The Court of Appeal was asked to consider the preliminary issue of whether a property insurer was entitled to recover from a motor insurer where the damage to the Claimant's premises was a result of a deliberate act by the driver. This required an examination of the proper meaning of s.145 and s.151 of the Road Traffic Act 1988.
It is common ground that there are four preconditions for a third party victim to satisfy, before it is able to recover from a motor insurer under s.151 RTA 1988, namely:
1. That a certificate of insurance has been delivered under s.147.
2. That a judgment is obtained.
3. That the judgment relates to a liability required to be covered by a policy of insurance pursuant to s.145 (which requires the policy to cover "any liability which may be incurred by the [driver] in respect of the death of or bodily injury to any person or damage to property...")
4. That the liability is "covered by the terms of the policy...to which the certificate relates".
The motor insurer, rather simply, argued that because the policy excluded liability for deliberate acts, the liability was not "covered by the terms of the policy" and so the fourth condition was not satisfied.
The property insurer (as ever in the name of its insured, pursuant to its right of subrogation) contended that the purpose of Part VI of the RTA was entirely concerned with protecting victims from the financial consequences of an injury (or property damage), thus, the motor insurer was not freely permitted to insert terms in the policy that served to undercut the minimum terms which ought to ensure the victim's protection.
The property insurer thus argued that the motor insurer's argument fails to give proper meaning to the words "...to which the certificate relates" in the fourth precondition. The certificate must relate to a policy that is certified as satisfying the requirements of the relevant law and therefore, pursuant to s.145 RTA, must cover any liability which may be incurred by the insured - even when engaged in criminal or deliberate acts.
The Court of Appeal was persuaded by the arguments of the motor insurer and held that the property insurer was not able to recover from the motor insurer by reason of the exclusion in the policy. The use of the vehicle was therefore uninsured and so s.151 gave the property insurer no right of recovery directly against the motor insurer.
Normally the Claimant would revert to the MIB to satisfy the claim pursuant to the Uninsured Drivers' Agreement 1999 but as this was a subrogated claim, that right was denied.
The Court of Appeal relied on the fact that it is commonly accepted that there are four preconditions (as above) and that both the third and fourth preconditions must be satisfied before the insurer is liable to pay. If, as the property insurer contended, s.145 were to impact upon the actual policy issued, so as to require every liability which has to be covered pursuant to s.145 to be treated as if it were covered by the policy, then there would be no need for the fourth precondition. All that would be needed to make the motor insurer liable is that the insurer has issued a policy of insurance pursuant to the RTA.
Interestingly, the court considered whether the limitation in the policy in respect of deliberate acts needed to be disclosed on the certificate (as opposed to merely in the body of the terms of the policy wording). The property insurer suggested it should, pursuant to the Motor Vehicles (Third Party Risks) Regulations 1972. The court disagreed and also commented that if the property insurer was correct, it would result in there being no effective policy and so the use of the vehicle would be entirely uninsured and as such, the loss would again fall on the MIB.
Turning to whether the UK regime complied with its European counterpart, the court held that the scheme of the RTA with the MIB arrangements, satisfies the aim and spirit of the legislation to "enable third party victims of accidents caused by vehicles to be compensated for all damage to property and personal injuries sustained by them".
- The judgment confirms that whilst certain exclusions are not permitted in a policy of insurance (see s.148 RTA), the court will allow, in certain circumstances, other exclusions to remain effective. The provisions of the RTA 1988 are therefore not exhaustive.
- However, the court will always make reference to the overarching aim of the legislation – to provide third party victims with compensation - and as such, this case is unlikely to open the floodgates to enable motor insurers to restrict their policy wordings beyond those exclusions which are readily accepted in the industry.
- It will be increasingly important for motor insurers to carefully consider their policy wordings. Without the presence of the deliberate act exclusion in this case for example, the motor insurer would have been liable to the property insurer.
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