Friday 24 May 2019

Dorethea Dowling: Why 'laid up and out of use' option may have become a thing of the past

Car Insurance forms
Car Insurance forms
Dorothea Dowling

Dorethea Dowling

Existing motor insurance policies may no longer be consistent with EU law following a decision by the European Court of Justice on September 4.

Some insurance companies in Ireland were offering a rebate of premium if the policyholder advised them the insured vehicle was 'laid up and out of use. It seems that option is now a thing of the past.

This follows a case involving a vehicle owner in Portugal, Mrs Juliana, who could not drive due to ill health. She parked her car at her home and stopped insuring it. In 2006, her son took it without her permission and caused an accident in which he was killed.

The compensation fund that deals with uninsured vehicles paid over €400,000 to two injured passengers and sought to recover the money from Mrs Juliana.

The law in Portugal, as in Ireland, permitted the EU-mandated compensation fund to pursue the uninsured party after settling claims that fall under the compulsory provisions of EU directives on motor insurance.

But when the case came before the Supreme Court in Portugal, it was argued on behalf of Mrs Juliana that she should not be liable because, apart from the fact she had not caused the accident, her vehicle was laid up and out of use.

There was a bit of a conundrum at the heart of the case at that stage. If Mrs Juliana were correct that there was no obligation to insure a vehicle parked up on private land, then by definition it was not a compulsorily insurable risk. That would mean the compensation fund should not have paid the claims. The Portugal court sought guidance from the European Court.

All member states of the EU can express their views to the European Court with such a referral. And the submissions highlight that there are still considerable procedural variances between countries. Ireland and the UK argued that there should not be an obligation to effect compulsory motor insurance on vehicles 'parked up' on private land, nor for owners who were not using their vehicles on public roads. Those arguments were rejected.

One enlightening aspect of the European Court procedures is that well in advance of a decision, a detailed opinion is issued by the Advocate General explaining previous cases and legislation.

In this instance, the AG opinion is twice as long as the court decision and provides more of the reasoning. Essentially, there is a requirement for compulsory insurance on a vehicle, as defined in the EU directives, regardless of use, until the owner has completed the steps required under national law to de-register it.

Ireland argued this would have unnecessary and unwelcome consequences for vehicles not in use, such as those are parked up awaiting sale. The AG reaction was that this reduced risk could be reflected in a lower premium, but the owner had a compulsory insurance obligation.

The second question was on Mrs Juliana's liability. It was held that the relevant directives did not prevent national law having a provision that the owner could be sued for the money which the compensation fund had paid for third-party claims. That recovery could be pursued even though the vehicle owner had no civil liability for the accident.

When viewed from the perspective of ensuring compensation for the seriously injured, this outcome will strike many as sensible.

However, other fairness considerations arise for a vehicle owner. If your insurance company says a premium rebate is available by suspending the third-party aspect of your cover while your vehicle is laying up, how were you to know you were required to de-register a vehicle capable of being driven but not in use?

How does de-registering your old classic car parked up for half the year prevent the risk of someone stealing it and putting you in the same position as Mrs Juliana?

The obligation to ensure all vehicles are insured in accordance with EU law rests on the member states. It seems that action by the Irish government will be required in response to this recent decision.

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