Vnuk update: increasing costs for businesses?

A much-awaited action plan from the European Commission (EC) on how to deal with the ramifications from the European Court of Justice (ECJ) decision in Damijan Vnuk v Zavarovalnica Triglav remains elusive, much to the frustration of governments, insurers and businesses across Europe.

The first step in finding a path through the "Vnuk problem" (see box below) was taken by the EC when it published its "Road Map" in June 2016, as explained in BLM's previous article.

The latest development is the launch of a consultation by the European Commission (EC). However, this includes the Vnuk problem as part of the wider REFIT program reviewing the Motor Insurance Directive in its entirety. The paper poses the following issues:

1. Portability of claims history statements; for the purposes of 'no claims' bonuses;
2. The guarantees for victims where there is an insolvent insurer;
3. The minimum level of cover required for motor risks;
4. Interpretation of the scope of cover, as now defined by Vnuk;
5. Insurance checks to clamp down on uninsured drivers but without physically stopping motorists at borders;
6. Consistency of terminology in the legislation;
7. Autonomous cars;
8. Transfer of vehicles from one Member State to another.

It should be noted that this matter will not disappear with the UK's exit from the EU. The harmonisation of motor insurance across Europe will remain important and the UK may well remain within the provisions. There remains great uncertainty as to how authoritative past and future ECJ judgments will be in UK courts.

Impact of Vnuk on recent court decisions

That the difficulties raised by Vnuk require resolution sooner rather than later is demonstrated by some recent decisions.

In UK Insurance Ltd v R&S Pilling, the judge interpreted the UK Road Traffic Act 1988 in accordance with the EU MID as construed in the Vnuk judgment, holding that damage to premises caused by fire resulting from repairs being carried out to a vehicle was covered by that vehicle's motor insurance.

In Wastell v (1) Woodward (Dec'd) (2) Chaucer Syndicates the owner of a hamburger van walked into the path of an oncoming motorcyclist after stepping into the road when displaying a sign for his business. The motor insurer was liable for the injuries sustained by the motorcyclist

These two English court decisions demonstrate the widening scope required for motor insurance as a result of the Vnuk case. But recent ECJ rulings have a wider impact on the application of the UK compulsory motor insurance regime.

The ECJ's decision in July in Fidelidade v Caisse Suisse C-287/16 reads very much as requiring Member States to provide that motor insurers who have avoided polices for non-disclosure have to meet subrogated claims in any event – a different outcome to that set out in English law. Following the reasoning, this would also be the case where a policy had been voided for misrepresentation. Thus, this represents an additional cost to insurers which will likely be reflected in premiums.

However, the case of Farrell v Whitty C413/15 might have more profound consequences. The case turned on the status of the Motor Insurers' Bureau of Ireland (MIBI), with the key question being whether it was an emanation of the State. If it was, then the Directives would have direct effect against it, such that it could be sued directly in EU law. The Court has effectively held that it was.

In practice, this is likely to mean that claims not covered by the MIBI's agreements but nevertheless within the scope of the Directive could now be brought directly against the Bureau under EU law. This could mean that a Francovich action against the Member State could be dispensed with in such circumstances.

UK insurance costs to rise?

The relevance of the case to UK matters is that the MIBI's organisation and operation is, for these purposes, virtually identical to that of the UK Motor Insurance Bureau (MIB) and therefore the implications suggested above might also apply here. This means that the UK MIB could be liable right now for the extended scope of motor claims created by Vnuk, without the UK government amending the Road Traffic Act 1988.

The impact on UK businesses is clear: the MIB is funded by motor insurers, so if its costs go up, so do insurers' costs, who may well seek to pass this on in premiums.

A further case from Portugal, Pinheiro, has been referred to the ECJ on the issue of whether the concept of "use of a vehicle" includes a stationary vehicle with its engine running. An agricultural tractor had its engine running to spray herbicides, which resulted in a landslide which hit four workers, killing one.

What next?

The ramifications of the Vnuk decision in terms of increased cost and administrative burden to business is coming ever sharper into focus. The solution, to re-define the scope of the Directive as applying only to those vehicles in traffic, has been for some time, in our view, the clear preferred option.

The EC is to be encouraged to pursue that route in as swift a timeline as possible. Responses to the latest Impact Assessment are now closed; insurance managers are advised to watch for developments.

James Harvey is a partner and David Thompson is a solicitor at insurance risk and commercial law firm, BLM