Churchill Insurance Company Ltd v Fitzgerald and Wilkinson; Evans v Cockayne and Equity Claims Ltd [24.08.12]

Court of Appeal confirms that insurers cannot reclaim compensation paid to an injured insured passenger who permitted non-insured driver to drive; s.151(8) of the Road Traffic Act 1988 contravenes Community law.

Comment

This decision confirms that where an insurer is liable to pay compensation in respect of a liability of an uninsured person, its entitlement to recovery under s.151(8) of the Road Traffic Act 1988 (RTA) now contains an exception. Where recovery is sought from a person who is the insured and who is entitled to compensation, "any recovery by the insurer must be proportionate and determined on the basis of the circumstances of the case".

However, the extent to which compensation can be reduced remains unanswered, which is arguably unfortunate.

Background

In Wilkinson, the insured named driver allowed Mr Fitzgerald to drive the car. Mr Fitzgerald lost control of the car and collided with another vehicle, causing Mr Wilkinson to suffer severe injuries. The insurer accepted that, by virtue of s.151(5) of the RTA, it had to compensate Mr Wilkinson as the passenger. However, it argued that under s.151(8) of the RTA, it could reclaim the compensation on the basis that Mr Wilkinson had caused or permitted the use of the vehicle. At first instance, Mr Justice Blair found that s.151(8) of the RTA was in breach of Community law and the insurers were not allowed to reclaim the compensation.

The facts of Evans were essentially the same. Ms Evans allowed Mr Cockayne to drive the motorcycle as an uninsured driver whilst she travelled as a pillion passenger. He drove into the back of a lorry and Ms Evans sustained serious injuries. However, at first instance, the court found that the insurers were allowed to reclaim the compensation under s.151(8) of the RTA.

The Court of Appeal referred the matter to the Court of Justice of the European Union (CJEU) for a preliminary hearing on two key questions:

  1. If s.151(8) is construed so as to exclude an injured insured person from compensation when travelling as a passenger, when he has permitted an uninsured driver to drive the car, would Community law hold such an exclusion void and unenforceable?
  2. If so, can s.151(8) be interpreted in such a way as not to breach Community law?

The CJEU found that Community law must be interpreted as precluding national rules whose effect is to omit automatically the requirement that the insurer should compensate an insured passenger who is injured as a result of giving permission to an uninsured driver. It was irrelevant that the insured driver knew that the driver was uninsured, believed him to be insured or did not consider the question.

With regard to the second question, the CJEU said "it is only in exceptional cases that the amount of compensation may be limited [by national rules]".

Held

The Court of Appeal accepted that when the insured is the injured passenger, the effect of s.151(8) is to limit the extent of insurance cover and as such, has to be consistent with Community law.

The Court held that s.151(8) demands two pre-conditions be fulfilled before the insurer has the right to claim a civil indemnity from the insured. It has to be shown the insured "caused or permitted the use of the vehicle" and that the use "gave rise to the liability". Accepting that further conditions could be added to allow the insurer to exercise the s.151(8) right, the Court accepted that any limit to the right to compensation could only exist in exceptional circumstances and had to be proportionate.

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