Motor Insurance: Positive signals in the long road to a Vnuk solution

Following the decision of the European Court of Justice (ECJ) in September 2014, the decision in  Damijan Vnuk v Zavarovalnica Triglav caused ripples through EU governments and insurance sectors.  The far reaching ramifications were not initially recognised by all, not least the EU Commission. 

BLM identified the issues facing businesses’ insurance arrangements in our previous article. However, following much effort in raising awareness, not least from the UK, the issue has finally been given the prominence it deserves and the publication of the EU Commission’s consultation entitled ‘Adaptation of the scope of Directive 2009/103/EC on motor insurance’, colloquially known as the ‘Road Map’, is a welcome step.

Vnuk

To recap, the case arose from an injury claim where a Slovenian worker was knocked off a ladder by the trailer attached to a reversing tractor on a farm.  The issue for the ECJ was whether this vehicle was not intended to be used on a road and that being driven off road it should be covered by the compulsory motor insurance regime under the 6th Motor Insurance Directive (MID).  The conclusion was in the affirmative.

More specifically, the decision was that compulsory motor insurance applied to any vehicle being used anywhere, for any purpose, for which it was intended.  Such a wide ambit encompasses all sorts of vehicles traditionally covered under EL and PL policies, for example agricultural vehicles, construction vehicles, forklift trucks, EBTs and driveable aircraft steps.  This would have significant ramifications for the general insurance arrangements of corporates.

The Road Map

The Road Map considered the problems arising for the decision from the perspective of a range of stakeholders.  From this arose four options:

1. Do nothing and leave individual governments to implement the consequences of Vnuk into national law.
2. Set up specific guarantee funds for those sectors caught by Vnuk.  For the UK, this would be in addition (or perhaps an adjunct) to the MIB and would require funding by levies on the insurance industry, which would likely be passed on to policyholders, and particularly corporate insureds, through premiums.
3. Amend the MID to apply to traffic and public access. This would bring matters far closer to the pre-Vnuk position.  The UK’s Road Traffic Act, which implements the MID into UK law, applies to vehicles adapted or intended for use on the road being used on a road or a public place.
4. Derogate certain types of vehicle. This would mean that incidents involving these vehicles giving rise to third party risks would be covered by the guarantee fund.  This would require an increase to levies on insurance companies and, therefore, also premiums.

The Road Map reads very much as if opinions are coalescing around option three  – amend the MID.  This must be seen as welcome as it has the potential for the UK, and many other member states, to largely maintain the status quo.  The extent to which this proves possible will depend upon the exact wording of the amendment to the MID.  Crucially, how the terms “traffic” and “public access” are defined and interpreted will be of importance.

The other three options would involve much more upheaval, which would create operational burdens on businesses and increased costs through the unavoidable rise in insurance premiums.  Leaving Vnuk to be implemented by governments or setting up specific guarantee funds would require large exercises in classifications of vehicles as to whether they are in scope.  For large warehousing operations, airside fleets, agricultural concerns and the construction industry, to name a few, this would be a significant drain on resources.

Clearly though, there is much hope that this new direction will move the scope of compulsory motor insurance away from some of the vehicles and industries previously identified. 

Further work engaging with the issues and raising awareness amongst decision makers is required to ensure there is no ambiguity that purely off-road agricultural, construction, airside and warehouse vehicles are kept out with the ambit of motor insurance.  Corporates would do well to provide their views to ensure matters progress with their sectors’ interests in mind.  Collaborated responses from special interest groups would be useful in this respect.

Uncertainty remains around the timescales for change, not least because timelines on the Vnuk issue have slipped in the past and may do so in the future.  Another factor is the UK’s impending Brexit.  The timing of invoking Article 50 and the amount of time to unravel from the EU machinations are very much unknown.

Best guesstimates are that, assuming option three is taken forward following the impact assessment, Summer 2017 is the earliest time the amendments could be made.  Risk and insurance managers should watch with interest.

James Harvey is a Partner at law firm BLM.