April 12, 2017

In the UK Insurance case, the Court of Appeal considered the construction of the coverage clause in a motor insurance policy, and gave important guidance on the correct approach to construing s.145 of the Road Traffic Act 1988 (“the RTA”) in light of the relevant European Directive and jurisprudence. The decision encourages a broad interpretation of the concept of the “use of” a motor vehicle in s.145(3)(a) of the RTA, such that a greater number of third party claims involving vehicles are likely to fall within the scope of cover. The decision is considered by Shail Patel of 4 New Square.

THE FACTS

Mr Holden, a mechanical fitter asked his employer (Phoenix) if he could use its workshop to repair his car, as the vehicle had failed its MOT due to corrosion on its underside. Phoenix agreed, and Mr Holden used a forklift to lift the vehicle onto its side, and proceeded to weld a plate to the corroded parts of the chassis. In the course of doing so, sparks from the welding ignited flammable materials in and around the vehicle, causing a serious fire.

The Claimant was Phoenix’s property and liability insurer. It paid out to Phoenix and the owner of neighbouring property, and made claim in the shoes of Phoenix against Mr Holden and (more importantly) his motor insurers.

THE ISSUE

The issue on appeal was whether Mr Holden was entitled to an indemnity from his motor insurer (UKI) in respect of Phoenix’s claim.

The insurance policy booklet for the motor policy provided, in clause 1a:-

“We will cover you for your legal responsibility if you have an accident in your vehicle and:
you kill or injure someone; 
you damage their property; or 
you damage their vehicle.”

S.145(3)(a) of the RTA sets out the minimum requirements for third party motor insurance. Such a policy:-

“must insure …in respect of any liability which may be incurred by [the policyholder] in respect of the death of or bodily injury to any person or damage to property caused by, or arising out of, the use of the vehicle on a road or other public place in Great Britain.”

The current incarnation of the EU Directive to which s.145 gives effect is Directive 2009/103/EC (“the Directive”). Article 3 provides that:-

“Each Member State shall, subject to Article 5, take all appropriate measures to ensure that civil liability in respect of the use of vehicles normally based in its territory is covered by insurance.”

Article 12(3) provides that the motor insurance which the Directive covers:-

“…shall cover personal injuries and damage to property suffered by pedestrians, cyclists and other non-motorised users of the roads who, as a consequence of an accident in which a motor vehicle is involved, are entitled to compensation in accordance with the national law”

The key issues which these provisions gave rise to were:-

  1. What did the policy wording mean?
  2. Did the fire arise of out Mr Holden’s “use of” the vehicle per s.145 of the RTA?

DECISION OF THE COURT OF APPEAL

What did the policy wording mean?

It was common ground that clause 1a was poorly drafted. On one reading, property damage was only covered where the property belonged to the “someone” injured. Similarly neither party considered that cover was limited to accidents where the insured was “in” the vehicle – despite the clause saying so.

The Judge at first instance (HHJ Waksman QC) solved its difficulties by interpolating s.145 RTA into the insuring clause, which, as a consequence he, took on its true construction to mean:-

“We will cover you for your legal responsibility if there is an accident caused by or arising out of your use of your vehicle and you kill or injure…etc”

The Court of Appeal (Sir Terence Etherton MR, with whom the other members concurred) disagreed with that interpretation. While it is conventional in cases of this nature to read ambiguity in policy wording so that it complies with the minimum requirements of the RTA, what the Judge had done was not merely to ensure that the policy met with those requirements. While it did widen the cover by, for example, removing the requirement that the insured be “in” the vehicle, it also narrowed the scope of cover by inserting a requirement as to the “use of the vehicle” which was not there, and not justified by the policy wording.

The better interpretation (mirroring Art 12(3) of the Directive) was that the policy engaged “if there is an accident involving your vehicle”. On that reading, Mr Holden was entitled to an indemnity.

Did the fire arise out of the “use of” the vehicle?

This part of the decision was therefore, strictly speaking, unnecessary, but the Court had heard extensive argument on it.

The first instance Judge had held that the fire did not arise out of the “use of” the vehicle; that it was not a normal function of a car to undergo repair. It was not being operated in any way (so driving it to test a repair would be a different matter, as might running it to test the engine). The vehicle here was not being used – it was immobile and partly off the ground so that it could be worked on.

The Court of Appeal again disagreed. The European Court of Justice in Vnuk v Zavarovalnica Triglav D.D [2016] RTR 188 emphasised that the concept of “use” in Article 3 must be construed consistently with the policy aims of the Directive, being protecting the victims of accidents caused by motor vehicles, and liberalising the movement of persons and goods with a view to achieving the internal market. The CJEU interpreted “use” as including “any use” consistent with a vehicle’s “normal function”.

Applying a “purposive” interpretation, the majority considered that:-

“the repair work carried out by Mr Holden, in order to put his car into a safe and good working condition and so enable his car to pass its MOT, which it had just failed, and so enable him to continue to drive it, was a use of the car consistent with its normal function”

COMMENTARY

In the light of its decision on the first issue, and the Court of Appeal’s decision on the second issue was, strictly, obiter. To the extent that UKI were liable in what might be seen as unusual circumstances, that arose from what was undoubtedly loose policy wording. It might fairly be observed that business standards encouraging the use of ‘plain English’ in insurance policies have not been conducive to clarity in this case.

The Court of Appeal’s decision on the second issue is, at first sight, difficult. If the meaning given to the concept of “use” is that which a normal speaker of the English language would give it, HHJ Waksman’s interpretation must surely be right. However the message from the Court of Appeal is that this is not the correct approach, and the RTA’s European background landscape must not be ignored. In practice this means that “use” is not excluded if a car is parked or even inoperable. It is worth nothing that the liability need only “arise out of” the use, enabling a wider casting of the net.

The Court of Appeal doubtless considered the second part of the decision to be consistent with a slew of domestic and Commonwealth cases which seek, perhaps, to do individual justice where a serious personal injury is caused in a circumstances connected to a vehicle. In Wastell v Woodward (unrep. 27.02.17) a Queen’s Bench Master held that where the owner of a burger van caused an accident crossing the road having erected a sign to point to the van parked in a layby, that arose out of his “use” of the vehicle. It was not necessary that the vehicle be used as a vehicle. That decision, and this, illustrates the difficulty in locating a principled approach to these multi-faceted ‘out of the norm’ motor accident cases.

Image Source: Cheap Full Coverage Auto Insurance

Keywords: