Mr Holden, a mechanic employed by Phoenix Engineering, was working overtime and asked to use the loading bay at the premises to do some work on his car. Whilst welding some plates onto the underside of the car, a fire started and spread inside the car, then to some rubber mats lying close to the car. The fire then spread to Phoenix’s premises and the adjoining building.
AXA, Phoenix’s insurer, paid out over £2m to Phoenix and the owner of the adjoining property for the damage. Subrogated to Phoenix’s rights, AXA brought a claim against Mr Holden’s motor insurers, UK Insurance Limited (“UKI”), having undertaken not to pursue Mr Holden personally. UKI commenced proceedings for a declaration that it was not liable to indemnify Mr Holden.
The insuring clause of the policy contained a provision stating that:
“[UKI] 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.”
Under s.145(3) of the Road Traffic Act 1988 (“RTA”), it is an offence to use a motor vehicle on a road or other public place unless that person has an insurance policy in respect of third party risks which covers “liability which may be 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 policy contained a certification that the policy met the requirements of the law in Great Britain.
High Court/Court of Appeal
The judge at first instance held that UKI should not have to indemnify in respect of any liability arising out of the fire, on the basis that repairing a car is not “use” of a motor vehicle, therefore the fire did not arise out of “use” of the vehicle.
However, the Court of Appeal allowed the appeal. It found that reading the policy in accordance with the requirements of the RTA required cover for liability arising “if there is an accident involving your vehicle”. Regardless, the Court of Appeal also found that repair work fell within the concept of “use” of the vehicle, as being an act consistent with the normal function of the vehicle. This was an interpretation in line with CJEU jurisprudence (in particular Vnuk v Zavarovalnica Triglav C-162/13) and the Motor Insurance Directive (“MID”), and consistent with the objectives of the MID to protect victims of accidents caused by motor vehicles.
The Supreme Court Decision
The Supreme Court reversed the Court of Appeal decision, rejecting the purposive interpretation of the policy wording and the meaning of “use” of a vehicle. Instead, the Supreme Court interpreted the policy wording in strict compliance with the requirements the RTA. It found that the Court of Appeal overstepped the mark in its construction of the policy wording, and the correct interpretation of the insuring clause is one which gives effect to the requirements of the RTA and no more: specifically, “we will cover you…if you have an accident in your vehicle or if there is an accident caused by or arising out of your use of your vehicle on a road or other public place.” The argument that the interpretation most favourable to the consumer should apply was rejected as irrelevant, as there was a clear mistake in the drafting of the policy and no ambiguity as to the parties’ intentions.
The Supreme Court also rejected the idea that repair of a car on private premises can be considered “use” of a vehicle; although Mr Holden’s repairs were a result of the regular use of his car and the negligent repairs led to the fire, to state that the “use” of the vehicle led to the property damage is stretching the causal chain. It was suggested that whether an accident has truly arisen out of the “use” of a vehicle will require an analysis of the “connection in time, place and circumstance between the use of the car on the road and the accident.”
Notably, the Supreme Court held that s.145(3) of the RTA cannot be read down to comply with the requirements of the MID and the CJEU jurisprudence surrounding it. This further highlights the ongoing incompatibility of the RTA with the MID and leaves reconsideration of the RTA to Parliament.
This is welcome news for motor insurers, at least for now. The judgment will ease insurers’ concerns that all claims with a conceivable nexus to a motor vehicle will be landing on their desks, and shifts certain risks connected to vehicles on private premises onto property insurers. This could have an impact on underwriting practice in the property market.
However, retracting the wide net cast by the Court of Appeal may encourage greater debate in borderline cases as to whether an accident has truly arisen out of the “use” of a vehicle. Whilst the Supreme Court’s approach towards determining what constitutes a “use” of a vehicle appears logical, it steers away from one of the main public policy thrusts of the both the Court of Appeal’s approach and CJEU jurisprudence: that the purpose of motor insurance and road traffic legislation is to protect victims of accidents involving motor vehicles.
It also leaves English law at risk of the same unfair outcomes as seen in the CJEU (e.g., Fundo de Garantia Automovel v Juliana C-80/17). This has scope for leaving victims without cover for accidents they suffer (in this case, happily, the property insurer agreed not to pursue the individual responsible for the fire personally). Since the incompatibility of the RTA with the MID is clear, this does open up the possibility for Francovich damages claims (at least for such time as the UK remains bound to transpose EU Directives).
A further takeaway for insurers is the danger of loose policy wording. The varying interpretations of the insuring clause in this case highlight the balance to be struck between “plain English” drafting for the benefit of the policyholder and legal precision. In this case, the Supreme Court needed to adopt a corrective construction to the policy wording in order to ensure it complied with the RTA. This was one of those fortunate cases in which the mistake is as clear as the parties’ intended meaning (so rectification was not necessary).
Authored by Sarah McQuillan and Jamie Rogers