European Court of Justice moves on insurance status of immobilised vehicles

The recent European Court of Justice (ECJ) decision in Fundo de Garantia Automovel v Juliana has confirmed that a vehicle left immobilised on private land is still subject to compulsory motor insurance, irrespective of the owner’s intention not to use the vehicle. The decision will have widespread implications for corporates, who could be required to insure vehicles kept on private company property, that are roadworthy yet immobilised. It will be inadequate for insureds to simply state that a vehicle did not require insurance as it was not being used on their private land.

The decision emphasises the importance of declaring uninsured and immobilised vehicles as “officially withdrawn from use” with the relevant national driving authority.

In the test case, Ms Juliana had owned a vehicle, which due to medical problems, she could no longer drive. The vehicle was left unused and uninsured in her yard, despite being roadworthy. Subsequently, her son took the vehicle from the yard, and was involved in a collision that resulted in his death and that of two passengers.

The Portuguese national compensation body paid out the claims and then sought to recover the same from Ms Juliana, arguing that the vehicle should have been insured. Ms Juliana disagreed on the basis that she had taken it off the road and had no intention of driving it. The Supreme Court of Portugal referred the matter to the ECJ, which ruled that Ms Juliana retained a duty to insure the vehicle even in the specific set of circumstances established.

The ECJ proffered: “A vehicle which is not formally withdrawn from use and which is capable of being driven must be covered by motor vehicle insurance against civil liability even if its owner, who no longer intends to drive it, has chosen to park it on private land…” As a result of this decision, the Motor Insurance Directive (MID) must now be interpreted as requiring that a vehicle, immobilised on private land at the owner’s choice, is still subject to compulsory insurance requirements, unless formal steps have been taken to deregister the vehicle officially.

This follows the current position in the UK regarding insurance of ‘immobilised’ vehicles. Unless a vehicle is declared off the road with the DVLA, then it is subject to Continuous Insurance Enforcement (CIE) legislation, where it is an offence to be the keeper of a vehicle without insurance.

Regarding any possible rights of subrogation that the Portuguese compensation body might have against Ms Juliana, the ECJ found that if a vehicle is officially deregistered, then any liability to insure becomes an issue for the individual member states, meaning that the appropriate national compensation body has a right of subrogation against the party responsible for the collision, and not the owner. However, Ms Juliana had not taken this step, and therefore, she could be subject to a subrogation action.

This recent decision is one of a number by the ECJ in which they have expanded the scope of ‘use’ as defined by the Motor Insurance Directive. These decisions, including Vnuk and Rodrigues, have on a case-by-case basis extended the scope of the MID.

In response, a European Commission consultation on the Motor Insurance Directive and its scope is ongoing. The outcome remains uncertain, yet the commission’s recent response to the REFIT consultation indicated the commission proposes to codify these recent ECJ decisions by amending Article 1 of the MID, defining the ‘use of a vehicle’ as:

“…any use of such vehicle, intended normally to serve as a means of transport, that is consistent with the normal function of that vehicle, 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.”

This definition will remain limited to vehicles used as a means of transportation. Nonetheless, the proposed changes affirm the ECJ decisions and extends the scope of compulsory insurance to off road/private land (Juliana) and dual-use vehicles (Rodrigues).

From a UK perspective, the decision in Vnuk prompted its own consultation by the UK government on amending the domestic law on motor insurance, following the decision in Roadpeace which confirmed the Road Traffic Act was incompatible with the MID as it is currently drafted.

After the publication of initial stakeholder responses in July 2017, there has been no further movement on the consultation, a victim perhaps of the ongoing Brexit negotiations. Nonetheless, it is unclear what, if any, action the UK government will take to make the Road Traffic Act compliant with the MID.

Any action will be dependent on whether the government intends to maintain harmonisation with the European Union to ensure equivalency of motor policies. For businesses who insure vehicles travelling in the UK and EU, certainty on the scope of their coverage will be vital. Any ongoing ambiguity on these issues will be bad news for risk managers, who may struggle to ensure that vehicles have adequate motor coverage.

 

Contributed by Mark Hemsted, partner at Clyde & Co