Motor insurance, discount rates, and duty of candour

21 March 2017

In this month’s bulletin we look at three issues currently being considered by various departments and officials. In our first article, we comment on the Department of Transport’s consultation on amendments to the law governing motor insurance, and the background behind these developments. We then look at the Lord Chancellor’s review of the discount rate for personal injury damages before concluding with a brief article on the draft Public Authorities Accountabilities Bill, which seeks to impose a “duty of candour” on public servants.

The Department of Transport has launched a consultation on options for amendments to the law governing motor insurance in the UK. The consultation is a direct consequence of the ruling in the case of Damijan Vnuk v Zavarovalnica Trigalev, and may lead to a widening of the net for vehicles requiring compulsory motor insurance. 

The case involved a farm worker in Slovenia (Mr Vnuk), who was knocked off a ladder by trailer attached to a tractor reversing across a farmyard. Mr Vnuk sought damages from insurers of the tractor but was unsuccessful as, under Slovenian law, compulsory insurance for motor vehicles only covers use of the tractor as a means of transport – it does not cover claims when the tractor is being used as a machine or propulsion device. 

However, the Slovenian Supreme Court referred the case to the Justice of the European Union (CJEU), asking the CJEU to determine whether the circumstances of the accident fell within the duty to insure ‘the use of vehicles’ within the meaning of Article 3(1) of the First directive on motor insurance. 

The upshot was that the CJEU decided that the duty to insure extended to the circumstances in this case, and found that the wording ‘use of vehicles’ in Article 3(1) covers any use of a vehicle that is consistent with ‘the normal function’ of that vehicle.

Although the judgment made no specific reference to the duty to insure extending to private property (such as the farmyard in which Mr Vnuk was working), it seems logical to conclude that the court’s view was that it did. This is an interesting point as the duty to insure under Part VI of the Road Traffic Act (RTA) 1988 only extends to use of a motor vehicle on a road or other public place. In addition, Section 185 defines a motor vehicle as “a mechanically propelled vehicle intended or adapted for use on a road”.

Consequently, not only does the duty to insure under the RTA fail to apply to vehicles being used on private property, the definition of a ‘motor vehicle’ seems narrower than the ‘normal function’ test in Article 3(1). The relevant Directive is now the consolidated sixth Motor Insurance Directive 2009 (2009/102/EC) and this repeats the definitions contained within the first directive. The definition of ‘motor vehicle’ is wide and covers any vehicle used on land other than for where said vehicle runs on rails. 

The government may have no choice other to implement the act, despite any misgivings it may have with regard to the additional cost and administrative burdens it is likely to create. If it does then many previously uninsured types of vehicle such as, for example, fork lift trucks, Segways, invalid carriages, sit on lawnmowers and perhaps even fairground dodgem cars, may find themselves caught by the need for compulsory motor insurance. In any event, the ruling could at the very least lead to a stream of cases dealing with how you determine “the normal function” of a vehicle and indeed, how far the definition of ‘vehicle’ extends. 

This whole issue is of course complicated by Brexit. The Government says in its consultation document that: 

“The decision to leave the EU inevitably raises questions around policy areas such as this one that are aligned to EU requirements. In taking decisions about the sensible way forward following this consultation, we will consider any opportunities to minimise burdens and align with new opportunities and arrangements upon the UK’s exit from the EU”. 

In short, whilst the government may be compelled to implement these changes in the short-term, the incorporation of a ‘sunset’ clause, for example, could see those changes repealed once the UK leaves the European Union.

Significant reduction to discount rate

The Lord Chancellor has announced that the discount rate for personal injury damages will reduce from 2.5 per cent to minus 0.75 per cent. The change could add just under GBP 3 million to lump sum damages for someone in their sixties and as much as GBP 6 million for someone in their twenties. 

The scale of the change has caused consternation amongst insurers. Following discussions between the Chancellor Philip Hammond and representatives of the insurance industry, a joint statement has been issued which says that that personal injury discount rates must be set at a level that is fair to both claimants and consumers and that consequently, the government is intending to launch an urgent consultation on the framework for setting future rates. The government has said that it will bring forward any necessary legislation at an early stage.


The ‘discount rate’ is applied to the future loss element of damages awarded so as to take into account mortality, contingencies other than mortality (e.g. type of employment) and the fact that the damages will be received ‘upfront’, i.e. before the expenditure to which they relate has been incurred. 

In essence, application of the discount rate is intended to reflect the level of investment return that an individual might reasonably expect to achieve through investment of their damages fund. It has stood at 2.5 percent since last varied in 2001. 

Whilst there has been considerable focus on proposed reforms around whiplash and the small claims track limit (SCT), any savings those reforms might generate will be more than offset by a reduction of this magnitude. Whilst the number of catastrophic injury cases may be small, particularly in comparison to the number of whiplash claims, the cumulative impact of such increases would have significant impact on capital reserving; and not only reserving by insurers but also by the NHS, who pays significant amounts of compensation in its own right. 

In any event, the proposed change will not just impact upon catastrophic injury cases but also, potentially, a number of lower value personal injury claims and also some disease claims – in fact, it could impact on any claim where future loss damages form a part of the settlement and those damages are calculated through application of a multiplier. 

New 'duty of candour' for public officials? 

The success of a 27-year campaign by families of 96 Liverpool Football club fans who died in tragic circumstances at Hillsborough in 1989 has led to the presentation of The Public Authorities Accountabilities Bill or “Hillsborough Law”. The proposed legislation, supported by lawyers of the families and many MPs, draws on lessons learnt by the families during the second inquest into those 96 deaths and aims to place all public authorities, officials and servants, under a duty to act in the interest of the public and ensure that they do not succumb to “institutional defensiveness”. 

A statutory duty of candour already exists in the context of healthcare, following publication of the Mid Staffordshire NHS Foundation Trust public inquiry in February 2013. It is felt, however, that these duties have proven too narrow in their application and this and other recent events (such as child sexual abuse in Rochdale and Rotherham) has brought about a desire to broaden this duty within statute.

Sections of the draft bill impose broad duties on public servants to be open and honest in discharging their general duties and in court proceedings, subject to few exceptions (e.g. criminal investigations). If enacted it could lead to criminal sanctions for public officials who are found to mislead the general public or media “intentionally or recklessly”. The bill also encompasses those involved at the time of an incident who may have since left the authority’s employ. 

That said, the proposed penalties for being found guilty under the bill are unclear and have not been expressly stated, but they appear to envisage custodial sentences. The proposed bill will be reviewed in due course but it remains to be seen whether it will be debated in Parliament and whether it finds its way into law.

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For further information, please contact Bill Walker, Risk Management & Sales Executive in the Public Sector team on +44 (0)20 7558 3272 or email