Motor Insurance and the Takata Risk

One of the issues that the Cypriot public is concerned about is how motor insurance is affected by defective TAKATA airbags. To answer the question, we will examine some road collision scenarios in conjunction with the recent relevant Order. The views set out below are based on general legal principles and should not be considered to replace professional legal advice of a lawyer.

?When the other car has TAKATA airbags

?Let us assume that a driver negligently drives an insured car, collides with another car and injures the passengers of the second car. Examinations show that the second car had TAKATA airbags, which were activated and threw sharp objects at the passengers.

?Under the Motor Vehicles (Third Party Liability Insurance) Law of 2000, victims of road collisions can directly sue the at-fault driver’s insurance company and claim the damages they are entitled to.[1]

?Victims can also sue the manufacturer of the at-fault driver’s car under the Defective Products (Civil Liability) Law of 1995, which transposed the provisions of the Product Liability Directive into Cypriot law.[2]

?So far, there is no case law on the apportionment of liability between a negligent driver and a car manufacturer, and so what we can do is to examine the general way of dealing with such cases.

?If the car was manufactured in a member state of the European Union, victims can sue the car manufacturer in the Cypriot Courts.[3] If the car was manufactured in a third country outside the EU, victims can sue the importer of the specific car in the Cypriot Courts because an importer is liable as a producer.[4] Moreover, the manufacturer of the airbag, which is a component of the car, is also liable as a producer.

?If the victims do not sue the car manufacturer or importer, the insurance company could file an application for third-party notice and claim contribution and/or damages depending on the determination of liability between the negligent driver and the manufacturer/importer.

?If the court finds both the negligent driver and the manufacturer/importer liable, it will normally apportion liability between them based on their respective degrees of fault. The court will examine the degree of negligence of the driver and the extent to which his driving behaviour contributed to the severity of the injuries. It will also examine the extent to which the airbag defect contributed to the injuries. Proving the causal connection between the airbag defect and the victims’ injuries requires expert testimony and detailed technical analysis.

?Cases involving multiple parties (e.g. driver, car manufacturer, airbag manufacturer) can be complex and require careful consideration of the role and responsibility of each party.

?Immediate immobilisation of 276 cars

?The Attestation for Category M, N and O Vehicles Order of 2025 withdraws the MOT Certificate and cancels the circulation license of 276 cars, 138 with defective airbags and 138 with defective brakes. The owners of the cars will be informed by both the dealers and, secondarily, by the Road Transport Department (RTD).

?Let us assume that a driver negligently drives an insured car that has been immobilised under the Order, crashes into a wall and injures its passengers. Examinations show that the TAKATA airbags were activated and threw sharp objects at the passengers.

?Motor insurance policies on the Cypriot market do not currently include a limitation of coverage when the insured vehicle is banned from circulation. Thus, the insurance company will be obliged to pay the damages to the victims.

?In some motor insurance policies, there is an exclusion that provides that the insurance policy will not be valid, and no claim will be paid if the insured vehicle does not have an MOT Certificate. This exclusion applies to own damage to the insured vehicle but does not apply to third parties because it is relevant to “the condition, maintenance and safety of the vehicle”.[5] Consequently, the insurance company must pay the damages to the victims and will be entitled to recover them from the driver who drives a car without an MOT Certificate.

?If the insurance company attempts to obtain a contribution from the manufacturer/importer, the latter may raise as a defence the fact that they assessed the risk and advised that the car had to be immobilised.

?In addition to the MOT exclusion, insurance companies could make use of an exclusion provided for in the latest amendment to the Law[6] which is worded as follows:

?This Insurance Policy does not apply if the vehicle’s registration has been temporarily or permanently revoked by the Road Transport Department and its use is prohibited.

?Insurance companies that incorporate this exclusion into their motor insurance policies will be entitled to refuse to cover the driver’s liability and pay the relevant claims. The victims will be able to collect the damages they are entitled to from the Motor Insurers Fund (MIF).

?Recall of 82,000 cars for defective airbags

?The Attestation for Category M, N and O Vehicles Order of 2025 provides the opportunity for owners of approximately 82,000 cars, included in a table posted on the RTD website, to replace the defective TAKATA airbags within a period of eight months. When the eight months have passed, next October (provided that no extension is granted), the MOT Certificate and the circulation license of those who have not replaced the airbags will be cancelled and thus the cars will be immobilised.

?In a speech on February 3, 2025, the Minister of Transport, Communications and Works, Mr. Alexis Vafeadis, presented the Orders and recommended the following for this recall category:

?Until then, all owners are invited to take measures to further reduce the risk, such as traveling where they can with other vehicles and taking seriously the recommendation not to use them that was announced by the Ministry in December 2024.

?Let us assume that a driver negligently drives an insured car of this recall category, crashes into a wall and injures his passengers. The tests show that the TAKATA airbags were activated and threw sharp objects at the passengers.

?Since the driver was aware or had the opportunity to become aware of the inherent danger of the airbags in his car, according to case law, he should have taken all appropriate measures to avoid the risk.[7] That is, he should have stopped using the unsafe car until he took it to a workshop to change the airbags. In such a case, the insurance company will pay the damages to the victims but will be entitled to recover them from the reckless driver.

?Another issue is whether the removal or deactivation of a TAKATA airbag affects the validity of the insurance policy. If the insurance policy includes a warranty that the insured vehicle will comply with the manufacturer's safety levels, the removal or deactivation of the airbag may be considered a modification that makes the car less safe. In such a case, the insurance company could refuse to cover the driver's liability.

?However, in Cyprus, motor insurance policies generally include a condition that the car be maintained in “good condition”. It cannot be said with certainty that removing or disabling the airbag changes the condition of the car from “good” to “bad”. To be sure, owners of cars in this recall category would be wise to consult with their insurance company before removing or disabling the airbags of the insured car.

?Exposure to TAKATA Risk

?From what has been mentioned above, it appears that insurance companies are exposed to an increased risk of personal injury and death claims relating to cars they insure that have defective TAKATA airbags.

?The question that arises is how they can protect themselves from this increased TAKATA risk. They could identify the affected cars from the RTD website and:

???????????? either increase the insurance premiums of the affected cars, in order to create reserves to deal with the TAKATA claims,

???????????? or cancel the insurance policies of the affected cars with seven days' notice, so that on the eighth day they completely avoid the TAKATA risk and transfer it to the MIF.

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Footnotes

[1] ?An insurance company that pays the damages to the victims has no right to turn against its negligent insured. If insurance companies were entitled to recover the damages paid from their negligent insureds, they would not incur any claims costs and would be extremely profitable businesses.

[2] ?Directive 85/374/EEC of 25 July 1985 on the approximation of the laws, regulations and administrative provisions of the Member States concerning liability for defective products

[3] ?Case C-343/19 Verein fur Konsumentenfinformation v Volkswagen AG

[4] ?Section 5 of the Defective Products (Civil Liability) Law of 1995

[5] ?Section 9 (b) of the Motor Vehicles (Third Party Liability Insurance) Law of 2000

[6] ?Section 3 (2) (h) of the Motor Vehicles (Third Party Liability Insurance) Law of 2000

[7] ?George A. Kameris v Andrea Elia Souli and others (1990) 1 CLR 880