Motor insurer not liable for third party property damage

United Kingdom

The Supreme Court recently decided that a motor policy did not cover fire damage arising from repair work carried out to a car on private land.

Since 1930, UK law has made it compulsory for a driver of a vehicle to hold an insurance policy that includes third party cover to meet a liability in damages for injury to another person or property caused by the use of a motor vehicle. There have been a number of issues in recent years as to what constitutes the “use” of a vehicle for Road Traffic Act 1988 (RTA) purposes, with R & S Pilling t/a Phoenix Engineering v UK Insurance Ltd the latest Supreme Court authority to address the question.

Background

Phoenix operated a garage and permitted an employee to carry out DIY repairs to his car there. The work set the car on fire causing damage of over £2 million to the garage and neighbouring premises. Phoenix’s insurer paid for the damage and subrogated against the employee’s motor insurer asserting cover under the third party liability section of the employee’s policy. The motor insurer commenced proceedings seeking the court’s declaration that it was not liable to the employee because the car was being repaired on private premises. By contrast, Phoenix argued that the repair work was covered because, although off-road, the repair arose out of use of the car on a road or other public place.

Compulsory insurance and the policy

Part VI of the Road Traffic Act 1988 deals with third party liabilities, within which section 145(3) states that a policy only satisfies the requirements of the Act where it provides cover for “any liability… incurred… in respect of… damage to property caused by, or arising out of, the use of the vehicle on a road or other public place”.

The employee’s policy stated, in what the Supreme Court described as “admirably simple English”, that the insured was covered “if you have an accident in your vehicle and you kill or injure someone, you damage their property or you damage their vehicle”. Cover was available for damage occurring while the driver was “in” the car. However, this did not cover all the circumstances that the RTA requires to be covered, including damage “caused by or arising out of the use of the vehicle on the road or other public place in Great Britain”. The employee’s policy was supplemented by a certificate that formed part of the contract and included a statement from the insurer’s CEO that the policy was compliant with UK law.

Judge Waksman in the High Court gave the declaration sought by the motor insurer on the basis that the employee’s act did not amount to “use” of the car and that the fire arose out of his negligence in effecting repairs. The Court of Appeal disagreed, holding that the insuring clause should read “we will cover you for your legal responsibility if there is an accident involving your vehicle” because the “UK law” comment in the certificate meant that the policy provided the cover required by law.

Supreme Court judgment

A unanimous Supreme Court restored Waksman J’s decision because, although the need for repair work arose from the prior use of the car on the road, the policy, properly construed, did not cover the property damage arising from the negligent repair work.

Policy construction: The Supreme Court found that the policy contained a linguistic error that failed to reflect the intention of the parties because the insuring clause was not wide enough to encompass the CEO’s statement in the certificate that the policy satisfied UK law. By this statement, the Court considered it clear that a reasonable person must have understood the policy to provide the third party cover as required by section 145(3) of the RTA. Since the certificate itself is distinct from a policy and so did not provide any additional cover, the Court found a need to read words into the insuring clause to correct the policy, so that it met the requirements of the RTA.

Critical to determining what was to be inserted into the policy was to understand the meaning of the phrase from the RTA “caused by, or arising out of, the use of the vehicle on a road or other public place”. The Court noted that:

  • the word “use” had been broadly construed by English courts to cover any situation where the owner has an element of control, management or operation of the vehicle on the road or in a public place. The reason is that even a parked car may be a hazard on a road or in a public place.        
  • the words “caused by, or arising out of the use of” allowed for a causal link between use of a vehicle on a road and damage resulting from that use but occurring elsewhere, however, this must be subject to a reasonable limit to the length of the causal chain.

The Court considered how to add new language into the policy. Citing the House of Lords decision, Chartbrook Ltd v Persimmon Homes Ltd (2009), the Court recognised that to adopt a corrective construction:

    “it should be clear that something has gone wrong with the language and it should be clear what a reasonable person would have understood the parties to have meant”.

The correction required was limited to ensuring that the cover complied with the RTA, so that the policy also covered “an accident caused by or arising out of your use of your vehicle on a road or other public place”. The Supreme Court considered that the formulation inserted by the Court of Appeal was too broad by extending cover to “any accident involving” the employee’s vehicle. It was important to go no further than necessary: the policy was intended to cover circumstances other than the driver being in the car for which there was a need for compulsory insurance under the RTA.

Contract terms that may have different meanings: The Court dismissed a contra proferentum argument advanced against the insurer that a doubt about the meaning of the policy should be resolved in favour of the policyholder, and similarly, under section 69 of the Consumer Rights Act 2015, that the interpretation most favourable to the consumer must prevail. The Court considered that, although the contract wording contained a mistake, there was no doubt about the parties’ intended meaning and the corrective construction was to cure the linguistic mistake.

EU Law: The Court debated the concept of “use” within the meaning of the EU Motor Insurance Directive 2009/103/EC, which had been interpreted to require insurance for “any use of a vehicle as a means of transport” including on private property, and so went beyond the geographical requirement of the RTA expressed by the words “on a road or other public place”. However, the Court resolved that the policy only needed to comply with UK law - the RTA; any failure of UK law to reflect EU law was a matter for Parliament and the responsibility of the State to implement EU law. In any event, applying the EU extension, a car being repaired on private property was thought not to fall within the definition of “use as a means of transport”.

Comment

This is a common sense decision for the application of the RTA and will likely be welcomed by motor insurers whose policies are governed by the law of England and Wales; the Supreme Court gave effect to what the parties appeared to intend. Still, a cautionary note is wise given the language of the insuring clause since, with only a subtle change of the facts - had the employee been “in” his car when the accident occurred - a different result might have been achieved. Insurers should be careful to review their policies to ensure that they understand the cover they are providing.

It might be considered odd that repair work could be considered a “use of a vehicle” if carried out on a public road, but not when carried out on private land. The Court endorses “as good sense” those cases providing a broad interpretation of the word “use” under the RTA because they are concerned with protecting the public from hazards that, for example, unattended cars might create. As such, the Court recognised, from the case of Brown v Roberts (1965), that liability under the statute comes from the concepts of control, management or operation of a vehicle but only while it is on the road. The physical location of Phoenix’s employee was vital, i.e. had the car been on the road or in a public place, as opposed to private property, when the repair was carried out, it seems that the damage would have been covered by the motor policy.

Insofar as off road use is concerned, there has been some divergence in recent years between England & Wales decisions under the RTA and EU authority on the use of a motor vehicle. The R&S Pilling decision follows previous High Court authority Lewis v Tindale (2018) which held that a driver was uninsured for injury caused while driving the vehicle off-road. The industry has also had to grapple with the apportionment of liability arising from vehicles used in the commission of crime. The most extreme case is the use of vehicles as weapons in terrorist incidents, such as the Westminster Bridge attack. This deliberate commission of crime is an excluded peril, but the industry has agreed to the mutualisation of exposure through the Motor Insurers Bureau – see our law-now. With the advent of autonomous vehicles, what constitutes the “use” of the vehicle and the causal connection with a “driver” who may not be in direct control is likely to remain an area of developing law.

Further reading:

R&S Pilling t/a Phoenix Engineering v UK Insurance Ltd [2019] UKSC 16.