Compendium of Insurance Law
7
MOTOR VEHICLE INSURANCE
COMPULSORY INSURANCE UNDER DOMESTIC LAW
7.1 The Road Traffic Act 1930 made it compulsory for the user of a motor vehicle on a road to be insured against possible liability in respect of the death of, or injury to, a third party. The compulsory insurance scheme in its initial form contained a number of defects, and these were gradually remedied by amending legislation which was consolidated by the Road Traffic Act 1972.7.2 The 1972 Act was substantially altered and extended by the Motor Vehicles (Compulsory Insurance) Regulations 1987, SI 1987 No 2171, introduced to implement the Second EC Motor Insurance Directive, Council Directive 84/5/EEC, and the amended legislation was consolidated by Part VI of the Road Traffic Act 1988. The 1988 Act has itself been amended on a number of occasions, principally to implement the changes to domestic law required under the EU’s motor Insurance Directives. The amending provisions are: the Road Traffic Act 1991 (raising the financial limits for deposits); the Motor Vehicles (Compulsory Insurance) Regulations 1992, SI 1992 No 3036, implementing the Third EC Motor Insurance Directive, Council Directive 90/232; the Motor Vehicles (Compulsory Insurance) Regulations 2000, SI 2000 No 726, reversing two simultaneous House of Lords’ rulings (Cutter v. Eagle Star and Clarke v. Kato [1998] 4 All ER 417) which excluded the use of a vehicle in car parks and other public places from the compulsory insurance requirement; and the Motor Vehicles (Compulsory Insurance) Regulations 2007, SI 2007 No 1426, which partially implement the Fifth Motor Insurance Directive by raising the minimum amount of cover for property damage to £1,000,000.7.3 These provisions are supplemented by a series of other measures. These are: the Financial Services and Markets Act 2000 (Rights of Action) Regulations 2001, SI 2001 No 2256, which confer a civil right of action for late payment of compensation, partially implementing the EC’s Fourth Motor Insurance Directive, European Parliament and Council Directive 200/26/EC; the European Communities (Rights against Insurers) Regulations 2002, SI 2002 No 3061, which confer a direct right of action by the victim of a negligent driver against the driver’s insurers in anticipation of what was then the EC’s Draft Fifth Motor Insurance Directive (since adopted as European Parliament and Council Directive 2005/14/EC); the Financial Services and Markets Act 2000 (Fourth Motor Insurance Directive) Regulations 2002, SI 2002 No 2706, which partially implement the EU’s Fourth Motor Insurance Directive; the Motor Vehicles (Compulsory Insurance) (Information Centre and Compensation Body) Regulations 2003, SI 2003 No 37, which complete the implementation of the EU’s Fourth Motor Insurance Directive by allowing cross-border claims in respect of motor vehicle accidents and facilitating the flow of information between the relevant national authorities; and the Financial Services and Markets Act 2000 (Motor Insurance) Regulations 2007, SI 2007 No 2403, which enable the purchaser of a motor vehicle from one member state to insure it in another member state as long as it is exported to the latter within 30 days7.4 The purpose of the 1988 Act is to protect the victims of negligent road users, and much of the Act is concerned with giving rights to victims that they would not possess at common law and with extending the liability of a motor insurer beyond that which it has agreed to accept under the policy. The compulsory motor regime established under the 1988 Act and the supplementary Regulations can be summarised as follows.- (a) Subject to limited exceptions, liability insurance must be in operation for any person who uses a motor vehicle on a road or other public place.
- (b) The policy must cover, for an unlimited sum, the user’s liability for death or personal injury, and for at least £1,000,000 the user’s liability for property damage inflicted upon third parties. The user himself, and the vehicle itself, need not be insured for first party losses, although passengers are within the protection of the compulsory insurance scheme and it is not permissible for a passenger’s rights to be modified or extinguished by agreement with the user.
- (c) The insurer is obliged to accept liability for injury or damage claims made against persons using the vehicle without the assured’s authority (including thieves) and for persons who do not possess a driving licence.
- (d) Where the loss under the policy is concerned with a third party claim required to be insured, the insurers cannot rely upon any terms of the policy relating to the condition of the user or the vehicle, and the insurers cannot plead any defence concerned with the lateness of the claim.
- (e) If the policy contains an extension clause under which persons other than the named assured are permitted to drive the vehicle, each of those persons is deemed to have a contract with the insurers and may claim under the policy.
- (f) The victim of a road user has a direct action against the insurers if the road user has failed to meet a judgment against him in the victim’s favour. Where such a claim is made, the insurers are unable to plead defences that might have been available against the assured himself, and in particular the insurers’ right to avoid the policy for non-disclosure or misrepresentation are heavily curtailed. In the alternative, in accordance with the requirements of EU law, the victim may choose to sue the insurers directly rather than suing the assured and then enforcing the judgment against the insurers.
- (g) The insurers also face liability to indemnify the victim for the cost of NHS hospital treatment and the provision of ambulance services. The regime was substantially redrawn by the Road Traffic (NHS Charges) Act 1999 and the implementing regulations, although the 1999 Act is now confined to accidents occurring before 29 January 2007: accidents occurring on or after that date are governed by a more general provision, Part 3 of the Health and Social Care (Community Health and Standards) Act 2003, which extends the principle of the 1999 Act to all accidents involving death or personal injury for which there is legal liability. There is limited provision in the 1988 Act itself for liability for the costs of private health treatment and emergency—normally roadside—treatment.
COMPULSORY INSURANCE IN THE EU
7.6 The EU’s first intervention in the motor insurance market occurred in 1972, by Council Directive 72/166. Prior to this Directive, a number of countries (including the UK in 1968) had signed up to the United Nations’ Green Card scheme, whereby a person insured to drive in his own country could obtain cover to drive his vehicle in another signatory country. The Green Card scheme was modified by a Uniform Agreement, the most recent version of which was settled in 1996. The Green Card Scheme was implemented into UK law by the Motor Vehicles (International Motor Insurance Card) Regulations 1971, SI 1971 No 792 and the Motor Vehicles (Compulsory Insurance) (No 2) Regulations 1973, SI 1973 No 2143. Council Directive 72/166/EEC sought to modify the Green Card scheme in its application between member states of the EU, by eliminating border checks on the existence of insurance, a necessary element being a corresponding obligation on road users to take out liability insurance covering personal injuries to third parties. Under the Directive, national motor bureaux were to agree a scheme whereby the bureau of the host country would meet a claim in respect of an accident taking place on its territory, and would seek indemnity from the national bureau of the place of the vehicle’s registration. The most recent version is the Multilateral Guarantee Agreement of 2003, which applies to all EU member states as well as a number of other European nations. The Green Card scheme no longer applies as between EU member states, although it continues to exist elsewhere.7.7 The Second and Third EC Directives—Council Directives 84/5 and 90/232—extended the compulsory insurance requirement. The changes are reflected in the UK in Part VI of the Road Traffic Act 1988, as amended. These Directives had the effect of extending compulsory insurance to third party property damage and obliging an insurer to meet a claim where the user of the insured vehicle was not authorised by the assured to use it. A proposed fourth Directive on motor insurance, circulated for comment at the end of 1996, would have further extended the ambit of those provisions by conferring on the victim of a motor accident a direct claim against the vehicle’s insurer, without the need first to obtain a judgment against the driver. The proposal was published in a modified form in October 1997, limiting the direct action to a victim to whom the accident occurred in a member state outside that in which he was resident and involved a vehicle registered, and an insurer established, in a member state other than that of the victim’s residence. The Fourth Directive 2000/46/EC adopted this modified approach. However, the Fourth Directive was only ever designed to be a temporary measure, and it was left to the Fifth Motor Insurance Directive, European Parliament and Council Directive 2005/14/EC, to perfect the system and to allow direct actions in all cases, a measure which had been anticipated in the UK in 2002 by the introduction of direct actions. The Fifth Directive contained a number of miscellaneous measures, including the increase of the minimum amount of cover. The EU Directives have been implemented in the UK by a combination of legislation (Road Traffic Act 1988 and supplementary regulations) and voluntary agreement (Motor Insurers’ Bureau Agreements). It was held by the Court of Appeal in three joined case, Mighell v. Reading, Evans v. Motor Insurers’ Bureau and White v. White , that the EU Directives are not directly effective in proceedings between a claimant and the MIB, so that a victim who is unable to bring proceedings against the MIB for a loss required to be covered by the Directives will have to sue the government for failing to implement the Directives under the Francovich doctrine, Francovich v. Italian Republic [1991] ECR I–5337. An attempt to obtain damages from the UK Government was held by the European Court of Justice in Evans v. Secretary of State for the Environment, Transport and the Regions Case C-63/01, to be available, although in subsequent domestic proceedings, Evans v. Secretary of State for the Environment, Transport and the Regions 2005, unreported, the UK Government was found not to have contravened any of the requirements of the Directives.THE SINGLE MARKET FOR MOTOR INSURANCE SERVICES
7.8 The creation of a Single Market for Non-Life Insurance, phased in by EU Council Directives 73/239 and 88/357 and completed by Directive 92/49, originally excluded compulsory motor insurance. Motor insurance was brought within the scheme by Directive 90/618, making the appropriate amendments to Directive 88/357. Directive 90/613 was implemented in the UK, in the form of amendments to the Insurance Companies Act 1982, by the Motor Vehicles (Compulsory Insurance) Regulations 1992, SI 1992 No 3036. Under the Directive, a motor insurer established and authorised anywhere in the EU can sell motor insurance anywhere in the EU, subject to the appointment of a claims representative in the host member state and to the insurer joining the insurance bureau of that state. The earlier legislation was repealed and replaced by the Financial Services and Markets Act 2000. Motor insurance forms a class of regulated business for which authorisation is required in the UK, under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, SI 2001 No 544, although in accordance with ordinary Single Market principles authorisation anywhere in the EU allows the insurer to provide insurance through an establishment, or by way of services in the form of direct selling, in any other EU member state.7.20 ROAD TRAFFIC ACT 1988
PART VI THIRD-PARTY LIABILITIES
General Note
Part VI of the Road Traffic Act 1988 lays down a requirement that any person using a motor vehicle on a road has to be insured against potential liability arising from its use. The legislation originated in the Road Traffic Act 1930, and has gradually been extended, most notably since 1987 on the implementation of EC Directives harmonising in part the compulsory insurance requirement. The Road Traffic Act consolidates the Road Traffic Act 1972 and the Motor Vehicles (Compulsory Insurance) Regulations 1987, SI 1987 No 2171.