Motor Insurance

1.  Requirements of compulsory insurance

1.1  Compulsory liability cover

In 1930 cover for third-party liability was made compulsory for all those who used a motor vehicle on a road.¹ This started a stream of legislation that led to the Road Traffic Act 1988.² One aim of this statute is to ensure compensation for those who are killed or injured or suffer loss of property by the negligence of drivers by requiring that all motorists have a minimum level of liability insurance. In addition, the motor insurance industry has created a scheme to compensate those who have suffered loss that is within the cover required under the 1988 Act, but where the wrongdoer is uninsured or cannot be traced. The scheme is administered by the Motor Insurers’ Bureau, which also incorporates the Motor Insurers’ Information Centre where information about vehicles and insurance is held to facilitate compensation for victims of motor accidents.³

It is a criminal offence under the Road Traffic Act 1988 for anyone to use, or cause or permit another to use, a motor vehicle on a road or other public place unless, in relation to the use of that vehicle by that person, there is in force an insurance policy in respect of certain third party risks (section 143(1), (2)).⁴ The Road Safety Act 2006, section 22, introduces a new offence of being the registered keeper of a vehicle which does not meet statutory insurance requirements. Schedule 5 of the same Act makes provision for the immobilisation, removal and disposal of vehicles where it appears the new offence is being committed. These provisions make amendments to the Road Traffic Act 1988 by adding five new sections (144A, 144B, 144C, 144D and 159A) and one new schedule (Schedule 2A). They introduce the offence of being the registered keeper of a vehicle which does not have insurance cover, but provide that liability for the offence may be discharged on payment of a fixed penalty fee of £100. The Motor Vehicles (Insurance Requirements) Regulations 2011,⁵ which came into force on 4 February 2011, prescribe the particulars and declarations to be furnished for the purposes of exceptions to the offence, create a new exception to the offence, provide for a reduced fixed penalty upon prompt payment, and require Motor Insurers’ Bureau (MIB) data to be provided for enforcement purposes.

The policy must be issued by an authorised insurer and must cover the person(s) specified ‘in respect of any liability which may be incurred by him or them 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’ (section 145(3)(a)).⁶ There is a wealth of authority in support of the contention that where, as is usually the case, the policy refers to a particular vehicle, the insurers will not be liable if the insured has parted with ownership of that vehicle, even if the policy is stated to cover any car that is ‘being used instead of the insured car’. Motor cover runs with the ownership of the vehicle specified in the policy, so that if the vehicle has been sold there is no ‘insured car’ and the policy terminates.⁷ However, these authorities should be regarded as unreliable in light of the most recent decision on the matter in Dobson v Dobson.⁸ It was held that a policy with similar wording to that in previous cases did not have the effect of bringing the insurance contract to an end in the event that the car to which the policy relates was sold. The insured retained an interest in the policy because he or she might drive other vehicles or go on to purchase another vehicle. There must also be cover against liability in other EEA states⁹ to the extent required in those countries (section 145(3)(b)), and cover against liability for emergency medical treatment (section 158).¹⁰ While cover for injury or death must be unlimited, it is not required that the policy cover: liability above £1 million for damage to the property of a third party (section 145(4)(b)¹¹); nor liability for the death of, or injury to, an employee (other than a passenger) arising out of the course of employment where there is cover under an employer’s liability policy (section 145(4)(A));¹² nor damage to the vehicle mentioned in the policy (section 145(4) (c)), or to goods carried for hire or reward (section 145(4)(d)), or to property owned by a third party while that property is in the custody or under the control of the insured (section 145(e)); nor any contractual liability (section 145(4)(f)). Of course, the parties may expressly extend cover to include such matters, and frequently do, for instance, many motorists cover damage to themselves and their vehicles.

There is a policy for the purpose of the Act, even though it is voidable on account of, for instance, non-disclosure,¹³ but a policy is of no effect until a certificate of insurance is delivered by the insurers to the insured (section 147). It is an offence to use the vehicle before the certificate is delivered, but that does not affect the insurers’ liability under the contract to a third-party where there is a cover note¹⁴ and a certificate is issued later in terms that backdate it to the relevant period.¹⁵ In terms of the liability of the insurers to the insured, the certificate is not the contract of insurance and it is the latter that prevails.¹⁶ It is worth noting that under section 154 a driver, against whom a claim is made in respect of damage required to be covered by virtue of section 145, must give on a demand made by a claimant the particulars specified in the certificate of insurance.

1.2  ‘Use’

The words ‘caused by, or arising out of the use’ of a vehicle (section 145(3)(a)) expand the scope of insurance that a driver must obtain, in that it must extend not just to losses proximately caused by driving but also to losses that ‘arise out’ of the use of a car. A person who runs out of petrol and causes an accident while leaving the vehicle to secure a lift to a garage is to be regarded as having incurred liability out of the use of a vehicle,¹⁷ but a person who dashes across a road in order to obtain a lift in a minibus and is hit by an oncoming vehicle has not suffered injuries arising out of the use of the minibus.¹⁸ It is worth noting that the offence of driving without insurance is only committed if the motor vehicle is ‘used’ on the road or other public place (section 143). The determinative issue here is control, not ownership.¹⁹ A passenger who negligently opens a car door and injures a pedestrian is not in control of the vehicle,²⁰ but a passenger may enter into a joint enterprise with the driver to use the car.²¹ Moreover, ‘use’ does not simply refer to the act of driving: there may be use where the engine does not work,²² or the vehicle has been abandoned.²³

1.3  ‘Cause or permit’

It is an offence to ‘cause or permit any other person’ to use a vehicle if that person is not insured (section 143(1)(b)). While ‘cause’ imports the notion of a positive command or authority to use the vehicle, the word ‘permit’ has been interpreted quite widely to include not just express words of permission, but circumstances in which permission can be inferred, such as where the vehicle is placed by its owner in the control of someone else in circumstances which ‘carry with it a reasonable implication of a discretion or liberty to use it in the manner in which it was used’.²⁴ In McLeod (or Houston) v Buchanan,²⁵ a man was given a car for business and private use by his employer. The car proved unsatisfactory and the employer authorised the purchase of a van. This vehicle was insured only for business, although the driver also used it for private purposes. The court held that since the van was bought for the same purposes as the car and the employee had not been told to use it only for business, the employer had permitted its use by another without insurance. It is not just the owner who can commit this offence. Anyone who has control over the vehicle and causes or permits an uninsured person to use it commits an offence,²⁶ such as a commercial traveller who lends a company car to an uninsured friend. On the other hand, someone who is not the owner and does not have control over its use will not come within the offence.²⁷

An honest but mistaken belief that the driver is insured is no defence,²⁸ even if that mistake was induced by the driver’s misrepresentation.²⁹ This means that an offence will be committed if no condition is imposed or if a condition is imposed that, as the owner knows, will be ignored. In Lloyd-Wolper v Moore,³⁰ it was alleged that the owner had been misled by the driver’s representations that he was 17 years old and had a full driving licence, whereas he was 16 and had no licence. Unsurprisingly, the Court of Appeal seemed somewhat sceptical about the owner’s claim not to have known the truth of these matters since the driver was his son; nevertheless, the judges held that permission to drive had been given even if the claim were true since consenting on the basis of a mistaken belief did not amount to the imposition of a condition. In DPP v Fisher,³¹ the owner lent the car to someone, who, as the owner knew, was uninsured, on the condition that this person would only allow an insured person to drive. The car was lent to someone who was not known to the owner and who did not have insurance. It was held that the permission of the owner to the second person was unconditional and, therefore, amounted to the offence. This principle means that a driver who takes their car into a garage for repair and who permits it to be driven will have given unconditional permission for an uninsured mechanic to use it.³² Yet, there are cases in which a rather softer approach has been taken.³³ Mackenna J was of the opinion that, ‘Permission connotes knowledge or that which is in criminal law the equivalent of knowledge, a deliberate blindness to obvious facts which it would be inconvenient to know.’³⁴ It was held in Newbury v Davis that if the person giving permission makes it a condition of using the vehicle that the driver obtains insurance, then there will be no offence because: ‘A permission subject to a condition which was not fulfilled was no permission.’³⁵ It was said in DPP v Fisher³⁶ that Newbury should be confined to its particular facts and this view is to be preferred, although in a subsequent Scottish decision, Macdonald v Howdle,³⁷ it was held that an owner would not have given permission to the driver had she not been told by her friend that his policy covered him and, therefore, her permission was conditional on the driver being insured.

1.4  ‘Motor vehicle’

The Act only applies to a ‘motor vehicle’ which is defined in section 185(1) as ‘a mechanically propelled vehicle intended or adapted for use on the roads’.³⁸ A motor car comes within this definition even if it is not capable of being driven because the engine has been removed, so long as its immobility is only temporary.³⁹ On the other hand, a car will not be regarded as a motor vehicle if it is in such disrepair or has been dismantled to such an extent that there is little prospect of it ever being made mobile and it is, in reality, simply a pile of spare parts.⁴⁰ A motorcycle that can be pedalled is not a motor vehicle if essential parts of the engine have been removed.⁴¹ The vehicle must also be ‘intended or adapted for use on the roads’. It is not sufficient that it is capable of being used on the road if it was not intended or adapted for that use. However, if it is so intended or adapted, it does not matter that it is not normally used on the road. The test is ‘what would be the view of the reasonable man as to the general user of this particular vehicle, not the particular user to which this particular appellant put it’.⁴² This test may be satisfied by evidence that the device in question is widely used as a motor vehicle within the meaning of the Act, even if it does not conform to statutory vehicle safety standards and the manufacturer warns owners not to use it on the road.⁴³ A family car that is always used on a motor racing circuit will be a motor vehicle under the Act if on an occasion it is used on a road; on the other hand, a go-kart is certainly capable of being used on the road, but it is not intended for such use and will not come within the definition, unless adapted for the road.⁴⁴ The courts have also held that a vehicle which is intended for only occasional use on the road will not be within the Act, unless there is evidence that the intention is that such will be its general use: a dumper truck designed for carrying building materials which occasionally travelled short distances on the highway was not intended for general use on the road and was not, therefore, a motor vehicle.⁴⁵

1.5  ‘Road or other public place’

Cover is only required where the vehicle is used on a ‘road or other public place’.⁴⁶ The term ‘road’ is defined as ‘any highway and other road to which the public has access, and includes bridges over which a road passes’ (section 192(1)). It therefore includes private roads where they are used by the public in general, as opposed to a particular section.⁴⁷ The courtyard of a hotel, which was private property, but was used by the public without hindrance by the hotel’s owners as a means of access to the hotel, and to cut a corner, was a ‘road’.⁴⁸ A road serving an industrial estate and leading off a public road is a ‘road’, for access to the industrial estate was open to members of the public at large.⁴⁹ A private road used only by the customers of a particular shop was not a road within the Act,⁵⁰ nor was a private road leading to a farm that was used, with permission, by anglers and picnickers and to gain access to a caravan site owned by the farmer. In both cases this was because only a restricted class of the public had access and the number of people in that class was irrelevant.⁵¹ Yet, public access is insufficient unless the land is also a ‘road’. A public car park would only in exceptional circumstances be a road.⁵² To be a road it must be clearly defined, as opposed to being an open space such as a field, it must be a means by which vehicles can travel to a destination, and it must have a surface (prepared or produced by constant use) suited to this purpose.⁵³ The case law now needs to be read within the context of the provisions of the Motor Vehicles (Compulsory Insurance) Regulations 2000, which adds to ‘road’ in section 143 the words ‘or other public place’. The old case law on the meaning of ‘public’ in relation to roads is still relevant here, but it will only be necessary to show that the land was a ‘place’ rather than a ‘road’ to which the general public, rather than just a section of it, has access.

2.  Third party claims

Where the owner has permitted use of their vehicle by an uninsured person, who causes loss and is unable to meet the damages award, the third party victim can sue the owner for breach of statutory duty.⁵⁴ Can a third party sue a driver’s insurance company where that person has suffered injury or loss as a result of the use of the vehicle by the driver or by someone whom the driver has permitted to use it? On general principles, while the insured can enforce the insurance contract on behalf of a third party victim,⁵⁵ the third party cannot enforce it directly.⁵⁶ However, under section 151(1) where a certificate of insurance has been delivered to the insured,⁵⁷ judgment has been obtained against the driver, and the liability comes both within the requirements for compulsory insurance set out in the Act and is covered by the policy, the third party may enforce that judgment against the insurer. This is not dependent on the insured having defaulted on the judgment, so the third party, having obtained judgment, may proceed immediately against the insurer. There are restrictions on the defences that an insurer may use in such a case (sections 151, 152). Terms in the policy concerning cover will be ignored if they are invalid against a third party by virtue of section 148 (see below) and exclusions of liability that are permitted will be narrowly construed.⁵⁸ The insurers cannot seek to defend the action by showing that the driver was not authorised to drive the vehicle. They will also be liable even if they were entitled to, or have avoided or cancelled the policy, unless the certificate of insurance has been surrendered by the insured or proceedings for its recovery have been commenced (sections 151(5), 152(1)(c)). In the event of having paid in respect of the liability of an uninsured person, the insurer can recover that amount from anyone who is insured by the policy and who has caused or permitted the use of the vehicle which gave rise to the liability (section151(8)). However, the compatibility of this provision with EU law has recently been called into question in circumstances where the insured was also the victim of the uninsured driver’s negligence. In Churchill v Wilkinson,⁵⁹ the claimant’s parents bought him a car and insured him as a named driver through Churchill Insurance. The claimant incurred serious injuries in an accident while the car was being driven by his friend F, who the claimant knew was not insured. Following the accident the claimant sought to recover under the policy, but Churchill refused to make payment, relying on section 151(8) of the Road Traffic Act 1988. It was not at issue whether Churchill would be liable to satisfy any judgment that the claimant might obtain against F under section 151 of the 1988 Act, but rather whether section 151(8) gave the insurers the right to recover such sums from the claimant. At first instance,⁶⁰ Blair J held that section 151(8) was contrary to EC law, in particular the Second Motor Insurance Directive (now the Consolidated Motor Directive 2009) which provides that where a provision or clause restricts cover by reference to the authorisation of the driver, it is to be void against all persons except those who knowingly enter a stolen vehicle. He concluded that the correct approach would be to allow the claimant to enforce judgment, free of section 151(8) and it was the proper function of contributory negligence to determine how much of that judgment should be awarded to the claimant. In a joined appeal, Lord Justice Waller held that ‘the effect of section 151(8) as a matter of English law must be to exclude from the benefit of insurance a passenger who is the insured but has given permission to an uninsured driver to drive’.⁶¹ As to the compatibility of section 151(8) with EC law, and whether it was necessary to amend or reinterpret the provision, it was decided that it was necessary to refer these questions to the European Court of Justice. Thus it may soon be the case that in these circumstances, insurers will be unable to rely on section 151(8) to avoid liability by circuitry of action.

The insurers are not, however, liable to pay (section 152(1)): unless, before or within seven days after commencement of the proceedings in which the judgment was given, the insurers had notice of the bringing of the proceedings;⁶² so long as an appeal is pending; if the policy was cancelled by mutual consent or by virtue of a term of the policy before the event which gave rise to the claim, and the certificate was surrendered within the time limits set out in the section or the insurers commenced proceedings to recover the certificate. The insurers are also not liable if, in an action begun before, or within three months after the commencement of the proceedings in which the judgment was given on the claim, they have obtained a declaration that, apart from any term of the policy,⁶³ they are entitled to avoid the policy—or have avoided it—because it was obtained by non-disclosure or misrepresentation relating to a material fact (section 152(2)).⁶⁴ In that event, the insurers must give notice to the third party before, or within seven days after taking action, to avoid the policy (section 152(3)), so as to give that person an opportunity to challenge this course of action. What amounts to a ‘material’ fact is specified in the statute as ‘of such a nature as to influence the judgment of a prudent insurer in determining whether he will take the risk, and, if so, at what premium and what conditions’ (section 152(2)). The cases indicate that the courts will treat as material the age of the driver, physical health, previous driving convictions, accidents, and a refusal by an insurer to insure or to renew a policy.⁶⁵

An easier method is provided for the third party by the European Communities (Rights against Insurers) Regulations 2002.⁶⁶ Under these regulations the third party may proceed directly against the insurer without having first obtained judgment against the driver (reg 3(2)). The third party must be ‘an entitled party,’ which means a resident of one of the EEA states (reg 2(1)), and must have a right of action in tort against an insured person (reg 3(1)). That action must have arisen from an accident on a road or public place in the UK that was caused by the use of any vehicle, which is insured according to the requirements of section 145 and is normally based in the UK (reg 2). The regulations do have some disadvantages when compared with an action brought under section 151. Since the effect of the regulations is to put the third party into the same position as the insured with regard to the insurer, defences available to the insurer, which could not be used under section 151, may be available. For instance, where the third party is injured by the deliberate act of the insured, it is clear that the insured—and therefore the third party—has no right of action under the regulations against the insurer, but the third party will have such a right of action under section 151.⁶⁷ Similarly, if the policy has been terminated, but the certificate of insurance is still in the possession of the insured and no proceedings have been commenced for its recovery, the third party will be able to bring an action under section 151, but not under the regulations because there is no contract of insurance.⁶⁸

3.  Car hire

The basic principle regarding the recovery of the cost of hiring a replacement car, as established in Dimond v Lovell,⁶⁹ is that a claimant can only recover the reasonable costs of hiring a replacement vehicle, which would normally be the spot rate for hiring an equivalent car. However, the House of Lords created an exception to this rule in Lagden v O’Connor,⁷⁰ where it was held that damages will be recoverable in circumstances where the claimant is impecunious and could not have afforded to obtain a replacement vehicle without credit hire.

It seems that the rule in Dimond has been further qualified in the recent joined cases of Copley v Lawn and Maden v Haller.⁷¹ These cases deal with the issue of whether a claimant is obliged to accept an offer of a replacement vehicle from the defendant’s insurers or if the claimant is entitled to make their own arrangements. In the first case, Mrs Copley’s car was damaged by the negligence of Mr Lawn. She required a replacement vehicle and so entered into an agreement with Helphire under which she agreed to hire a replacement vehicle at a rate of £39.00 per day while her car was being repaired. Later that same day, Mrs Copley received a telephone call from Mr Lawn’s insurers, offering her a free replacement car. That offer was not accepted; Mrs Copley maintained the agreement with Helphire and then after 71 days, when her car was repaired, sent the bill to Mr Lawn’s insurers. In the second case, Captain Maden’s car was damaged as a result of Mr Haller’s negligence. He was contacted within 24 hours by Mr Haden’s insurers and offered a free replacement car. He chose to ignore this offer and instead hired a replacement car from Helphire at a rate of £156.80 per day for a period of three days. He then sought to recover this sum from Mr Haller’s insurers. In both instances the insurers refused to pay, stating that both Mrs Copley and Captain Maden had failed in their duty to mitigate their loss when they unreasonably rejected the insurers offers of a free replacement vehicle. Both cases were heard by HHJ Langan who dismissed them, upholding the reasoning that refusal of an offer of a ‘free’ car amounted to a failure by the claimants to take reasonable steps to mitigate their loss. The Court of Appeal, however, found in favour of the claimants and stated that only if the insurers had made an offer for a replacement car and made it clear that the cost was less than the claimant was intending to pay could the refusal to accept that offer be a failure to mitigate. In these two cases, the insurers gave no such information regarding cost, so it was not unreasonable for the claimant to reject them.⁷² Although it was not therefore necessary for the Court of Appeal to comment on the consequences of a failure to mitigate, Longmore LJ stated that if it was found that the claimant failed to mitigate, this would not deprive them of all damages because it was clear that they had suffered a loss- the claimant would be able to recover the actual reasonable cost of hire.⁷³

4.  The effect of exclusions in the policy

4.1  Third parties

Where a certificate of insurance has been delivered to the insured, any parts of the policy which purport to restrict the cover of the persons insured ‘by reference to any matters mentioned in [section 148(2)] shall, as respects such liabilities as are required to be covered by a policy under section 145 of this Act, be of no effect’ (section 148(1)). In short, the insurers are constrained as to the restrictions they can place in the policy with regard to cover for liability to third parties, including passengers. If a vehicle is used in a way that means it is not covered by the policy and that restriction does not fall within section 148(1), the insurers will not be liable, and even if the exclusion is within section 148(1) so that the insurers are liable to a third party, they may be able to recoup the payment from the insured if the terms of the policy allow this (section 148(6)).

The restrictions referred to in section 148(1) are (section 148(2)): (a) the age or physical or mental condition of drivers, (b) the condition of the vehicle, (c) the number of passengers the vehicle carries, (d) the weight or physical characteristics of goods the vehicle carries, (e) the times at which or the areas within which the vehicle is used, (f) the horsepower or cylinder capacity or value of the vehicle, and (g) the carrying of any particular apparatus or (h) of any means of identification other than as required under the Vehicle Excise and Registration Act 1994.⁷⁴ In addition, under section 148(5) the insurers cannot avoid their liability to third parties and passengers by making it subject to ‘some specified thing being done or omitted to be done after the happening of the event giving rise to a claim’. So, the requirement in a policy that the insured must notify the insurers of an accident within a particular period of time will not defeat a claim by a third party. The logic of section 148(2) is unclear. Why have these matters been selected as ones for which the insurers should remain responsible, while others have been missed off the list? For example, why are the insurers liable if the car is in unroadworthy condition or is carrying more than the stipulated number of passengers, but not if the accident occurred while the insured, who was covered for social and pleasure use, was driving to a business meeting. If the policy excludes liability for something that does not fall into one of the categories, then the insurers can avoid liability, which means that the motorist becomes uninsured and liability shifts to the Motor Insurers’ Bureau, as will be seen below.