Vnuk: An involuntary risk transfer

A recent CJEU decision on the 'use' of a vehicle raises questions about the scope of compulsory motor insurance, as well as the wider issue of how the EU affects UK law, writes Mike Dobson

With the UK headed towards a referendum on the EU on 23 June, Case C-162/13 Damijan Vnuk v Zavarovalnica Triglav d.d highlights the debate surrounding the impact of the EU on UK law.

In September 2014, the Court of Justice of the European Union (CJEU) ruled in Vnuk that the insurance obligation in respect of motor vehicles set out in the EU Motor Insurance Directives (MID) is now to be interpreted as extending to ‘any use of a vehicle consistent with the normal function of that vehicle’. The use of a vehicle is to be widely construed to include ‘any use’ and is no longer restricted in geographic scope, such as by reference to ‘public ‘or ‘private’ land.

You may have already seen some of the more extreme headlines declaring that this EU decision is ‘bonkers’ and ‘ridiculous’, that lawnmowers and golf buggies may now need to be insured, and this may indeed fuel the Brexit debate. However, in my view, the decision should be seen as an incremental interpretation of the scope of compulsory insurance, a societal necessity recognised in the UK long before we joined the EU.

There are clearly concerns surrounding the scope of the judgment that need to be addressed: the implication for motor sports is one clear example. It is surely not right that a Formula One driver should be insured in the same way as a learner driver in a Ford Ka.

Nonetheless, the government is looking for practical answers to the Vnuk problem. There have been discussions with both stakeholders and member states to look at the unintended consequences of the judgment. It may be that the MID is amended to refine the scope of compulsory motor insurance, for example, by excluding motor sports.

One thing is for certain, though: Vnuk is now and will continue to be seen as a significant influence on English law.

Scope of compulsory motor insurance

Damijan Vnuk brought an action for compensation for injury in his native Slovenia following an accident on 13 August 2007. He suffered injury when he was knocked from a ladder he had climbed while storing bales of hay in a barn by a trailer attached to a tractor. The tractor was primarily being used as a propulsion device, reversing on private property in the courtyard of a farm, in order to position the trailer in the barn.

Vnuk sought compensation against Zavarovalnica Triglav, the insurance company with which the owner of the tractor had taken out compulsory motor insurance. The Slovenian court dismissed the claim on appeal, stating that compulsory insurance in respect of the use of a motor vehicle covered damage caused by the use of a tractor as a means of transport, but not damage caused when a tractor is used as a propulsion device. The Slovenian appeal court, though, went on to refer the case to the CJEU.

The question for the CJEU to consider was whether article 3(1) of the first MID was to be interpreted as meaning that the concept of ‘use of vehicles’ covered circumstances such as the manoeuvre of a tractor in the courtyard of a farm in order to bring the trailer attached to that tractor into a barn.

Prior to the CJEU ruling, the case was the subject of an opinion from Advocate General Mengozzi, who found that a broad interpretation of movement and ‘use’ implies no requirement for the vehicle to be on a road.

The judgment itself highlighted that the definition of ‘vehicle’ is unconnected with the use which is made, or may be made, of the vehicle in question.

Moreover, this concept of the use of a vehicle must be understood in the light of the dual objective of liberalising the movement of persons and goods with a view to achieving the internal market and also of protecting the victims of accidents caused by motor vehicles, which is pursued by those directives.

In the light of all of those factors, the court concluded that the view cannot be taken that the EU legislature wished to exclude from the protection granted by those directives injured parties to an accident caused by a vehicle in the course of its use, if that use is consistent with the normal function of that vehicle.

While the court did not expressly rule that the geographic scope of the duty to insure extended to private property, such as the farmyard where Vnuk was injured, this is the inescapable conclusion to be drawn from the court’s judgment.

Therefore, the use of the vehicle is not defined by reference to ‘public’ versus ‘private’ roads or land. The CJEU appears to have subsumed considerations as to the location of the accident within a broader concept that any motor vehicle’s normal use must be covered by insurance (regardless, it seems, of its location).

Vnuk is a final judgment directly applicable in all member states. Consequently, the compulsory motor insurance requirements of the Road Traffic Act (RTA) 1988, which restrict the definition of a motor vehicle to ‘a mechanically propelled vehicle intended or adapted for use on roads’ and restrict the insurance obligation to a ‘road or public place’, are now seemingly contrary to EU law, and in particular the MID. This has the potential to bring into scope a range of off-road vehicles and situations that would not have been in scope previously.

As it stands, though, nothing changes in terms of UK law until the RTA is amended. The government had intended to consult on the decision last year but this has been deferred while discussions are taking place with stakeholders and member states. There is some debate to be had surrounding the potential unrestricted interpretation of compulsory motor insurance.

Types of vehicle

Follwing Vnuk, the RTA definition limiting ‘use’ to a road is now too narrow in scope and cannot be interpreted in accordance with EU law.

If we are now to consider vehicles intended for travel and for use beyond the carriageway, there are possibly four main categories of vehicles and uses now caught by Vnuk:

1. Specialised vehicles that travel on the road (e.g. mobility scooters, Segways, and electric bicycles);
2. Vehicles not designed for road use (typically specialist motor sports vehicles);
3. Vehicles intended for road use but which are no longer on the road (show cars, museum exhibits, and those declared under statutory off road notification); and
4. Specialist trade vehicles (e.g. construction plant, fork lifts, etc.) used off road.

‘Use’ of the vehicle

One issue will be how broad the interpretation of the phrase ‘any use of a vehicle that is consistent with the normal function of that vehicle’ will be.  Some guidance has recently been provided in the High Court by Judge Waksman QC in his judgment in UK Insurance Ltd v Thomas Holden and R & S Pilling (t/a Phoenix Engineering) (2016).

In the UK Insurance case, the defendant mechanic had been welding a vehicle in a workshop when a fire broke out, and the central question was whether this was considered the ‘use’ of a vehicle. Judge Waksman, in reaching his decision, not only set out a detailed analysis of past authorities on the ‘use ‘ of a vehicle but also helpfully provided some useful commentary on the binding effect of Vnuk.

The question arose, though, of what was meant by the Vnuk definition of the ‘use’ of a vehicle.  

To date, in the UK the ‘use’ of a vehicle has been interpreted widely, with the most extreme example being in the case of Dunthorne v Bentley [1996] RTR 428. There, a driver who caused an accident while she was crossing the road from her broken-down vehicle was found to be using a vehicle. Judge Waksman concluded that the welding, and repair generally, of a vehicle, ‘unless some important part of the vehicle is moving’, is not ‘use’ for the purposes of compulsory vehicle insurance. In so deciding he accepted that the Vnuk concept of ‘use’ (i.e. ‘being used for the intended function’) can be directly read into the RTA. 

The judge distinguished between use of the vehicle and repair to make the vehicle roadworthy so that it could be used, and further found that it was the repair equipment being used, not the car. Just because the car had been driven or moved before or during the repair was not enough to make a finding of a causal link between the fire and the ‘use’ of the vehicle.

Although it was not a defining issue in the case, there was also a discussion of whether this was use of a vehicle on private land, and therefore whether the case fell outside the remit of the RTA  and compulsory motor insurance.

Here it was decided that the RTA did not cover private land and to that effect was incompatible with the MID as interpreted by the CJEU in Vnuk.

What does the future hold for compulsory motor insurance?

While the UK Insurance judgment sensibly draws a restrictive interpretation of the Vnuk definition of use ‘consistent with the function of a vehicle’, it also serves as a salutary warning of the binding effect of the Vnuk decision and a reminder that, as it stands, English law remains incompatible with EU law. Nonetheless, it directly reads the Vnuk interpretation of ‘use’ into the RTA.

Vnuk, though, goes beyond present English law. Accidents, injuries, and property damage now brought within compulsory motor insurance as a result of Vnuk would have to be covered to the level required in the MID and the RTA. Alternatively, if the driver is uninsured, the Motor Insurers’ Bureau will have to pick up the liability.

On the face of it, without further amendment to the MID, the use anywhere of any motorised vehicle would have to be covered by MID-compliant insurance. Thus, all motor sports and any specialist industrial or commercial vehicles on private sites and land might have to be covered by ‘conventional’ motor insurance, meeting the requirements of the RTA, albeit that contractual liability for ‘use’ of a vehicle beyond the carriageway will, in many cases, already be insured – for example, there may well be contractual insurance in the form of employers’ liability, public liability, or household insurance in place.

However, one can see problems arising, particularly around the insurance of Vnuk vehicles, in particular in the agriculture and estates, heavy plant and construction, and motor sport sectors. A number of questions remain, such as:

• How might the response to the decision affect the interplay between employers’ liability, public liability, and motor insurance for accidents involving ‘vehicles’ not on the public road?
• How might the government’s response and the market’s solutions affect both commercial and private customers? and
• Is there likely to be a transfer of what are presently thought to be employers’ liability or public liability risks into the ambit of compulsory motor cover? 

The judgment was predicated on the laudable EU objective of ensuring the protection of victims of accidents arising out of motor vehicles. However, there needs to be a balance drawn between the protection of victims of accidents arising out of motor vehicles and the potentially very broad scope, post-Vnuk, of compulsory third-party motor insurance.

The Department for Transport has already sought stakeholder views while carrying out an initial impact assessment to consider potential claims and the impact on insurance policies.

 The next step is consultation, subject to discussions at a European level. Given those discussions, it remains difficult at this stage to predict the timing of the consultation.

The timing, though, is becoming acute with the referendum set for June. Indeed, the referendum itself may have a part to play regarding the extent of the impact of the judgment in Vnuk. SJ

Mike Dobson is partner at BLM

@BLM_Law