EU ruling raises importance of MIB services
The CJEU case of Fidelidade-Companhia de Seguros SA v Caisse Suisse de Compensation is perhaps easier to explain than to pronounce! However, it looks set to mean that insurers will no longer be able to use provisions in the Road Traffic Act (RTA) to avoid liability for third party claims when false or incorrect information has been provided by the policyholder.
Under the Road Traffic Act, an insurer can avoid its statutory liability to pay third party claims, and in fact treat the whole policy as if it had never existed where there has been non-disclosure or misrepresentation of facts when the policy was taken out. Provided the insurer takes the steps required by the Act, which include legal proceedings asking the court for a declaration that the policy is ‘void’, then its obligations to pay claims ends. This can be done even after an accident has happened, and if it is, then any claims will be dealt with under the Uninsured Drivers Agreement between MIB and the Secretary of State.
This situation now seems to be under threat by the European Court of Justice in Fidelidade. The case concerned an accident in Portugal whereby a vehicle being driven by one person but owned by another collided with a motorcycle. Sadly, the accident resulted in the death of both drivers. The social security fund settled a claim brought by family members of the driver of the motorcycle and claimed reimbursement from the Portuguese Guarantee fund and the owner of the other vehicle involved in the accident. Both parties defended the claim on the basis that they were not liable to meet the claim because there was an insurance policy in force covering the use of the vehicle involved. This insurance company was brought into the proceedings and argued that the contract was not valid as it had been taken out on false grounds, as it was wrongly stated that the owner of the vehicle was the main driver.
The dispute about the insurer’s involvement made its way to the European Court who were asked to consider whether EU law permitted an insurer to treat its policy as ‘avoided’, and thereby not be responsible for the claims arising from the accident, where there had been a misrepresentation of facts when the policy was taken out.
The CJEU held that Member States cannot, within their national laws deny third party victims compensation from insurers on the basis of the insurance contract which is determined to be null and void due to misrepresentation by the policyholder. This is therefore contrary to the provisions of the RTA mentioned above.
It seems to suggest that post-accident avoidances of contracts leading to a removal of statutory liability are no longer permitted. This means that if insurers want to avoid facing claims under policies taken out by dishonest policyholders who have committed fraud on insurance applications and are driving without legitimate insurance, they must act before an accident occurs.
The decision is logical insofar as innocent parties should not be precluded from compensation resulting from the policy covering the at fault vehicle having been obtained fraudulently. However, that would never be the case here in the UK, because victims would not have fallen short and would be compensated under the MIB Agreement in these circumstances. Whilst the MIB Articles stipulate that these cases are handled and paid by insurers, they are strictly MIB claims, and this ruling could change that situation.
Using the MIB’s MyLicence service can assist here as it provides insurers access to accurate verified data from the DVLA on motoring entitlements, convictions and penalty points at the time of quotation. Only requiring the Driver Licence Number of the proposer, the system obtains the relevant DVLA data and makes this available to the underwriter. The system enables a better customer experience in avoiding having to answer various questions about licence history, convictions etc means that policies can be accurately priced, and helps to prevent fraud.
Of much relevance here, another service provided by MIB was the winner of the 2017 Insurance Post ‘Combatting Fraud – Collaboration of the Year’ Award. The project was set up to address the growing problem of drivers using fraudulently obtaining insurance policies to avoid being stopped by the police and having their vehicles seized.
Roadside police officers often suspect that a policy they are presented with by a stopped driver has been obtained using false information. However, getting the information to and a decision from the insurer, whilst at the roadside, is not an easy task.
In getting insurers, police and MIB’s Police Helpline together, MIB is able to give roadside police direct access to insurers’ fraud teams whenever they suspected a fraudulently obtained policy is in play. With the insurers committed to taking meaningful action and avoiding a fraudulent policy immediately, the loop is closed and the police can take action accordingly, often seizing the vehicle.
The project is gaining momentum. It has since been adopted by more than 60% of the motor insurance market. Recent results indicate that for vehicles covered by insurers involved in the pilot, over 60% of those vehicles stopped were seized.
The MIB and insurers are in discussions with the Department for Transport over the implications of Fidelidade and how this may result in changes to the RTA to remain compliant with European Law. In the meantime, the motor insurance industry has the tools to tackle misrepresentation or non-disclosure and MIB is at the heart of it.