Motorsport is already an expensive business. An ECJ ruling may just put it beyond the reach of most, if not out of business altogether.
The UK government has been consulting on the implementation of an unexpected interpretation of an EU Directive. It is the Motor Insurance Directive, Directive 2009/103/EC of 16 September 2009 (‘the Directive’).
The Directive in essence requires a minimum level of compulsory motor insurance to be implemented by national governments across the EU so as to achieve consistency throughout. Insurance of a vehicle based in one Member State has to provide the required cover not just in that state but throughout the EU. The Directive was implemented.
Or so it was thought. In 2014 a case came before the ECJ from Slovenia with a result that has taken Member States by surprise. It was Vnuk v Zavarovalnica Triglav d.d. (Case C-162/13). It concerned an accident involving a tractor whilst the tractor was manoeuvring on a farm yard. This was an accident that was therefore not on the roads but on private land.
The question sent to the ECJ for resolution was whether the compulsory insurance required by the Directive included cover for such manoeuvring of a tractor. Despite the submissions of a number of Member States to the contrary, the answer given was that it did.
To appreciate the full impact of the judgment, the reasoning is important.
The focus was on the relevant activity giving rise to liability against which there was to be insurance. According to the English language version of the Directive, this was the ‘use of vehicles’. The obligation reads: ’Each Member State shall…take all appropriate measures to ensure that civil liability in respect of the use of vehicles normally based in its territory is covered by insurance.’
The same terminology was used in eight other language versions. The French text expressed it slightly differently, using the word ‘circulation’, suggesting use on the roads; and that terminology was also used in six other language versions. But then the German and five other language versions merely referred in general terms to insurance ‘in respect of vehicles’.
The ECJ held that the activity with which the Directive was concerned was ’any use of a vehicle that is consistent with the normal function of that vehicle’. It ’may therefore cover the manoeuvre of a tractor in the courtyard of a farm in order to bring the trailer attached to that tractor into a barn’.
This was not how the Directive had previously been understood. As the European Commission put it in its consultation document: 'The European Court of Justice has clarified in a judgement of 2014 (case C-162/13)…that the concept of the "use of vehicles" covers any use of a motor vehicle that is consistent with the normal function of that vehicle.
'Therefore vehicles used in certain locations (also outside of road traffic) and/or certain activities which might not have been initially understood as being covered are now clarified as covered by the obligation of insurance cover under [the Directive]. Specifically, accidents that are the result of agricultural, construction, industrial, motor sports or fairground activities outside of public roads must now be covered by motor third party liability policies.'
The definition of ‘vehicle’ in the Directive is very wide ('any motor vehicle intended for travel on land and propelled by mechanical power, but not running on rails, and any trailer, whether or not coupled').
Not just racing cars or motorbikes but all off-road motorised vehicles therefore now come within the scope of the Directive. Mobility scooters and ride on lawn mowers included. And the compulsory third party insurance required is against both damage to property and personal injuries.
It is possible for a national government to derogate from the obligation to require compulsory insurance in respect of certain persons or certain vehicles, but the national government then takes on responsibility for ensuring that injured parties that would have been covered are compensated.
According to the researches of representative bodies concerned with motor sport in the UK, the required level of insurance would not be available economically, if available at all, in the context of motor sport. The Motor Sport Association said: 'We have also consulted with the motor sport industry and the insurance sector regarding the unintended and severely damaging impacts of the Vnuk decision. We have been consistently advised by the insurance market that compulsory third party motor insurance for motor sport events will be unobtainable. We have no reason to doubt that view.'
The Motorsport Industry Association added:
'To be clear - no insurance, providing the cover required by the Directive, Iis currently, nor will be, available for any motorsport activity in the European Union.
'We have discussed this matter with Insurance Market specialists based in London, who underwrite and provide the majority of insurance to motorsport organisers across the European Union. They confirm no effective market can, or will, write insurance to meet the Directive-specified levels of liability which requires cover for both property damage and personal injury to fellow motorsport competitors.' (emphasis in the original)
The Association of British Insurers said: 'The Commission will be aware that in Finland, where a compulsory insurance requirement for motorsport competitors was introduced, average premiums have increased dramatically (from an initial average of €200 to a more recent average of €4000, with much higher premiums charged for some events). If other member states were required to introduce compulsory insurance for motorsport competitors like in Finland, such competitors could also face high upfront costs or could find that insurers are not willing to accept the potential risk. Given that there are 200,000 regular participants, this could mean UK motorsport collectively absorbing a very high additional annual cost – potentially enough to see many events and racetracks close entirely, despite no evidence of any problem with the current arrangements…'
The UK government response ran thus: 'Including motorsports within the scope of the Directive as Vnuk seems to require, would have extraordinary consequences that cannot have been intended or appraised when the Directive was considered by the EU co-legislators. Specialists in the London Market who provide event insurance to motorsport organisers across the Union tell us that there is no effective market for writing Directive-compliant cover (i.e. Directive-specified levels of liability cover for both property damage and personal injury to fellow competitors). The motorsport industry tell us that applying the interpretation of the Directive in Vnuk would lead to the demise of amateur motorsport in the EU with associated loss of employment. It is therefore no surprise that to our knowledge not a single Member State is compliant with this interpretation of the Directive in Vnuk.'
In motor sport it is not often that a competitor will be liable to another in negligence in England and Wales. Whilst there is a duty of care in negligence as between competitors, proving a breach of that duty in practice ordinarily requires proof of conduct that amounts to a reckless disregard for another competitor’s safety. The bar is set high, and deliberately so, since the competitors are participating in a sport which involves certain inherent risks.
The same is true of a competitor’s liability to spectators and others involved in the event. It is understood that a similar position prevails in Scotland and Northern Ireland. The liability position of course remains unchanged by the Directive. The Directive does not itself create any new liability. Indeed, there is already a degree of insurance coverage. The MSA has a £67m policy that covers competitors at MSA events for public liability and personal accident. According to the MSA the claims incidence under these policies is typically less than 50 claims in any given year.
Despite the apparent absence of a problem, the Directive now creates one, with the newly required insurance being potentially unaffordable or unobtainable.
The MSA estimates the motor sport industry in the UK to be worth approximately £10b annually, and as employing more than 45,000 people. It has described the consequences of the implementation of the Directive in apocalyptic terms: 'If Government imposes such an insurance requirement on motor sport competition, even if only for a short period prior to leaving the EU, the effect on motor sport in the UK will be so immediate that it may never recover. The effect on the motor sport industry may take longer, but is equally likely to be damaging to the UK economy in the medium to long term.'
The European Commission has recognised the problem and is currently consulting on it as part of a wider review of the Directive. However, given the pace of progress, it does not seem likely to be solved by amendment in the near future. In the meantime, the UK government has to grapple with the difficulty that it is currently required to implement the Directive as interpreted in Vnuk. Indeed in theory it could face claims for Francovich damages for not having done so already, from injured parties who may have been uncompensated by the absence of implementation.
Whilst the ultimate solution may arrive with an amendment of the Directive, or possibly even the conclusion of Brexit, in the meantime if the UK is indeed to proceed to implement the Directive as now interpreted then an interim solution is required. Given the high threshold for negligence liability, and the existing insurance provision of the MSA, it is suggested that a suitable interim solution would be to derogate from the requirements of the Directive in respect of vehicles when used for motor sport (and indeed other categories of off-road vehicle for which compulsory insurance is undesirable).
Furthermore, when it comes to amendment of the Directive, careful consideration would have to be given to the amended wording to avoid further unintended consequences. The current amendment floated by the European Commission of the relevant use becoming ‘use in the context of traffic’ would have to be carefully defined to solve the motorsport problem, since it could otherwise still cover, for instance, the paddock of a circuit to which the public have access.
Given the value of motor sport to the UK, not to mention to the competitors themselves, it is surely worth making certain that it is not put at risk.
Richard Clegg, Barrister at Selborne Chambers, London, and is a member of the BRSCC