Opinion: Uncertainty In a Pre-Brexit Insurance World

In this Opinion piece, Malcolm Henké, Partner & Head of Large & Complex Injury Group at Horwich Farrelly takes a look at the potential legal scenarios following Brexit, and offers timely – and very useful – advice for brokers, MGAs and insurers wondering how motor, property and PI claims will be dealt with if the UK ever fully leaves the EU.

Malcolm Henke horwich farrelly opinion on brexit uncertainty for insurance companies

All that we know about the Brexit process is that no one knows what will happen next. However, with a hard Brexit a real risk and conceivably just a few months away, what problems could UK insurers face, particularly in the context of claims handling?

An important point is that sections 2 and 3 of the European Union (Withdrawal) Act 2018 preserve European laws and regulations whether they originated from UK domestic legislation or by direct application. That will remain the case unless and until changes are made, probably on a piecemeal basis. This means that on Brexit Day, Rome I and Rome II will continue to apply to contractual and non-contractual disputes, as they do not depend on reciprocity.

In cases before the English court, the same rules will be applied as currently to determine the law which applies to a dispute and even though the UK will no longer be part of the EU, an EU member state court will generally continue to give effect to a choice of English law to the same extent as currently. Road traffic accidents are dealt with below, but claimants suffering injury or illness as a consequence of the alleged fault of an EU or EEA based defendant would be obliged to bring the claim in that jurisdiction and not in their home court.

There will, however, be possible complications, not least because UK courts will no longer be bound by the decisions of the European Court of Justice (CJEU) and it will not be possible to refer UK cases to the CJEU. There is also no certainty as to how the judiciary will interpret the law in the context of a no-deal Brexit.

The situation will be far more complicated where reciprocity is required particularly in relation to the current provisions for the service of documents; the taking of evidence; and the enforcement of judgments.

A whole raft of other provisions will cease to apply, including the “Brussels Regulations” (where a case should be heard and the recognition and enforcement of civil and commercial judgments between EU countries), the Enforcement Order, Order for Payment and Small Claims Regulations (procedures for dealing with undisputed debts and claims worth less than €5,000) and the Lugano Convention (rules for the UK’s civil and commercial relationship with Norway, Iceland and Switzerland).

These problems have been addressed in part by the passing of the Civil Jurisdiction and Judgments (Hague Convention on Choice of Court Agreements 2005) (EU Exit) Regulations 2018. If there is a no deal Brexit, the UK will apply to re-join the Hague Convention in its own right.

What will happen to motor claims involving UK drivers on holiday/business in the EU after Brexit? It’s probably going to be complicated – and expensive.

In the field of motor insurance, the impact of a no-deal Brexit will be that EU 4th Motor Directive will immediately cease to apply as between the UK and both EU and EEA member states. As is already well known, drivers would once again require Green Cards to drive in Europe.

However, the real changes that would apply relate to the pursuit of claims. Foreign insurers will no longer need to appoint a claims representative in the UK or a UK insurer in EU member states. UK nationals would be required to make claims in the EU or EEA jurisdiction where the accident occurred; and the EU/EEA citizen would need to bring his/her claim in the UK if the defendant driver was a UK resident. A claimant not being able to pursue a claim against a foreign driver or his insurer in the claimant’s home court introduces potential problems with procedure, as well as language.

Claims involving uninsured drivers will also become far less straightforward if there is a no-deal Brexit. Some EU countries have guarantee funds that would operate to compensate UK victims of uninsured drivers, but there are others who do not, including France. The UK claimant would need to pursue their claim in the defendant’s home jurisdiction, either against the compensation body if one existed, or against the uninsured driver (for what that might be worth).

Theoretically, the UK could begin to reverse out of some of the more recent European Court decisions on the extent of compulsory motor insurance and the meaning of ‘use’ of a vehicle but given the original intent of the EU Motor Directives has been to ensure that the victims of road accidents receive compensation, there may be little appetite for that. This likely approach is evidenced by the fact that even as Brexit approaches, the government is shortly to publish legislation to prevent S152 declarations from reducing a motor insurer’s status post-accident. This will keep UK and EU law aligned whatever happens.

However, it should be noted that Francovich claims will not be possible from the date of Brexit. This will remove the possibility that claimants in employers’ liability claims could pursue arguments that in implementing S69 Enterprise and Regulatory Reform Act 2013, the UK government became in breach of its obligations to give full force to what were effectively strict liability duties under the many and varied EU health and safety Directives.

The same barrier will also prevent claims like that in Lewis v Tindale where the claim depended both (a) on the right to sue an entity of the state direct and (b) the fact that the UK government had failed to implement the Directive fully to provide for compulsory motor insurance beyond a road or other public place. Any claims existing on Brexit day will be subject to a two-year limitation period.

Periodical payment orders (PPOs) remain relatively popular and will almost certainly remain so if the Discount Rate is reviewed upwards. One of the requirements of a PPO that is rarely debated these days is the security of the paying body. However, a no deal Brexit would impact on the status of non-resident insurers and it may well be the case that they will no longer be viewed as secure for these purposes.

 

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