Seeing that this is an area that is NOT regulated by the EU (an insurance when on the road is mandatory, of course), but by the individual member states, each having
It is a ruling by Court of Justice of the EU?
http://curia.europa.eu/juris/liste.jsf?language=en&td=ALL&num=C-80/17
The directives are quoted above.
Keep in mind that any EU car/driver has the right to drive in any EU country with no problems - this requires some ground rules that member nations are free to implement in the best way for them.
The common rules (directives) say that (1) every member nation has to make sure every car and driver is insured, and (2) they must set up a fund that covers the damage/medical costs where the driver has no insurance. This way, every European can be confident that everone driving on European roads are covered in case of an accident. Only an idiot would be against these two agreed principles, but there are of course plenty of ISO-9000 certified idiots to go around...
Moving on to the specific case: A Portuguese lady owns a car (registered and with plates) but did not have insurance, claiming essentially "Nobody was using it, honest" - until her kid, sadly, crashed it and killed several people. As a result, the Portuguese "fund of last resort" had to cough up for the costs, in accordance with Portuguese law and agreements with the other European countries.
Later on, this fund then went after the lady for the money, saying she should have had insurance since she had not handed in the plates. They won the case in the first court, then they lost the case in the Portuguese appeal court, which held that the lady was not driving at the time of the accident and therefore was not liable.
The fund disagreed and appealed to the Portuguese Supreme Court which found that the question just boils down to this: Does the mere fact of owning a registered car (rather than actually using it) make insurance mandatory? The SC escalated this question to the ECJ and the ruling (which included input from a British legal team) concluded that Yes, that's what we had all agreed - if you own a registered car, you have to have it insured. It looks like Portugal did not have super clear or well known rules on this issue (until now).
Nothing here looks unreasonable, in all honesty.
It is a tragic story for the family concerned. Let's not use it as a lazy, low intelligence anti-EU argument.