Motor insurance: analysis of the UK government decision to diverge from Vnuk

The secretary of state for transport has confirmed the UK will no longer follow the decision in Vnuk, confirming a major deviation from the existing EU model of compulsory motor insurance law.

The government conducted impact analysis on amending the Road Traffic Act (RTA) to ensure compliance with Vnuk and subsequent rulings. Unsurprisingly, given that the proposed cost of implementing Vnuk was estimated at £2bn, the news has been welcomed by members of the insurance industry. These costs would likely have been passed down to consumers via increased premiums.

The announcement means that motorsports will not need to be covered by a compulsory motor insurance policy, nor will the use of motor vehicles on private land. The decision also avoids the prospect of various other types of ‘non-standard’ mechanically propelled vehicles, such as mobility scooters and golf buggies, requiring insurance.

One interesting issue is the status of e-scooters and other light electric vehicles. For the purposes of the ongoing nationwide trials, e-scooters are classed as motor vehicles requiring insurance (albeit from the operator of the local trial scheme).

On the face of it, the government’s decision indicates that e-scooters and other light electric vehicles may be exempt from compulsory insurance requirements. However, we strongly believe that any decision will be informed by the outcome of the e-scooter trials. There have already been reports of misuse, including the first example of a drunk e-scooter user receiving a conviction. We expect that user behaviour and accident frequency will be a key factor in such a decision.

How will the government approach the divergence?

As stated above, the government has said that it will not be following Vnuk, the implication being that the RTA will not be amended or any legislation required. However, we are of the view that some form of legislative change may still be required to eliminate any vestiges of the impact of Vnuk in UK law.

In 2019, the Court of Appeal in MIB v Lewis effectively extended the liability of the Motor Insurers Bureau (MIB) to meet claims for uninsured motor accidents occurring on private land. The MIB was identified as an ‘emanation of the state’ and effectively held responsible for the failure of the government to implement Vnuk. The Supreme Court refused the MIB permission to appeal in 2020.

In light of the conclusion of Brexit, any reference to Lewis requires a consideration of the issue of retained EU law and whether or not, despite the government’s announcement, Lewis remains good law and is capable of being followed.

Section 4 of the European Union (Withdrawal) Act provides that any rights available before exit day are recognised and available in domestic law, specifically those that arise as a part of an EU Directive recognised by “any court or tribunal in the UK in a case decided before exit day”. We note that the Court of Appeal in Lewis held, at paragraph 65, that Article 3 of the Motor Insurance Directive was “unconditional and precise” and therefore capable of direct effect.

If the government intends to remove all traces of Vnuk, then we may see legislation to specifically end the liability of the MIB for claims caused by uninsured vehicles on private land. Such a move may reiterate, in the same manner as the recent Vnuk announcement, that “there are already insurance packages available to Brits that cover certain risks on private land”.

Understanding the background

The RTA currently states that compulsory motor insurance must cover “death of or bodily injury to any person or damage to property caused by, or arising out of, the use of the vehicle on a road in Great Britain”.

This statutory regime was enacted to ensure compliance with Article 3(1) of the Sixth Motor Insurance Directive (MID), which requires that: “Each member state shall… take all appropriate measures to ensure that civil liability in respect of the use of vehicles normally based in its territory is covered by insurance.”

The decision of the Court of Justice of the European Union (CJEU) in Vnuk upended this by holding that the term ‘use’ included any use that is consistent with the vehicle’s ‘normal function’, which is not limited to use of the vehicle as transport on a public road.

The effect of Vnuk was considered in further decisions in the CJEU, including Rodrigues de Andrade and Juliana. These decisions as a whole, effectively determined that ‘use of vehicles’ covers any use of a vehicle that is consistent with the normal function of that vehicle, i.e. as a means of transport and not, for example, as a machine for carrying out work.

What was apparent following Vnuk was that the RTA was no longer compliant with the MID, confirmed by the High Court in RoadPeace. To ensure compliance, the RTA required amendment. In the absence of such an amendment – effectively leaving claimants injured by motor vehicles on private land without recourse to compensation – claimants were entitled to pursue direct claims against the UK government (for failure to implement) and, per Lewis¸ against the MIB (as an emanation of the state).

Impact of Vnuk in the EU

While the government’s announcement represents a move away from regulatory alignment with the EU, the bodies of the European Union are themselves currently addressing reform to the MID to codify Vnuk and subsequent decisions.

The most recent update from the EU bodies regarding proposed changes to the Motor Insurance Directive was the response of the Council to proposals from the European Parliament and Commission, setting out its negotiating position.

In line with the position in the UK, both the European Council and Parliament have both proposed carve-outs for motorsport – whether a wholesale exemption or a nuanced approach requiring separate insurance guaranteeing coverage for third parties.

The proposals from the Council also propose that the term ‘vehicles’ would cover those with a maximum design speed of 25kph or more, or a maximum net weight of 25kg or more. This would potentially mean that vehicles such as golf buggies and e-scooters would not require insurance. The Council also proposed that mobility scooters would not require insurance when used by the “physically” disabled.

Given the need for the three bodies to agree a common position across these issues, progress has been slow and will take time. The Council also proposed that the amended Directive be implemented 24 months after an agreement on amendments is reached.

Contributed by Mark Hemsted and Vikki Melville, both partners at Clyde & Co