As Clarke LJ put it at the start of his judgment: "This is another chapter in the long running saga of disputes between insurers about liability to indemnify claimants in respect of the cost of hiring replacement vehicles whilst their cars are being repaired following a road traffic accident". This case was unusual in that the claimant (innocent) driver had taken out two insurance policies with the same insurer, covering different periods of hire of a replacement car. Much of the case concerned an appeal from that factual finding, but of more general interest is the further issue of whether this was a case of double insurance.
When he had hired the replacement car, the claimant had taken out free insurance covering him in respect of legal expenses and replacement vehicle charges. Clause 4.9 of that policy had excluded "any claims that You are indemnified for under any other policy of insurance". The judge found, on the facts, that the second policy contained the same exclusion. It was held at first instance that the claim was made on the basis of a single insurance policy and since there was also cover under a second policy, clause 4.9 was engaged, so that in respect of the second hire period there was, by virtue of that clause, no cover under the first policy even if the cover under the first policy extended as a matter of construction to the whole period of hire.
The Court of Appeal held that the judge had been wrong. The insurer had been subrogated to the claimant's rights under both policies, not one. It also found that Clause 4.9 covered claims for which the second policy provided an indemnity according to its terms, whether or not the insurers had actually paid out. Further, following the finding in Weddell v Road Transport and General Ins Co, since Clause 4.9 was included in both policies, they should be treated as cancelling each other out, in order to ensure that the claimant was not left without cover. It made no difference that the same insurer was involved here.
The Court of Appeal also applied the decision of the Privy Council in King v Victoria Insurance , which held that insurers are entitled to be subrogated to the insured's rights where they pay a claim in good faith and honestly, and the tortfeasor cannot argue that there is no subrogation because the claim did not actually fall within the terms of the policy. The Court of Appeal confirmed that the fact that an insurer does not seek to rely on a policy exclusion does "not mean that the sums paid were not to be regarded as the fruits of the insurance or that the tortfeasor could take them".
Even if the insurer ought to have relied on the exclusion, it still paid the claimant under the policy and so any damages recovered by the claimant would have to be held on trust for the insurer, because the policy had contained a clause requiring the claimant "to hold all damages … recovered subject to a charge in Our favour in respect of all sums which We have paid out or which We have incurred a liability under this Policy" (emphasis added). Thus, the claimant would be bound to repay the payment of hire charges, whether or not the insurer had made a good faith payment under the insurance policy, so that there would be no double recovery.
COMMENT: There has been some textbook discussion as to whether rights of subrogation arise following an ex gratia payment by an insurer (ie where the insurer pays even though it was under no legal obligation to do so). As mentioned above, King v Victoria is authority for the proposition that subrogation arises so long as the payment by the insurer was made in good faith. However, Butler & Merkin's Reinsurance Law (para C-0372) has suggested that, rather than being an issue of subrogation, it can instead be argued (relying on the case of Hunt v Severs ) that an implied trust arises over any recovered damages where an insurer has paid the insured (provided that there is no public policy ground for the refusal of a trust). In this case, the Court of Appeal did not need to find an implied trust, because an express one was provided for in the policy. It was clearly prepared, however, to accept the approach adopted in King v Victoria Insurance.