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Uninsured Drivers’ Agreement – What it Means for the Motor Insurance Industry

July, 9, 2015

It has been a busy couple of weeks. On 30 June the Deregulation Act 2015 came into force, simplifying the process of cancelling motor insurance (and reducing the chances of a motor insurer continuing to have an RTA or Article 75 liability).

At the AGM of the MIB, held on the same day, the membership voted in a new Article 75 to reflect the changes brought about by the Deregulation Act. The government has now published its response to the 2013 Consultation on the Review of the Uninsured and Untraced Drivers’ Agreements. This coincided with the signing of a new Uninsured Drivers’ Agreement and a Supplemental Agreement to the Untraced Drivers’ Agreement (both dated 3 July 2015).

It is important that insurers fully appreciate the changes to the Uninsured Drivers’ Agreement in particular, as the changes affect an insurer’s liability when they are dealing with a third party claim as an Article 75 insurer.

 


 

THE UNINSURED DRIVERS’ AGREEMENT 2015

The Agreement will apply to any incident applying on or after 1 August 2015. The existing 1999 Agreement will continue to apply to incidents prior to that date.

Notice

There were a great many criticisms of the conditions precedent to liability under the 1999 Agreement, particularly in relation to the notice provisions required around issue and service of proceedings, etc. The position is now greatly simplified by the new Clause 13(1) which requires the MIB to simply be joined as a party to the proceedings from the outset. This means that the MIB should avoid having to apply to be added to proceedings relying on Gurtner v Circuit [1968] 2 QB 587.

Clause 13(2) sets out that the requirement to include the MIB from the outset is not required where a claimant reasonably believes that there is an RTA insurer and has given RTA notice accordingly.

Where an insurer has Article 75 status (which means that if relying on material non-disclosure to avoid a policy, a section 152 declaration has actually already been obtained), if they explain that to the claimant pre-issue, the claimant should simply join in the insurer from the outset. The insurer should be sued as “The Motor Insurers’ Bureau (acting through its agent [insurance company name])” which reflects their correct status.

Realistically, a diligent claimant and their solicitors should never get caught out by these new provisions.

Passenger Claims

The 1999 Agreement excludes from compensation claimants who have knowingly allowed themselves to be carried in vehicles: –

  1. which have been stolen or unlawfully taken (a similar exclusion applies under the RTA)
  2. which are uninsured
  3. used in furtherance of a crime or
  4. to avoid lawful apprehension.

The latter two exclusions are not permitted by EU law and recently resulted in the Secretary of State for Transport being ordered to pay so-called ‘Francovich‘ damages. This is compensation paid to an individual who has suffered a loss as a result of a member state’s failure to transpose an EU directive into national law.1

Clearly, the government did not want to suffer similar claims so has removed these exclusions from the new Agreement. The MIB (and indeed insurers generally) will still however be able to avoid a very small minority of claims where the principle of ex turpi causa applies, i.e. the claimant’s illegality bars their entitlement to compensation on policy grounds.

The presumptions around ‘knowledge’ have also been removed and the Agreement brought into line with the definition of ‘knowledge’ in section 143(3) and 151(4) of the RTA (i.e. actual knowledge or constructive knowledge – the claimant had “reason to believe”).

Under the 1999 Agreement, due to a drafting error, the exclusions applying to passengers with knowledge did not apply to those cases involving fatalities. That loophole has now been removed – see Clause 8(4).

Terrorism Exclusion

Motor insurers may well have pondered whether they could be liable for the financial consequences of a terrorist attack on a road or public car park that caused massive loss of life and property damage, particularly given likely reinsurance exclusions.

The answer should surely be no on the basis that an RTA liability was never intended to cover such a loss.2 It can also be argued that such a liability was outside the scope of the policy.

The new Uninsured Drivers’ Agreement makes it clear that the MIB has no liability for terrorist acts (as was already the case under the Untraced Drivers’ Agreement 2003). Motor insurers should consider that the matter is now rather more certain.

Subrogated Claims

The exclusion under the 1999 Agreement in respect of subrogated claims has been a bone of contention, particularly around what was and was not deemed a subrogated claim and therefore one which the MIB did not have to meet.

Insurers often seek to adopt Article 75 status (i.e. put themselves into the shoes of the MIB) in order to avoid subrogated claims.

Clause 6(1) of the new Agreement extends the scope of what is deemed a subrogated claim to include: “… any claim, or any part of a claim, in respect of which the claimant has received, or is entitled to receive or demand, payment or indemnity from any other person (including an insurer), not being the Criminal Injuries Compensation Authority or its successor.”

Accordingly, not only are true subrogated claims or claims which could be subrogated excluded but also those where the claimant has chosen not to claim off an insurer for whatever reason. So if a claimant chooses not to claim against an insurer and, through delay, etc, loses their entitlement to claim, such a claim is still excluded under the new Agreement (see Clause 6(3)).

Whilst the instances of an insurer having Article 75 status may reduce by virtue of the Deregulation Act 2015, the extension of the exclusion in respect of subrogated claims is likely to increase the instances where it is tactically advantageous for an insurer, where possible, to reduce its status to that of Article 75.

It may be interesting to see whether there is an attempt to challenge this new definition of a subrogated claim along the lines of that previously advanced by Helphire in McCall v Poulton and the MIB [2008] EWCA Civ 1263. In that case there was an attempt to recover credit hire charges from the MIB which were acknowledged to be subrogated.

Recovery Rights

Unlike an RTA insurer, the MIB (and therefore an Article 75 Insurer) does not have a statutory right of recovery against an uninsured motorist or any insured person who causes or permits the vehicle to be driven without insurance. The MIB have for many years principally relied on consent and assignment agreements, whereby the victim, in return for being compensated by the MIB, would assign their cause of action to the MIB. Clause 15(b) now makes it a mandatory requirement for a victim to agree to assign their cause of action to the MIB ahead of settlement of their claim.

An Article 75 insurer, like the MIB itself, will therefore be able to compel a claimant to complete a consent and assignment ahead of settlement, thereby preserving potential rights of recovery (albeit with the practical problems around such agreements, e.g. the question of limitation).

Trailers

The MIB has always been required to meet a liability required to be covered by Part VI of the RTA, which generally extends to cover trailers. However the new Agreement extends that liability in one very limited respect: as the guidance spells out “If … the claim arises from the use as a trailer (1) of a stationary, uncoupled trailer or (2) of a moving, uncoupled trailer (but where the motion is not brought about by a motor vehicle), MIB will meet any unsatisfied judgment obtained regardless of whether or not there is a specific insurer covering the trailer in either of these circumstances. If there is a specific insurer, MIB will then look to recover its outlay from any such insurer.”

Nevertheless, the instances of out of control burger kiosks rolling down hills causing damage must be few and far between!

Right of Appeal

The seldom used right of appeal to the Secretary of State has now been replaced with a right of appeal to a QC arbitrator. The instances of such an appeal process being required will no doubt remain extremely limited.

 


 

UNTRACED DRIVERS AGREEMENT

The MIB and the government are continuing to work on an entirely new Untraced Drivers Agreement to replace the existing 2003 version. In the meantime, the current Agreement has been amended in two respects: the changes applied to the Uninsured Drivers’ Agreement in respect of exclusions for passengers with knowledge and what amounts to a subrogated claim have both been applied. Not to have made such changes would have resulted in inconsistencies between the two Agreements.

 


 

OUTSTANDING ISSUES

Some claimant lobbyists will continue to highlight what they consider to be problems with UK legislation. For example, the issue of RTA liability (and therefore the MIB’s liability) being restricted to incidents occurring on/in a “road or other public place”. The ECJ ruled last year in Vnuk v Zavarovalnica Triglav C-162/13 that compulsory motor insurance has to cover any accident caused by the use of a vehicle that is “consistent with its normal function” irrespective of the location.

This interpretation is obviously wider than the RTA-defined UK position. It has led to a call to extend the requirement for compulsory motor insurance under the RTA to use of vehicles on private land, and this issue is not resolved by these latest changes.

Another unresolved issue is whether the European Communities (Rights against Insurers) Regulations 2002 properly implement EU law.3

A third issue is whether a claimant actually needs to obtain a judgment against a tortfeasor or whether it is simply necessary to identify the vehicle. The extent to which this continues to be a potential issue will be dependent on the extent of any substantive changes (particularly in relation to costs payable) under the new Untraced Drivers’ Agreement.

However notwithstanding these discrete points, most of the criticisms raised by APIL and others in the government’s consultation have been properly addressed so far as the Uninsured Drivers’ Agreement is concerned.

 


 

CONCLUSIONS

The new Uninsured Drivers’ Agreement is generally much simpler to understand, less cumbersome and will present much less of a potential minefield for the unwary claimant representative.

However the question of whether the overall UK system of compensating victims of uninsured drivers precisely implements EU law remains a potential point of contention and will no doubt rumble on.

If you would like any further information or to discuss these matters further please do not hesitate to email Andrew Baker or call 0844 330 0190.

 


 

1. See Delaney v Secretary of State for Transport (2015) EWCA Civ 172) for further details.?

2. See for instance AXN and Others v John Worboys and Inceptum Ins. Co. Ltd [2012] EWHC 1730 where the actions of John Worboys who drugged and sexually assaulted passengers was held to beyond the scope of an RTA liability.?

3. See for instance Mete and Mete v AXA Insurance UK plc (unreported, Central London CC, 30/10/2013).?

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