearer guidance on when vehicles require compulsory motor insurance.

The MID currently requires "insurance against civil liability in respect of the use of motor vehicles", yet does not define 'use'. Vnuk and subsequent decisions extended the scope of 'use' to any activity consistent with the 'normal use' of the vehicle regardless of the location, including accident occurring on private land. 

These decisions required risk managers and insurers to consider whether a range of vehicles ranging from forklifts to mobility scooters required compulsory motor insurance, even when used on private land. The lack of clarity was unhelpful to corporates and individuals. In order to provide clear guidance, the European Commission conducted the REFIT consultation, and in response to those findings, the European Parliament recently set out its own draft changes to the MID.

The Parliament proposes a definition of 'use' as follows.

"1a.          ‘use of a vehicle’ means any use of a vehicle in traffic that is consistent with the vehicle's function as a means of transport at the time of the accident, 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; "

Guidance for what constitutes 'in traffic' has been provided by the Parliament as below:

"(3e)      Use of a vehicle in traffic should include the use of a vehicle in circulation on public and private roadways. This could include all driveways, parking lots or any other equivalent areas on private terrain which are accessible by the general public. The use of a vehicle in a closed area, where no access is possible by the general public, should not be considered to be use of a vehicle in traffic. Nonetheless, when a vehicle is used in traffic at any point and is therefore subject to a compulsory insurance requirement, Member States should ensure that the vehicle is covered by an insurance policy that includes potential injured parties, during the period of the contract, regardless of whether the vehicle is used in traffic or not at the time of the accident, except where the vehicle is used in a motorsports event. Member States should be able to limit non-traffic related insurance cover where there is no reasonable expectation of cover, as is the case of a tractor involved in an accident of which the primary function, at that time, was not to serve as a means of transport, but to generate, as a machine for carrying out work, the motive power necessary to function."

The proposals would result in the following outcomes going forward:

  • The scope of compulsory motor insurance would be restricted to those vehicles subject to an approval regime within the EU (set out below) and to their “use in traffic … as a means of transport at the time of the accident.”
  • When a dual-use vehicle is used as a means of power (e.g. a tractor being used to power a piece of agricultural equipment), this function will not be subject to insurance requirements, codifying the decision in Rodrigues.
  • Furthermore, agricultural vehicles which are used in closed areas, which are not accessible by the general public, would not be considered as used in traffic, as "Use of a vehicle exclusively in non-traffic situations should be excluded".
  • However, those agricultural vehicles required to use a road (or an area accessible to the general public) would be required to have valid insurance irrespective of whether on the road or in a field.
  • The decision in Juliana, which suggested that those vehicles which have been de-registered would not require insurance, is also codified. Such a deregistration would be completed via a Statutory Off-Road Notice (SORN) in the UK.
  • The limitation of the Directive to those vehicles subject to an EU-type approval under an appropriate Regulation, would mean some vehicles such as electric bikes and segways do not require cover – and arguably vehicles such as mobility scooters. The rationale being that to do so would "discourage innovation" and the lack of damage compared to an incident involving a car or truck.
  • Vehicles used exclusively for motorsport would not require motor insurance, as they are primarily covered by an alternative form of liability insurance.

The proposals advanced by the Parliament are eminently sensible, and would provide much needed clarity following years of jurisprudence which extended circumstances in which compulsory insurance cover was required.

Looking ahead, in the event that the Commission amends the proposal, it will be referred back to the Parliament for further consideration. If not, then the proposal will be forwarded to the Council of Ministers, the Commission and Member States for approval.

It is likely that the domestic legislation of Member States will need to be amended to ensure that the MID is correctly transposed, and prevent claims for contravention of EU law in their national courts.

It is highly unlikely that any changes will be made before 29 March 2019, and thus much of the UK position will depend on whether or not the UK Government is able to agree a deal with the EU. In the event of the transition period being effective or regulatory alignment being sought, this will require amendment of the provisions of the Road Traffic Act 1988.