The impact of terrorism on the motor insurance industry

Paul Ryman-Tubb, Chief Technical Officer for MIB discusses the implications for motor insurers following a vehicle based terrorist incident.

We are all sadly only too well aware of the tragic events which unfolded on the 22 March 2017 in Westminster and on 3 June 2017 on London Bridge. Both involved the use of a motor vehicle to perpetrate a terrorist attack tragically causing many injuries and deaths.

Ensuring that the victims of these catastrophic events receive appropriate compensation within a reasonable timeframe is essential. The Criminal Injuries Compensation Authority (CICA) is there to compensate victims of crime, however, the question looked at in this article is whether a motor insurer or the MIB might be responsible for the claims. Whilst the detail of the claims that will ensue from these incidents is still emerging, it is clear that some arise from the use of a motor vehicle, while others arise from other criminal acts in which the use of a vehicle was no more than incidental.

From a motor insurance industry perspective, exposure to this kind of incident brings large scale financial and reputational risks. Such exposure may be via the MIB (and so would be shared via the levy), but could equally fall on an individual insurer owing to a combination of the legal position, the MIB Agreements and the MIB Articles of Association.

A matter for motor insurers?

The first question to be considered in any case of this type is whether the claims are “caused by or arising out of the use of a motor vehicle”. The answer to this may be clear cut if the vehicle is simply being driven, but other scenarios may arise where it is not so obvious. It is not the intention here to analyse the various cases on this subject, but suffice to say that the “caused by or arising out of the use of” hurdle would have to be overcome before any motor insurer, or indeed the MIB would be involved in the matter.

Proceeding on the assumption that a particular case is caused by the use of a motor vehicle, let’s look at who might be responsible for the claims and how that arises.

Uninsured vehicles

If the vehicle used for such an attack is uninsured, then it is necessary to look at the MIB and its Agreements with the Government.

It has long been established in law that a liability arising from criminal use of a vehicle is one which MIB is obliged to satisfy under the Agreements. This is because it is one which is required to be covered by the Road Traffic Act (RTA) and is therefore a ‘relevant liability’ for the purposes of the MIB Agreements.

With specific regard to claims arising out of acts of terrorism, the Untraced Drivers Agreement first introduced an exclusion in 2003 on the understanding that victims would be fully compensated by the State in such cases. The Uninsured Drivers Agreement which came into force in July 2015 then introduced a similar exclusion.

The position remained until the situation was reviewed in light of the Judicial Review proceedings brought by RoadPeace in late 2015. As a result of that review, it was then established that whilst there is State funded compensation available to victims of terror attacks, this was through the Criminal Injuries Compensation Authority (CICA). This scheme is limited in that damages are paid on a tariff basis and are capped, meaning that they can fall short of that which would be recovered at common law.

The EU Motor Insurance Directives make no explicit provision for the Guarantee Fund (MIB) to exclude claims arising from acts of terrorism and as a result, changes were made to both Agreements removing the terrorism exclusions. These changes came into effect for accidents on or after 1 March 2017.

Insured vehicles

Where there is an insurer associated with a vehicle used in an attack of this nature, it is necessary to consider not only any obligations on the insurer under the policy, but also its obligations under the RTA and the MIB Articles, principally, Article 75.

Starting with policy considerations, while wordings vary by insurer, a common theme is to exclude claims arising from acts of terrorism but go on to say that the exclusion does not apply where the RTA requires the insurer to ‘cover’ the claim. This leads to a consideration of any legal requirements on insurers to compensate victims.

Given the type of case we are considering here, it is inevitable that the use the vehicle is put to, will not be covered by the policy; deliberate acts are commonly specifically excluded. The question then is whether the law requires the insurer to deal with the victims’ claims. The position for insurers where a claim arises out of the use of that vehicle where that use is not covered by the policy is decided by the Court of Appeal decision in EUI v Bristol Alliance Partnership. In that case the Court of Appeal decided that where the use was not covered by the policy, the insurer had no obligation under the RTA to pay the claims.

For insurers however, the matter does not end there. All motor insurers are required by law to be a member of MIB, and as members, insurers are bound by the MIB’s Articles of Association. Of particular interest here is Article 75, which requires insurers to deal with, and pay from their own funds, some uninsured cases in particular circumstances. These are still uninsured cases and are dealt with under the terms of the MIB Uninsured Drivers Agreement.

One of those circumstances is where “the use of the vehicle is other than that permitted by the policy”. It is therefore just the sort of case that we have been considering and as such the insurer of the vehicle would be required to handle and pay all the claims arising even though the driver was not insured and there would be no legal obligation on the insurer to do so.

Conclusions

From this short analysis it can be seen that insurers of vehicles are unlikely to have any policy or legal obligation to pay victims of a vehicle based terrorism attack. It is only right that victims have a route to compensation and at the moment that is via the MIB Agreements. However, by virtue of the MIB Articles where there is a policy in place on the vehicle involved, individual insurers and their re-insurers are exposed to the costs of such incidents.

The implications for individual insurers and reinsurers, and the market as a whole have been brought into sharp focus by recent tragic events. Over the coming weeks and months, MIB will be discussing the many and complex issues that arise with members and other stakeholders to ensure that all implications are understood and that the optimum solutions to manage the consequences are in place.

If you have any questions or would like to contact us about this, please email insight@mib.org.uk