R&S Pilling (T/A Phoenix Engineering) v UK Insurance Ltd

Yesterday, the Supreme Court – in the course of resolving a coverage dispute between a property damage insurer and a motor insurer – has provided welcomed clarity about the circumstances in which a liability may properly be described as having arisen out of the ‘use’ of a vehicle, pursuant to s. 145(3)(a) of the Road Traffic Act 1988 (RTA).

The facts of the caseOn Saturday 12 June 2010, a mechanical fitter employed by Phoenix was working at its premises when he obtained permission to use the premises to carry out repairs to his own vehicle. The car was immobilised in order to carry out the repairs but unfortunately sparks from the welding equipment used for the repairs ignited material inside the car resulting in a fire taking hold and causing substantial property damage.

Phoenix’s property insurer paid out over £2m in respect of the fire damage, following which it brought a subrogated claim against the fitter, Mr. Holden. His only possible cover available to meet the subrogated claim was his motor insurance policy underwritten by UK Insurance (‘UKI’).

Phoenix’s insurer undertook to reclaim only such sums as could be recovered from the insurer rather than from Mr. Holden personally. UKI then commenced proceedings seeking a declaration that it was not, under the terms of its motor policy, liable to indemnify Mr. Holden in respect of the damage arising out of his negligent repair of the insured vehicle. Phoenix’s property insurer counterclaimed for an indemnity in respect of its subrogated claim.

The dispute turned on whether the fire damage – the claim for which was over £2m – due to negligent welding on an immobilised vehicle undergoing repair in a commercial garage, arose out of the ‘use’ of that vehicle? If it did, that would require the motor insurance policy to respond to the subrogated claim.

The decision of the Supreme CourtThe Supreme Court unanimously held that neither domestic case law nor the jurisprudence of the Court of Justice of the European Union (CJEU) supports the view that the carrying out of significant repairs to a vehicle on private property entailed the “use” of that vehicle for compulsory motor insurance purposes.

While the statutory term “use” had been interpreted broadly, such that it extended beyond mere driving, the Court held that “use” required that “the [user] has an element of control, management or operation of the vehicle while it is on the road [or other public place]: Brown v Roberts [1965] 1 QB 1”. Additionally, the language of s145 of the RTA requires insurance against “any liability … 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”. This provision mandates a causal link between the use of the vehicle and damage resulting from that use, such that there must be reasonable limits to the chain of causation.

The Supreme Court, endorsing the High Court’s reasoning and overturning that of the Court of Appeal, found that on the facts of this case that “the causal connection is too remote … it was Mr Holden’s alleged negligence in carrying out the repairs and not the prior use of the car as a means of transport which caused the relevant damage.”

Both the High Court and the Court of Appeal held that the wording of the particular motor policy necessitated the reading of additional words into its insuring clause. The Supreme Court agreed, but held that the proper construction of the policy wording in order to comply with s. 145(3)(a) RTA 1988 required adding only “that which is needed to make the cover comply with the RTA and no more.” The Court of Appeal had erred in going much further and deciding, incorrectly, that the motor policy should respond to the subrogated claim.

Although the court acknowledged that recent case law from the CJEU – notably Vnuk [C–162/13] and Rodrigues de Andrade [C–514/16] – demonstrated the need for Parliament to reconsider the wording of section 145(3)(a) of the RTA 1988 to comply with the European Motor Insurance Directive [2009/103/EC], it held – in accordance with one of the CJEU’s other recent cases, Smith v Meade [C–122/17] – that EU law did not require a national court to disapply domestic law (and the terms of an insurance policy which complied with it) in circumstances where it was unable to interpret that domestic law in a manner that was compatible with the Directive.

On that basis, it was the domestic cover required by the RTA 1988, rather than the extended scope of motor insurance which the European judgments now require when interpreting the Directive, which was to be read into the UKI motor policy under consideration. The relevant “use” that the RTA requires to be covered, therefore, was and remains – unless and until it is expressly amended* – use of a vehicle “on a road or other public place”.

* On which point the Department for Transport has already conceded, in the Roadpeace judicial review [2017] EWHC 2725 (Admin) that the “road or other public place limitation” in the RTA is incompatible with the Directive and will need to be amended. It is notable that the judge in that case, decided before the CJEU case Smith v Meade, was aware that the same point was live in the UKI case: “There had already been a finding that s145 RTA 1988 was not compatible with the Directive in UK Insurance Ltd v Holden [2016] EWHC 264 QB. This was because of the limitation to use of a vehicle on a road or other public place.”