§ 7 p.m.
§ Lord Brabazon of Tara rose to move, That the draft regulations laid before the House on 10th November be approved. [6th Report from the Joint Committee]
§ The noble Lord said: My Lords, I beg to move. The purpose of these regulations is to give effect to European Community Directive 84–5 EEC which requires extension of compulsory motor insurance to cover liability for damage to property as well as liability for personal injury. The regulations and associated arrangements aim to guarantee compensation for most people whose property is damaged by negligent drivers of motor vehicles.
§ In 1981 your Lordships' House invited the Select Committee on the European Communities to consider the draft directive aimed at a level of harmonisation of compulsory motor insurance law 368 throughout the Community. The Committee's report concluded that the directive was a welcome step in the right direction. It identified the main consideration, which is that the full protection of accident victims' property would be reflected in increased insurance premiums and that the size of the increase could be determined by the use of certain options which the directive affords member states when giving effect to it.
§ Following the directive's adoption, the Department of Transport consulted widely. Responses included those from representatives of accident victims, drivers and their insurers, the Motor Insurers' Bureau and the police. Where their views are in conflict, the Government have aimed to maintain a reasonable balance between them to achieve an effective package which secures benefits for victims of accidents without the prospect of substantial increases in premiums. As my honourable friend the Minister responsible for roads and traffic said, we accept that insurers may have to meet more claims for damage to property than at present but this is not likely to prove significant in relation to insurers' overall premium base.
§ Once the regulations are approved a parallel amendment to Northern Ireland law will be proposed for compliance with the directive's deadline for amendment of member states' domestic legislation.
§ Regulation I will require motor policies to cover liability for property damage from 31st December 1988, the latest date allowed by the directive for compliance. Insurers need until then to issue documents meeting the new requirements as policies become due for renewal during the course of next year.
§ Regulation 2 lays down the level of cover which policies must provide. There will be no change to the unlimited cover in respect of death or bodily injury. Its new requirement is for at least £250,000 of cover in respect of damage to property. This will not present problems to motorists and hauliers. Virtually all their policies already give at least this level of cover for damage to property of others.
§ Regulation 2 also proposes exclusions in respect of damage to the vehicle whose driver causes an accident, damage to goods carried in such a vehicle and damage to property in the custody of the insured person. These exclusions were all identified when the directive was agreed in Brussels and will not prevent the legitimate claims by third parties.
§ In addition, two existing exclusions from compulsory bodily injury insurance are extended to property damage. Since employers' insurance provides cover in respect of their liability for property damage, there would be double cover if it had to be included in motor policies as well. The current exception in respect of contractual liability is applied to compulsory property damage insurance too, as the directive requires only civil liability to third parties to be covered.
§ There are other obligations arising from the directive concerning guarantee funds. The Motor Insurers' Bureau carries out this function for the United Kingdom through agreements with my right 369 honourable friend the Secretary of State for Transport. In common with the changes to the law the main change will be the extension of the uninsured drivers' agreement to cover damage to property. The present agreement requires the bureau to pay compensation in respect of those injured or killed by uninsured drivers. Its principle for compensating for property damage will be similar to that in the existing agreement. This requires the bureau to meet an unsatisfied court judgment. In the vast majority of cases, however, litigation has proved unnecessary. Claims against uninsured drivers are settled by the bureau without recourse to the courts. From the end of next year much the same system will apply in relation to damage to property.
§ The only significant difference is that the directive allows an excess on property damage claims met by the guarantee fund. Most of those who responded to the consultation recognised the need to strike a balance between the fullest protection of those whose property is damaged by uninsured drivers and keeping within bounds the call on the bureau's funds and administrative costs, which come from a levy on motor insurers' premium income. In this light, the Government's decision is for an MIB property damage excess of £175. This compares with an excess of £100, recommended by your Lordships' Committee. The sum of £175 takes account of the cost of vehicle repairs, which have risen faster than inflation over the period in question.
§ Few have dissented from the view that there should he no provision in respect of damage caused by unidentified drivers. It would be all too easy for a driver who damages his own vehicle to blame a vehicle which did not stop. Accordingly, the Government are convinced, as was your Lordships' Committee, that this type of claim must be excluded.
§ The Motor Insurers' Bureau and other motor insurers' representatives considered that implementing the directive in this way is unlikely to lead to premium increases of' more than 3 per cent.
§ The victims of damage only accidents—who are more often than not motorists themselves—are of course the beneficiaries of these changes. The regulations give them further protection by eliminating a growing abuse: the failure of drivers who damage property of others to inform their insurers. As a result, their victims are often deprived of compensation. At present there is no legal obligation for drivers to report damage accidents to their insurers. If they fail to do so and refuse to pay for the damage from their own pockets it is left to the victim to take civil action. Often claims do not justify the expense involved. Others fail simply because the driver does not have the means to pay.
§ The regulations will provide broadly similar safeguards to those suffering damage to their property as already exist for those injured by negligent motorists. By the application of the existing provision in Section 151 of the 1972 Act a driver has to supply details of his insurance to a damage accident victim in the event of a claim. Failure to do so is a criminal offence. The victim can then call on the driver's insurers to meet his claim for 370 compensation regardless of whether the insurer is notified by his policyholder.
§ The directive requires disapplication of certain conditions in insurance policies so that accident victims are not deprived of compensation. This is not a novel concept. The third kind of policy restriction listed by the directive for this treatment concerning the condition of the insured vehicle is already disapplied by the 1972 Act. Without this kind of agreement the purpose of compulsory insurance could be frustrated. Two further conditions to be avoided concern vehicles used by unauthorised or by unlicensed drivers.
§ Although an extension of the existing provision is the obvious course, Regulation 3 adopts an alternative approach which is already embodied in Section 149 of the 1972 Act. We have done that in order to take account of the objections of the insurance industry. Effectively Section 149 confers on the victim a statutory right of recovery from the insurer. As amended, it requires the insurer to meet a court judgment against persons not insured by the policy and unlicensed drivers. Such persons driving in breach of the relevant policy restrictions would not have a defence to the Section 143 offence. Insurance certificates will remain much as they are, retaining the name of the person or group of persons entitled to drive and reference to the requirements of drivers to hold licences. They will however carry a statement for the benefit of accident victims who might otherwise be misled into thinking that they have no right to claim from the negligent driver's insurer. Insurers are arranging for this.
§ An exception to the requirement for insurers to meet claims is made in respect of losses suffered by passengers carried in vehicles that they know or suspect have been stolen or unlawfully taken. The onus will be on the insurer to establish the qualifying circumstances and there is a safeguard for innocent parties unable to do anything about their predicament.
§ Regulation 3(2) details the arrangements where there is only £250,000 on the table and claims for property damage exceed this. £250,000 is of course the extent of an insurer's liability for such damage when the law is relied upon. It reasonably reflects the lower limit set by a number of insurers in the light of their experiences. It is almost four times the limit of insurance envisaged by the directive and will provide adequate protection against the kinds of property damage that most of us are likely to suffer at the hands of a negligent motorist who turns out not to be properly insured. As with the 1972 Act where an insurer becomes liable as a result of the voided conditions, there are rights of recovery. These are provided by Regulation 3(4). In the case of an unlicensed driver otherwise covered by the policy, the insurer can recover the amount paid in respect of the compulsory insurable loss from that person. Where an unauthorised driver is not insured by the policy, the insurer can recover either from that person or a person who is insured by the policy, if he caused or permitted the use of the vehicle.
§ Regulations 3(3), 3(5) and Regulation 5 are consequential amendments. The first two are self- 371 explanatory and the third refers to nuclear risks, which are usually excluded from policies. Regulation 4 provides a definition of the term "accident" and Regulation 6 simplifies existing procedures for identification of the country of origin of visiting vehicles.
§ Taken together the regulations achieve the legislative changes necessary to give effect to Directive 84/5/EEC in Great Britain and maintain a balance among interested parties. They guarantee compensation for most people whose property is damaged by drivers. The few exceptions to this guarantee are necessary to avoid significant increases in motor insurance premiums. I commend the regulations to your Lordships' House.
§ Moved, That the draft Regulations laid before the House on 10th November be approved [6th Report from the Joint Committee.]—(Lord Brabazon of Tara.)
§ 7.15 p.m.
§ Lord Underhill
My Lords, I am grateful to the Minister for explaining this order. I need not detain the House. Generally we welcome the order and I am pleased to note the emphasis that the Minister gave to the amount of consultation that took place before the regulations were finally drafted.
I notice in the Sixth Report of the Joint Committee on Statutory Instruments the reference:That the Committee draw the special attention of both Houses to the above draft instrument on the ground that it requires elucidation.I believe that the Minister has given us that tonight. I foolishly decided to look at Appendix II and read the whole five pages of the Department of Transport memorandum. I shall now need to read what the Minister has said in order to elucidate that. I believe that he will succeed in doing that.
It is surprising to see in paragraph 5 of that memorandum that:The UK is the only Member State without an element of compulsory insurance in respect of damage to property".I also noted paragraph 28, on which I hope that the Minister will expand a little. For the benefit of noble Lords who are still in the Chamber, perhaps I had better quote paragraph 28 of the Department of Transport memorandum:The Directive does not define the term "damage to property". Nor is there any indication in the Directive of the scope of this term, which is imported into the draft Regulation without qualification. Absence of a definition in the Directive leaves interpretation to the Courts under the guidance ultimately of the European Court of Justice. Its ruling will he binding upon Member States. Any definition in UK law could, therefore, be in conflict with it. and misleading. Such a definition at variance with the ruling of the Court would give rise to a breach of the Treaty obligation.I should be grateful if the Minister could elaborate on that and what the consequences might be as a result of any action being taken. The Minister said that insurers generally feel that there will be an increase of only 3 per cent. in insurance premiums. I hope that that will be monitored because it is possible that the Motor Insurance Bureau will find that the cost may be greater than anticipated. Otherwise we welcome the order.
§ Lord Brabazon of Tara
I am grateful to the noble Lord, Lord Underhill, for his welcome to the order. The definition of damage to property is not in the regulations. The noble Lord has referred to what the department has already said on this matter. There is not a lot I can add to that. In the circumstances we have little choice but to rely on the common sense definition which insurers currently employ, which embraces damage to material property and anything which flows from such damage such as claims for consequential losses.
On the 3 per cent. rise in insurance premiums, that is what insurers have advised us will be the result of the coming into effect of the order. Insurance premiums have risen quite sharply recently for other reasons, and those reasons may continue. However, we do not believe that the result of the order will lead to an increase of more than 3 per cent. It will be difficult to monitor precisely how that will work, but we should like to cover ourselves by saying that if the insurers try to increase premiums by a great deal more than 3 per cent. they will have to justify those increases for some reason other than this.
As the noble Lord, Lord Underhill said, we have not previously covered damage to property, but the regulations extend compulsory insurance to liability for damage to property. We believe that they are a significant step towards protecting the public who suffer the consequences of road traffic accidents. They achieve that with few major costly changes commensurate with the protection of accident victims and our Community obligations. Therefore I think they are good step forward.
§ On Question, Motion agreed to.