In R & S Pilling t/a Phoenix Engineering v UK Insurance Ltd…
In R & S Pilling t/a Phoenix Engineering v UK Insurance Ltd  UKSC 16 the Supreme Court gave guidance on the meaning of the phrase “caused by, or arising out of, the use of the vehicle on the road or other public place” in s.145 Road Traffic Act 1988, a decision which has a real and significant impact on the motor insurance industry.
R &S Pilling raised important questions about both the construction of s.145 Road Traffic Act 1988 and the approach that should be adopted when interpreting motor insurance policies against the landscape of existing domestic and European legislation. The claim arose from a dispute over the liability of a motor insurer for substantial property damage caused by hot works carried out on a vehicle situated on private property.
In 2010 Mr Holden was a mechanical fitter employed by R & S Pilling, trading as Phoenix Engineering (“Phoenix”). Mr Holden owned a car (“the Vehicle”) and held a motor insurance policy (“the Policy”) with UK Insurance Ltd (“UKI”).
On 11 June 2010 the Vehicle failed its MOT because of corrosion to the underside. In an attempt to deal with the corrosion, Mr Holden used the loading bay at Phoenix’s premises to weld metal plates to the underside of the Vehicle. He disconnected the Vehicle’s battery and used a fork-lift truck to lift the car on to its side. He used a grinder to prepare the underside for welding and then welded a plate under the driver’s side. He then reconnected the battery, started the car and moved it before disconnecting the battery for a second time and lifting the car with the fork-lift truck to expose the underside. He started welding, but stopped to answer his phone. When he did so he saw that sparks from his welding had started a fire in the Vehicle (“the Fire”). The Fire took hold and caused substantial damage to Phoenix’s premises and neighbouring premises before it was extinguished.
Phoenix was insured against property damage and public liability by AXA, who paid out £2m to Phoenix and the owners of the adjoining premises. AXA then made a subrogated claim in Phoenix’s name against Mr Holden. UKI sought a declaration that it was not liable to indemnify Mr Holden against the claim and AXA counterclaimed for an indemnity. The real dispute was, therefore, between AXA (in the name of Phoenix) and UKI.
Mr Holden’s Policy and the insurance scheme
The Policy comprised: (a) the policy set out in UKI’s policy booklet; (b) the certificate of insurance (“the Certificate”); (c) the motor insurance schedule: and (d) the proposal confirmation. Clause 1a of the policy booklet (“Clause 1A”) provided:
“Cover for you
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.”
The Certificate provided that: “I hereby certify that the Policy to which this Certificate relates satisfies the requirements of the relevant law applicable in Great Britain and Northern Ireland, the Republic of Ireland, the Isle of Man, the Island of Guernsey, the Island of Jersey and the Island of Alderney.”
The Policy had to be considered in the context of both the Road Traffic Act 1988 (“RTA”) and Directive 2009/103/EC of the European Parliament and of the Council of 16 September 2009 (“the Directive”). The RTA makes it a criminal offence to use a motor vehicle on the road or another public place in Great Britain without insurance against third party risks. Section 145(3)(a) (as amended by the Motor Vehicles (Compulsory Insurance) Regulations 2000 (SI 2000/726)) states that: “Subject to subsection (4) below, the policy … must insure such person, persons or classes of persons as may be specified in the policy in respect of any liability which may be incurred by him or them in respect of the death or bodily injury to any person or damage to property caused by, or arising out of, the use of the vehicle on the road or other public place in Great Britain.”
By comparison, Article 3 of the Directive ensures that civil liability arising from the use of motor vehicles is covered by insurance. Article 12(3) provides that: “The insurance referred to in Article 3 shall cover personal injuries and damage to property suffered by pedestrians, cyclists and other non-motorised users of roads who, as a consequence of an accident in which a motor vehicle is involved, are entitled to compensation in accordance with national civil law.”
It was against this contractual and statutory backdrop that the Court had to determine the liability of UKI for the damage caused by the Fire.
The Judgments of Judge Waksman QC and the Court of Appeal
On 19 February 2016 Judge Waksman J handed down judgment in favour of UKI: UK Insurance Ltd v Holden  EWHC 264 (QB). The Judge held that whilst the scope of cover under the Policy extended beyond roads and public places to accidents on private land, the requirements of the Policy were not made out because the fire had not arisen from the “use” of the Vehicle. Judge Waksman QC stated at  that: “The fire was caused by and arose out of the allegedly negligent repair of the car by the use of grinders and welders without taking any precautions with regard to flammable material in the car itself.”
Phoenix successfully appealed to the Court of Appeal: UK Insurance Ltd v Holden  EWCA Civ. 259. The Court of Appeal recognised that the policy booklet and Certificate should be read together and that they should be read to give effect to the compulsory cover required by the RTA. Unlike the RTA, Clause 1A of the Policy (set out above) did not limit cover to “the use of the vehicle on the road or other public place”. However, the Policy did require the accident to have taken place whilst Mr Holden was “in” the Vehicle. The Court of Appeal concluded that s.145(3) RTA extended the scope of cover under Clause 1A of the Policy so that: (a) the geographical limits of the RTA were disapplied by virtue of the Policy wording; and (b) the contractual requirement that the insured be “in” the Vehicle at the time of the accident be disapplied by the RTA. As the Supreme Court summarised at : “The [Court of Appeal] accordingly construed the opening words of clause 1a to mean: “We will cover you for your legal responsibility if there is an accident involving your vehicle” (emphasis added). This is entailed substituting “there is” for “you have” and replacing the preposition “in” in the express terms of the clause which the present participle “involving”.
The Master of the Rolls also found that the repair work amounted to “use” of the Vehicle under s.145(3) RTA, concluding that this broad interpretation was consistent with the objective of the Directive and the judgment of the Court of Justice of the European Union (“CJEU”) in Vnuk ZavrarovalnicaTriglav dd (Case C-162/13)  RTR 10. He held that a wide interpretation of s.145(3) covering use of a car consistent with its normal function was consistent with English authorities that had held “use” included parked or immobilised vehicles and stated the following.
The Court of Appeal accordingly allowed the appeal, finding that Judge Waksman QC had erred in principle that the repair of a car is not “using” it for the purposes of s.145 RTA. Henderson LJ agreed, adding that he had been aided by the Commonwealth authorities. Beatson LJ agreed with both judgments.
The Supreme Court
The parties agreed that the Policy needed to be construed to meet the requirements of the RTA. The question for the Supreme Court was therefore whether the Court of Appeal had gone too far in reading Clause 1A to read: “We will cover you for your legal responsibility if there is an accident involving your vehicle.” In broad summary, UKI adopted two arguments in the Supreme Court:
- That there was no reason to read words into Clause 1A because there were “two strands” to Mr Holden’s cover, namely the cover in Clause 1A and also the promise in the Certificate (“the Two Strands Approach”);
- On a proper construction of Clause 1A and RTA cover under the Policy was limited to “use” of the Vehicle on a “road or other public place”, which did not extend to fires arising from or caused by negligently conducted hot works.
The Two Strands Approach
The Court summarised the parties’ respective positions in respect of the Two Strands Approach at : “In support of the view that the Court of Appeal was in error, UKI advances an argument for the first time in this court. It submits that there is no need to read any terms into clause 1a in order to include the RTA cover because the Policy provides cover in two strands (“the Two Strands Argument”). First, there is the provision of clause 1a, whose words should be given their ordinary meaning so as to cover accidents occurring when the driver is in the vehicle wherever it is located, and, secondly and separately, there is the promise in the certificate that the Policy satisfies the requirements of the relevant law in the United Kingdom, which for present purposes is the RTA. Phoenix challenges that assertion, submitting that the Policy follows a standard structure of insurance policies, with insuring clauses which define the cover, followed by exclusions and then by conditions. The reader therefore looks to the insuring clause to determine the scope of cover before examining the extent of the exclusions and the conditions of cover. The certificate, it is submitted, is simply a declaration of compliance and does not operate as an additional insuring clause. Phoenix submits that Judge Waksman and the Court of Appeal were correct in focusing on the correct construction of clause 1a.”
Although the Court found that found some support for the Two Strand Approach in the Policy’s opening statement, the Supreme Court rejected it at  –  on the bases that both the Chief Executive’s certificate and the RTA distinguished between the Certificate on the one hand and the Policy on the other. Further, the Court expressed concern that if the Certificate gave rise to a separate contractual basis for insurance cover it may lead to disputes about whether an insurer could avoid liability for a risk covered only by a certificate of insurance where it was barred from doing so in relation to cover under a policy, e.g. pursuant to s.151 RTA.
However, the dismissal of the Two Strands Approach was not terminal to UKI’s appeal, and the Court continued to consider UKI’s argument on the proper construction of Clause 1A.
The construction of Clause 1A
At  the Supreme Court identified three questions concerning the interpretation of Clause 1A: (a) the extent of the cover required by s.145(3)(a) RTA; (b) what words should be read into Clause 1A; and (c) whether the Fire fell within the wording of Clause 1A as interpreted.
The first question required the Court to interpret the RTA’s requirement that damage to property be “caused by, or arising out of, the use of the vehicle on a road or other public place”. This necessarily required consideration of domestic and European jurisprudence.
Historically, the English authorities had adopted a broad concept of “use” extending to “an element of control, management or operation of the vehicle while it is on the road” (Brown v Roberts  1 Q.B. 1) and included broken-down and abandoned vehicles on public roads (Elliot v Grey  1 Q.B. 367 and Pumbien v Vines  RTR 37). This interpretation guarded against the mischief of uninsured owners being unable to compensate members of the public, who can be expected to be on roads and in public places, who suffer injury as a result of the presence of the vehicle. However, the jurisprudence of the CJEU adopted a wider interpretation of “use” in Article 3(1) of the Directive, construing it to mean “any use of a vehicle that is consistent with the normal functions of that vehicle”. Unlike the RTA, that definition extended beyond compulsory cover for roads and public places.
The Supreme Court agreed with Judge Waksman QC that s.145(3) RTA could not be read down to comply with the jurisprudence of the CJEU. Accordingly, as “EU law does not require a national court hearing a dispute between private persons, to disapply the provisions of national law and the terms of an insurance policy, which follows national law, when it is unable to interpret national law that is compatible with a provision of a directive which is capable of providing direct effect” the Court adopted the English definition of “use”, concluding that, ““use” is on a road or other public place” and not “any use…consistent with the normal functions of that vehicle”.
With regards the words “caused by, or arising out of”, the Supreme Court adopted the majority view of the Court of Appeal in Romford Ice and Cold Storage Co Ltd v Lister  2 Q.B. 18, illustrated by the following example given by Rimer J in Romford: “An accident is caused by the use of a vehicle on a road if it runs over a pedestrian at a zebra crossing; an accident arises out of the use of a vehicle on a road if it skids off the road and injures a pedestrian who is walking on the pavement.” Lord Hodge emphasised the need to draw a reasonable limit to the length of the relevant causal chain.
The Court accordingly concluded at  that s.145(3) RTA should be interpreted as requiring compulsory insurance for third party personal injury or property damage caused or arising from the use of the vehicle on a road or public place and the “relevant use” occurs only where a person, “uses or has the use of a vehicle on a road or public place, including where he or she parks an immobilised vehicle in such a place (as English case law requires), and the relevant damage has arisen out of that use.”
With regards the second question, the Court agreed that there was a contradiction between Clause 1A and the Certificate which required the Court to construe Clause 1A to meet the requirements of s.145(3)(a) RTA. At  and  the Supreme Court held that the Court of Appeal had erred when failing to adopt the following approach to construction: “The correction which is needed is to enable the cover to extend what is expressly provided for to that which the RTA requires. If, as is the case, the express terms of the Policy in some respects exceed what the RTA requires, those terms must be given effect. Construction of Clause 1a to expand its cover to meet the requirements of the RTA cannot cut back that which is expressly conferred. But that which is to be added to correct the omission is that which is needed to make the cover comply with the RTA and no more.” As a result, the Supreme Court held that the Court of Appeal had expanded the cover under the Policy significantly beyond the scope of the RTA and, even, the cover required by EU law.
At  the Court accordingly held that, properly interpreted, Clause 1A should read: “We will cover you for your legal responsibility if you have an accident in your vehicle of if there is an accident caused by or arising from your use of the vehicle on a road or other public place.”
As to the third and final question, Lord Hodge found at  that neither the English nor CJEU jurisprudence supported the conclusion that significant repair work to a vehicle constituted “use”. Further, at  –  the Supreme Court found that there was an insufficient causal connection between the true “use” of the car and the Fire; as Judge Waksman QC had properly concluded, the Fire “arose out of” or was “caused by” Mr Holden’s negligent repair works and not “the prior use of the case as a means of transport.”
The Supreme Court accordingly allowed the appeal.
The Supreme Court’s decision is of significant importance not only to lawyers and insurers but far more generally, as motor insurance (and the statutory need for motor insurance) touches the lives of a significant proportion of the public. The Court’s judgment provides clear, well needed, guidance on the scope of s.145 RTA. It is now apparent that: (a) the RTA as it stands is incompatible with existing CJEU jurisprudence and it will require Parliament to align the two: and (b) the cover required under s.145(3) RTA remains consistent with the existing English law, namely when an insured uses or has the use of a vehicle on a road or public place, including where he or she parks an immobilised vehicle in such a place, and the relevant damage has arisen out of that use.
The Supreme Court’s decision also reiterates the approach that should be taken when construing a motor insurance policy in accordance with Chartbrook Ltd v Persimmon Homes Ltd  A.C. 1101. At  and  Lord Hodge makes clear that in those limited circumstances where the Court adopts a corrective construction to bring a policy in to line with the RTA it should not, “cut back that which is expressly conferred [by the policy]. But that which is to be added to correct the omission is that which is needed to make the cover comply with the RTA and no more.”
Disclaimer: this article is not to be relied upon as legal advice. The circumstances of each case differ and legal advice specific to the individual case should always be sought.
© Nicholas Broomfield of 4 New Square, April 2019.