“What happened to compulsory third-party insurance?”
A pedestrian, Sebastian, is walking along a pavement when he is hit by a passing car and sustains injuries. The Traffic Court finds the driver, Lewis, guilty of various offences including careless driving. Sebastian incurs numerous expenses including time off work, hospital visits and is unable to enjoy family life and leisure pursuits. Lewis is convicted and pays the fines imposed. Lewis informs the court that he has third-party motor-vehicle insurance. However, it later transpires that Lewis’ Insurance Company serve notice that it is going to avoid the policy because it has discovered that Lewis, when completing the application form for motor insurance cover, did not make a full and frank disclosure. Lewis did not inform the Insurance Company that a named driver under the policy (his wife Danica) had previous road traffic convictions.
Where does this leave Sebastian, the innocent victim of the road traffic accident?
In the 1930s in the UK legislation was passed to make it compulsory that all drivers should have third party insurance. This approach was modified when insurance companies complained about insuring drivers who failed to make a full and frank disclosure of their driving history. This would include for example whether they had committed any previous road traffic offences as cited in the above scenario. This approach, in insurance law, is the principle of utmost good faith often known by its latin tag: uberrimae fidei. This means the applicant for insurance must complete the application form truthfully. If he fails to do so the Insurance Company can avoid the policy. An Applicant for insurance must make a full and complete disclosure to enable the Insurance Company to assess the risk and calculate the premium.
The UK legislation, and the philosophy behind it, was imported into the Cayman Islands in 1990, the current iteration is the Vehicle Insurance (Third Party Risks) Law, (2012R). In our scenario Sebastian must make a civil claim for damages for his personal injury against Lewis. If Lewis’ insurer avoids the policy then the chances of the victim obtaining compensation are negligible especially if the driver does not have the means to satisfy a judgment for damages.
In the UK Sebastian would be able to make a claim to the Motor Insurers Bureau. However, in the Cayman Islands we have no such organisation and so the innocent victim of the motor accident is left without a remedy.
So, what happens to the victim if the drivers Insurance Company successfully avoids the policy for a material non- disclosure?
The Motor Insurers Bureau (MIB) was founded in the UK in 1946 as a private company limited by guarantee and is the mechanism in the UK through which compensation is provided for victims of accidents caused by uninsured and untraced drivers.
What happens in the Cayman Islands?
The victim of a road accident caused by the negligence of a driver whose Insurance Company avoids the Policy because of a material non- disclosure is left without a remedy. The victim can file civil court proceedings against the driver, but in most cases the driver will not have the financial resources to satisfy a judgment for damages. This means the victim is, in effect, without a remedy, and in serious cases of death or catastrophic injury may be left without the resources to seek proper medical assistance or financial support.
The courts of the Cayman Islands have consistently upheld the rights of insurance companies to avoid insurance policies where there has been a material non- disclosure.
What is the situation in Europe?
The situation in Europe is different. In Fidelidade-Companhia de Seguros SA v. Cause Suisse de Compensation Case C-287/16 the court held that a motor policy, once issued, must meet the assured’s civil liability to third parties even where the contractual rights were vitiated at the inception of the policy by the policyholders fraudulent misrepresentation’s.
The Portuguese Supreme Court referred the question as to whether its Commercial Code on Insurance was consistent with the Motor Insurance Directives to the European Court of Justice (ECJ). The ECJ reaffirmed that the dual aim of the Directive is first to ensure the free movement of vehicles and people, and secondly to guarantee that accident victims receive comparable treatment; irrespective of where in the EU the accident occurred.
UK Position
On 1 July 2019 the Department of Transport laid regulations before Parliament that will end the ability of motor insurers to avoid statutory liability for third-party claims in circumstances of fraud or misrepresentation by the insured.
In recent years, several decisions made by the Court of Justice of the European Union (CJEU) have drawn attention to discrepancies between provisions under UK legislation and the European Motor Insurance Directive. The case of Fidelidade (above) is one such example. In that case it was held that where nullity of a contract for motor-vehicle insurance is sought due to false statements at inception by the policyholder, “the Second Directive must be interpreted as precluding national legislation which would have the effect of making it possible to invoke against third-party victims”.
In order to comply with European Union Directives, the Motor Vehicles (Compulsory Insurance) (Miscellaneous Amendments) Regulations 2019 (the regulations) will alter section 152 of the Road Traffic Act 1988 (RTA).
The RTA currently enables insurers to avoid payment as the relevant motor insurer issuing the certificate of insurance on the relevant vehicle, on the grounds that the policy was obtained by “the non-disclosure of a material fact” or misrepresentation of material facts. The Regulations will came into effect on 1st November 2019 and will mean that insurers will no longer be able to obtain and rely upon declarations to void a policy following an accident or to refuse payment of compensation to 3rd parties.
The way forward
The increasing volume of traffic on our roads has been instrumental in the increase in the number of motor accidents. This in turn has led to the establishment of a Road Safety Council in Cayman. There have also been reports of as many as 400 cars being registered every month. There may be as many as 45,000 licensed cars on the roads by 2020. This must be set against the consequences of road accidents which take a huge toll on human life with far reaching consequences. But what if the victims of road accidents have no clear path to compensation? If the Legislature chooses to follow the path taken by the UK it will introduce legislation to amend the Vehicles Insurance (Third Party Risks) Law, 2012R by closing the loophole which currently provides that insurance companies can seek a declaration from the court that it is entitled to avoid the policy on the ground it was obtained by the non-disclosure of a material fact or facts.
A further option would be to establish a Cayman version of the Motor Insurers Bureau which could be funded by insurance companies with licences to operate in the Cayman Islands. This could lead to an increase in motor insurance premiums but would surely be a price worth paying to align the Cayman Islands with the laws of other jurisdictions on third-party risks.
As matters stand victims like Sebastian in the above scenario are left without a clear path for compensation. This means no damages for personal injury or loss of future earnings or loss of amenity including loss of time spent with family and the cost of ongoing medical bills. Correcting this imbalance in our jurisprudence by revising our laws must be to the benefit of all road users and will hopefully soon be addressed.