PI Brief Update

UK Insurance Limited v Thomas Holden [2016] EWHC 264 (QB) - Matthew Channon, University of Exeter

18/03/16. This potentially significant case in Motor Insurance and the interpretation of EU Law was heard before Judge Waksman QC in the High Court. The case concerned substantial damage in excess of £2 million, after a car, which was being repaired at the time, caught fire which spread to an adjoining property. The property insurers attempted to subrogate the claim to the motor insurers, who denied liability. The motor insurers claimed that that the Policy only insured the driver in respect of third party claims resulting from an accident involving his car while being used on a public road or other public place. Here, however, it was on private premises and was not in any relevant sense being used; but rather it was being repaired. Alternatively the property insurers claimed that the policy covered such use of the vehicle on private land.

Judgement

Judge Waksman paid particular emphasis to the terms of the actual policy, which seemed, “not altogether happily worded¹”. The judge was forced to re-interpret the policy terms so as to fit its purpose. For example the term, "if you have an accident in your vehicle" was deemed too narrow, as the policy would have responded if an accident had occurred when the insured was outside his vehicle, such as, for example if the handbrake failed. This was, therefore, clearly not compliant with S 145 (3) of the Road Traffic Act 1988 which refers to damage, “caused by or arising out of the use of a vehicle".

The judge then goes onto examine the issue of as to whether the policy covers and should cover accidents that occur on private property. The judge rejected UK Insurance’s argument that the policy is impliedly limited to roads. The policy gave no express limitation in its terms to roads. The judge stated that although the RTA provides compulsory cover to at least “roads and other public places²”, it does not mean that the policy cannot be more generous.

The judge then went a step further and examined the EU case of Vnuk³. In Vnuk the European Court of Justice held that use of the vehicle extended to use which is consistent, “with the normal function of that vehicle⁴” and further held that the ambit of the first Motor Insurance Directive was not limited to public roads but could also include private property. Judge Waksman found difficulty in interpreting the RTA, which limits insurance coverage to “roads or other public places”, in light of the Vnuk judgement. To construe the Act in such a way, the Judge argued, would "cross the line⁵" between interpretation and amendment. The Judge stated “all I can do is to say that in my judgment s145 (3) (a) is incompatible with Article 3 (1) of the Third Directive as interpreted by the ECJ in Vnuk⁶”

Finally the judge had to decide whether repair would fall within “the normal function” of that vehicle, the judge looked elsewhere in the Commonwealth to decide this issue. The judge decided that the Canadian approach which is to find that repair does constitute use⁷ is too broad and seemingly preferred the Australian interpretation which is to treat use as more than simply locomotion⁸ but to “draw a line” at repair⁹. Accordingly, UK insurance’s policy did not cover the use of the vehicle in question and therefore the property insurers paid for the damage.

Comment

This is a very significant case especially in relation to the interpretation of EU Law and Vnuk. It has been more than a year since Vnuk was decided and this was the first time that a UK Court has expressly recognised that there are clear inconsistencies between the wording of the RTA and Vnuk, this could also extend to the Motor Insurers’ Bureau Uninsured Drivers Agreement which also does not compensate for accidents on private land. These inconsistencies could lead to Francovich action against the UK in the future as there is now clear evidence from the EU and UK that compulsory third party insurance must cover for private land. It is further evident that, despite the accidental extension to private land in this case due to unclear policy wording, Vnuk has been ignored by motor insurers due to the potential for vast increases in their premiums. It is unlikely that this will change in the near future due to the potential British exit from the EU.

A further point to note from this case, is the unclear and outdated policy wording from UK Insurance Limited. The policy wording was clearly not compliant with the RTA and was drafted in very narrow terms, whether this was purposeful or simply poor drafting is unclear. Insurers should be careful when drafting their policies so as to ensure that it is worded appropriately and complies with relevant legislation, including European Union law.

Finally the issue as to the meaning of “use” is still unclear and this case, if appealed, could aide in finding a definition of ‘use’ without going to the Commonwealth. Whether or not ‘use’ could cover repair is not an easy answer as can be seen from the interpretation given by different jurisdictions, it seems that the judge in this case was reluctant to expand the scope of compulsory insurance too far so as to incorporate a vast number of claims which could occur within repair garages.

Matthew Channon
PhD student at Exeter University
Editor of Legal Issues Journal