September 28th, 2010

Continental European Legislative and Judicial Trends: Recent Developments in European Union Motor Insurance Law

Posted at 1:00 AM ET

2010_legislative_thumb-2David Lewin, Managing Director
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Follow-up on the Rome II Study

The Rome II Study on Compensation of Cross-Border Victims in the European Union, published by the European Commission (Commission) in January of 2009, focused on terms of compensation and limitation periods. It was issued after the entry into force of Regulation 864/2007 of the Law Applicable to Non-Contractual Obligations (also referred to as “Rome II”) and was subsequently made subject to public consultation. As has been previously noted, the Rome II Study was intended to form an integral part of a “Green Paper,” setting out future policy options as regards motor insurance and cross-border accidents in Europe. The subsequent consultation was essentially a means of obtaining the views of all interested parties on the effects of the application of foreign law to claims arising from cross-border road traffic accidents.

The Commission Services received 46 contributions to the public consultation, a large number of which came from the UK, Germany and France. In its Feedback Statement, published in October of 2009, the Commission summarized the responses with regard to quantification of damages and limitation periods which vary across the Union and may threaten to impede the free movement of persons and vehicles.

Regarding compensation awards, consultation contributions concerned eight policy options ranging from a very low to a high level of European integration.

  • A large group of respondents to the consultation found that an assessment of the effects of the Rome II Regulation is premature, since it has been in place for only one year. According to this view, further measures to ensure full and fair compensation of victims should not be adopted until the impact of Recital 33 of the Regulation, which calls upon Member States to apply the “restitutio in integrum” principle, is apparent.
  • Many respondents, in order to increase awareness of the differences in national compensation schemes among Europeans, considered that it would be beneficial if people in cross-border situations were informed about the differences in compensation awards between the Member States and the possibilities or options that exist to reduce or eliminate the risk of unexpectedly low compensation.
  • Although a number of respondents embraced the option of creating EU guidelines on the types of recognized compensation items and the way these should be calculated, others pointed out the difficulties in agreeing on such guidelines given the wide disparity in EU member states’ compensation systems. It was also mentioned that, on the one hand, it would be difficult to restrict harmonization to cross-border cases alone and, on the other, extending harmonization beyond such cases would not necessarily be justified.
  • Respondents found the option of setting minimum EU standards for the types of recognized compensation items and ways of quantifying them, as well as the option of introducing minimum awards per type of injury, to be a good start in order to have the national legal systems gradually move towards harmonization. Again, however, respondents underlined the potential difficulties in standardization due to the differing economic and social conditions in the EU member states.
  • The option of applying the law of the jurisdiction of the victim’s residence “lex damni” has, in the opinion of some respondents, the advantage of providing compensation to the victim at a level that is perceived as fair according to the principles of the society in which he/she is a member. Others held that this option would result in a departure from the Rome II Regulation, the impacts of which are unknown.
  • If compulsory driver’s insurance that also covered passengers in the vehicle were to be introduced, the law of the jurisdiction of the victim’s residence would be applicable, as described by some respondents. This would likely facilitate claim actions, some respondents argued. On the other hand, such compulsory insurance could raise insurance premiums for all drivers/keepers, the vast majority of whom do not frequently travel abroad by car. Some respondents also felt that this would lead to discriminatory treatment of car owners, since pedestrians and bikers would not be covered by the insurance.
  • The final option related to compensation awards, suggesting the introduction of a EU-wide system. Visiting victims would settle their claims with their own thirdparty liability motor insurer and receive compensation in accordance with the law of the jurisdiction of their residence. This option was not highly regarded by the respondents to the consultation. Concerns were raised that this would undermine regular market forces and would be contrary to public policy that encourages safety and sound risk management.

With respect to limitation periods, nine options were considered by the consultation respondents. Again, the propositions varied as to the degree of integration that would result, ranging from simply providing victims with information to granting additional time to visiting victims or even introducing a general EU Regulation - i.e., solutions that presume at least partial harmonization of national civil laws. Whereas many respondents recognized the practical need for a common set of minimum standards, others argued that direct harmonization of EU member states’ limitation laws is likely to meet resistance and would be somewhat unrealistic. The option of applying the limitation period according to the law of the jurisdiction of the visiting victim’s place of residence received greater support in the consultations. In this view, such a solution would render the system of limitation periods comprehensible from the point of view of the victims. Other respondents claimed that the legal certainty of the defendant would be harmed as a result of this option.

Reinforced Protection of Victims of Cross-Border Accidents

Pending further harmonization discussed in the Rome II Study and in the responses to the public consultation, EU motor insurance law has been consolidated with the aim of reinforcing the protection of victims of cross-border accidents in the EU. Directive 2009/103 - a consolidation of the five Motor Insurance Directives previously adopted in the period from 1972 to 2005 - sets out a framework for dealing with
cross-border accidents in Europe.

The new Directive entered into force in October of 2009. It is broader in scope than the Rome II Study, but essentially has the same goal of better protecting third party victims of road traffic accidents. It obliges all motor vehicles in the EU to be covered by compulsory third party insurance, prescribes minimum amounts of compensation and establishes an efficient mechanism for the quick settlement of claims brought by “visiting victims.” These measures were introduced by previous Motor Directives and have, if at all, been only slightly amended in the new Directive. However, in addition to rendering the existing legislation clearer and more rational by gathering all relevant provisions in one single document, the Sixth Motor Insurance Directive reiterates he need to ensure full and fair compensation to all victims who have suffered very serious injuries. A comparable treatment should be guaranteed irrespective of where in the Union the accident occurs.

Additionally, the Directive sets out to provide specifically for exemptions from the obligation to be insured against civil liability. A list of exempt persons and of authorities or bodies responsible for compensation was subsequently published by the Commission in June of this year. It includes exemptions for certain public or private natural or legal persons such as States, companies of public authorities as well as exemptions for certain types of vehicles or vehicles bearing certain plates.

It should be remembered that issues of civil liability and the calculation of compensation awards remain the province of the EU member states. Accordingly, resolution of disputes should be sought at the national level.

Implications of Regulation 864/2007 on the Law Applicable to Non-Contractual Obligations

The Rome II Regulation, which entered into force in January of 2009, also had implications for the motor insurance sector. Especially in terms of compensation schemes and limitation periods, the Regulation can pose problems for “visiting victims,” i.e., people who have had accidents outside their EU member states of residence, since it provides that, in the case of a non-contractual obligation arising out of a tort, the laws of the country where the damage occurred shall be applicable.

A recent case before the High Court of England and Wales illustrates this with respect to quantification of damages. In Jacobs v. Motors Insurers Bureau, the question was whether the law of the jurisdiction of residence of the victim or the law of the country where the accident occurred should apply. The claimant, resident in the United Kingdom, sustained a serious injury in a road traffic accident in Spain. The registration plate of the car that caused the injury did not correspond to the vehicle,and no insurer could be identified. The claimant was, therefore, entitled to compensation by the British Motor Insurance Bureau (”MIB”), the British body set up in accordance with EU legislation to ensure the compensation of victims of accidents caused by uninsured or unidentified vehicles. Mr. Justice Owen held that the MIB is to apply Spanish law, as it assesses the claim. Having made the payment, the MIB has a subrogation claim against the Spanish compensation body.

The Rome II Regulation and the Sixth Consolidated Motor Insurance Directive are likely to be followed by other measures intending to move the varying national insurance systems towards harmonization.

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