Court places limits on insurer's right to recover compensation from drivers

Under Section 151(8) of the Road Traffic Act 1988, insurers liable to pay compensation to injured vehicle owners who are passengers in their own cars, are entitled to recover it where the victim had “caused or permitted the use of the vehicle” which gave rise to the liability.

The “practical effect” of the section, Lord Justice Aikens found last month in Churchill Insurance Company v Fitzgerald & Wilkinson and Ors [2012] EWCA Civ 1166, was that an insured passenger victim of the negligent driving of an uninsured driver they had allowed to drive the vehicle was “excluded, or omitted” from the benefit of compulsory motor insurance.

To counter the effect of the rule, the judge said section 151(8)(b) should be interpreted as “notionally including the words added in bold italics:

Where an insurer becomes liable under this section to pay an amount in respect of a liability of a person who is not insured in a policy … he is entitled to recover the amount from … any person who

…(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.”

Proportionate indemnity

On the new interpretation, the insurer can still claim an indemnity from the ‘insured passenger’ but only to the extent that it is ‘proportionate to do so determined on the basis of the circumstances of the case.’

This seems to lead to more questions than it answers. For example, in what circumstances would it be disproportionate, if at all, for the level of the insurers’ indemnity to equal or even exceed the level of compensation due to the insured passenger? Particularly in the light of European directives and the European Court of Justice’s case law requiring that such a victim should still be compensated (but to what extent?).

The Churchill case was referred to the Luxembourg court before the Court of Appeal gave its ruling. In Paragraph 49 of its decision, the European court said “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 by compulsory insurance against civil liability in respect of the use of motor vehicles solely on the basis of his contribution to the occurrence of the loss which arises. It is only in exceptional circumstances that the amount of compensation may be limited on the basis of an assessment of that particular case”.

The Court of Appeal relied on this paragraph to decide there can be exceptions to the otherwise unfettered compensation (there are exceptions where the car is known to have been stolen) due to the ‘insured passenger’ providing such exceptions are “proportionate and determined on the basis of the circumstances of the case”.

Contribution to loss

However, when considering paragraph 49 and the rest of the European court’s ruling, it appears to be that such an interpretation – of an exception applying – is in the context of the insured passenger’s “contribution to the occurrence of the loss which arises”.

Is it not the case that the negligent driving of an uninsured driver causes the loss and the uninsured passengers “contribution to that loss occurring” can only be in terms of contributory negligence, such as urging the uninsured driver to drive too fast in the circumstances (because the effect of section 151 is only to allocate responsibility for a loss that has already occurred)?

If that is correct then it may be the case that the new interpretation of section 151(8) is limited to arguments by the insurer of what we effectively understand as contributory negligence in determining how much, if any, the uninsured passenger “contributed to the occurrence of the loss”. And surely those arguments will have already been taken into account in determining the level of compensation? To permit them again, for the purposes of determining the level of indemnity the insurer ought to be entitled would, in effect, permit the insurer ‘double recovery’.

Further, it appears to be arguable that the mere act of causing or permitting the uninsured driver to drive did not actually ‘contribute to the occurrence of the loss’. If so, then what is the practical benefit of the Court of Appeal’s interpretation to an insurer?

If that is wrong, and causing or permitting the uninsured driver to drive the vehicle did contribute to the occurrence of the loss ‘for the insurer’, by facilitating the shift in responsibility for that loss to the insurer under section 151, then surely the insured passenger’s actions have contributed to 100 per cent of the loss ‘for that insurer’?

On that analysis it appears to be an all or nothing ‘contribution to the loss that occurred.’ If that is correct where does that leave the Court of Appeal’s interpretation and how is a court to decide what is ‘proportionate?’