But what happens when the person who caused or permitted the use of the vehicle is in fact the person seeking compensation? Should the insurer be obliged to pay out and forgo its right of recovery? The Court of Appeal has provided a much anticipated judgment on this question, ruling in favour of the insurers.
The court agreed to read into s.151(8) a test of proportionality so that it was not an automatic refusal (which would not have been permitted under the EC Motor Insurance Directive) to compensate an injured passenger.
On referral by the Court of Appeal in 2011, the European Court of Justice (ECJ) decided that "national rules formulated in terms of general and abstract criteria, may not refuse or restrict to a disproportionate extent the compensation to be made available to a passenger..." This is consistent with European law generally, which does not like 'blanket' approaches.
The matter was returned to the Court of Appeal to decide first, whether s.151(8) can be interpreted in a way that makes it compatible with the EC Motor Insurance Directive and the view of the ECJ, and secondly, if so, how the section should be interpreted. The second question was the crux.
The Claimants argued that s.151(8) should be read as follows,
with the bold wording being proposed:
"s.151(8) Where an insurer becomes liable under this section
to pay an amount ... he is entitled to recover the amount from that
... or ...any person, not being a person entitled to the
benefit of a judgment to which this section refers, who
-
(a) is insured by the policy...by the terms of which the liability would be covered if the policy insured all persons...and
(b) caused or permitted the use of the vehicle which
gave rise to the liability."
The Insurers argued that s.151(8) should be read with alternative
wording, highlighted in bold as follows:
" ...
(b) caused or permitted the use of the vehicle which
gave rise to the liability, save that,
where the person insured by the policy may be entitled to
the benefit of any judgment to which this section refers, any
recovery by the insurer in respect of that judgment must be
proportionate and determined on the basis of the circumstances of
the case."
The insurers' interpretation of s.151(8) thus
meant that a 'recovery' (in practice, a refusal to pay such
a claimant in the first place) could be made if proportionate; the
Claimants' version would not have allowed a recovery.
The insurers' approach was accepted by the Court of Appeal
so as to notionally introduce into the section a test of
proportionality based upon the particular facts of the case.
It follows that, in certain circumstances, an insurer will be
allowed to seek a recovery from a policyholder who is injured
whilst travelling as a passenger when the driver is
uninsured. The difficulty however is that the court did not
provide any guidance on what facts would be required before it
would be deemed 'proportionate' for the insurer to rely
upon s.151(8) to recover as against a
policyholder.
Practical Implications
- Whilst this judgment avoids what would have been bad news for insurers, to a certain extent it leaves a lot of unanswered questions which will have to be determined in future judicial decisions. It is in many respects a somewhat artificial and unsatisfactory workaround aimed at meeting Europe's dislike of blanket prohibitions in national legislation.
- Indeed, the judgment is somewhat of a sticking plaster over the fact that the UK compulsory insurance regime does not neatly fit with the EC Motor Insurance Directive, which is inevitably geared to the rest of Europe where the object of the insurance is the vehicle as opposed to the individual.
- It will be increasingly important to review the circumstances of each case from a very early stage to ensure that evidence is gathered not only in respect of liability but also in respect of the policyholder's role in granting permission to an uninsured driver to use the vehicle – addressing the new, so-called 'proportionality' rule.
- No doubt, aggravating factors, such as the policyholder actively encouraging the uninsured driver to use the vehicle, will become key to the question of whether it would be proportionate to deny compensation.
- Insurers may become increasingly active in seeking criminal prosecutions against policyholders for permitting the use of the vehicle, to assist in demonstrating that on the facts, compensation should be denied.
- Similar tests of proportionality are applied in Europe to determine whether passengers should be entitled to compensation where they were aware that the driver of the vehicle was under the influence of drink and / or drugs and therefore, the courts are likely to have one eye on European decisions to assist in interpreting the new notional test.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
