Another win for insurers in the Supreme CourtJudy Dawson
Judy Dawson analyses the Supreme Court judgment which overturned a Court of Appeal judgment that caused shock-waves through the insurance industry.
Its been a good 2019 thus far for the motor insurance industry in the Supreme Court. Hot on the heels of the overturning of the Court of Appeal decision in Cameron v Hussain & Liverpool Victoria in which the Supreme Court prevented Claimants suing unknown fault drivers and then obtain satisfaction from the fault vehicle’s insurers, the Supreme Court has again considered the extent to which a motor insurer was liable to satisfy a claim and has again overruled the Court of Appeal’s stance which had considerably extended the definition of the use of the vehicle (and thus the ambit of insurance) beyond that which had been understood both by the industry and most practitioners as its limits.
UK Insurance (the appellant) had provided their policyholder (a mechanic) with a policy of motor insurance for his vehicle. He had been repairing his own car at his employer’s premises (with his employer’s permission) to enable it to pass its MOT. Sparks caused by his negligent welding caused a fire which resulted in substantial damage to the employer’s premises and an adjoining property. The employer’s insurer paid out in respect of the damage and brought a subrogated claim against the unfortunate mechanic for an indemnity, agreeing that it would limiting itself to whatever it could recover from UK Insurance. Unsurprisingly UK Insurance sought a declaration that it was not liable to indemnify the mechanic, arguing that the policy did not cover claims arising from the repair of the car on private property.
[I pause at this stage; one has to respect the two parties’ ability at that stage to narrow the issue to the only one that mattered rather than proceeding to a trial and first obtaining a completely worthless judgment against a man of straw. Parties and their lawyers often get too little credit for such measured and sensible decisions].
The Decisions in the Courts below
The Road Traffic Act 1988 s.145(3)(a) requires vehicle owners to have third-party insurance in respect of damage caused by the “use” of the vehicle on a road or public place. Clause 1a of UK Insurance’s policy booklet provided cover for damage to property “if you have an accident in your vehicle”, and the insurance certificate promised that the policy satisfied the requirements of the Act. The High Court interpreted the policy as covering accidents occurring on private property, but concluded that the mechanic’s significant repairs did not constitute “use” of the car. The Court of Appeal reversed that decision, holding that s.145(3)(a) extended the cover provided by cl.1(a) to all accidents “involving” the vehicle, whether occurring in public or private places.
The Supreme Court decision
The policy had to be construed so that the third-party cover met the requirements of s.145(3)(a). “Use” had been interpreted broadly so as to cover situations in which the owner had an element of control, management or operation of the vehicle while it was on the road. However, s.145(3)(a) had also to be interpreted in the light of Directive 2009/103, and the ECJ had held that the word “use” therein covered any use consistent with the vehicle’s normal function as transport, whether in a public or private place.
It might therefore be necessary for Parliament to reconsider the wording of s.145(3)(a) to achieve compliance with the Directive. It could not be read down, because that would go against the grain of the legislation. However, EU law did not require the court to disapply national law and the terms of an insurance policy which followed it when it was unable to interpret that law compatibly with a provision of a Directive capable of producing direct effect. Therefore, it was the cover required by s.145(3)(a), not the extended cover required by the ECJ, that was to be read into the policy; the relevant “use” was use on a road or other public place. The words “or arising out of” in s.145(3)(a) made it clear that there could be a causal link between use of a vehicle on a road, and damage resulting from that use but occurring elsewhere. However, there had to be a reasonable limit to the length of the causal chain.
Were cl.1(a) to be given its ordinary meaning, there was a contradiction between it and the promise in the certificate that the policy satisfied the requirements of the Act. The certificate could not by itself create the cover required by s.145(3)(a), and it was therefore necessary to interpret cl.1(a) as if it provided that cover, while also preserving any express terms of the policy which exceeded what was required by s.145(3)(a). The Court of Appeal had gone too far in holding that cl.1(a) was to be read as providing cover for all accidents “involving” the vehicle. That removed the need for a statutory causal link between the damage and the use of the vehicle on a road or other public place, and thereby expanded the cover significantly beyond the requirements of the Act. Words simply had to be added to extend cl.1(a) to accidents caused by, or arising out of, the owner’s use of the vehicle on a road or other public place.
Did the property damage fall within cl.1(a), properly interpreted? Carrying out significant repairs to a vehicle on private property did not entail its “use”, and the damage in the instant case was neither caused by nor arose from the use of the car on the road. There was nothing in the employer’s argument that the necessary causal connection was made out because the disrepair resulted from the use of the car on the road, or because the repairs were a precursor to getting the car back on the road. Although the repairs could be said to have arisen out of the use of the car, it did not follow that the property damage was caused by or arose out of that use. It was the owner’s alleged negligence in carrying out the repairs, not the prior use of the car as a means of transport which caused the property damage. The appellant was therefore entitled to a declaration that it was not liable to indemnify the vehicle owner for the property damage.
There has been a gradual extension of the interpretation of the definition of “arising out of the use of the vehicle” but the Supreme Court has issued (pardon the topical reference) a backstop. It was a seemingly sensible decision given that few people would have previously regarded an owner’s mandatory duty to insure his vehicle for use on the road (to protect the victims of road traffic accidents) as encompassing a duty to insure for collateral property damage caused during its negligent repair.
The judgment makes clear that in UK law the limitation to roads or other public places still applies when considering “use”. However, Lord Hodge did state the recent ECJ decisions such as Vnuk do “demonstrate a need for Parliament to reconsider the wording of section 145(3)(a) of the RTA to comply with the Directive.” He did also make clear however that he did not regard a vehicle which was being repaired in a garage was being used as a means of transport.
The European Court will be shortly reconsidering this point in Linea Directa. The AG opinion has been very recently handed down and he has opined that where the failure of an electrical system used consistently as part of the vehicle’s transport functions was causative of third party property damage, that was deemed to be ‘use’ such that in that case a property damage insurer would have been entitled to indemnity from the motor insurer. However there is a clear distinction in the factual causes of the fire in such case as opposed to this case where it was negligent welding such that even if the RTA had been fully compliant with the Directive, the liability to indemnify would not have arisen.