UK Insurance Ltd v R&S Pilling (t/a Phoenix Engineering)

Third-party motor insurance cover is not confined to accidents occurring while the vehicle is being driven. Where the policy wording and certificate are read together, the statutory requirements in Road Traffic Act 1988 section 145(3) extend, rather than restrict, the express contractual cover.

For those purposes, use includes activity consistent with a vehicle’s normal function. A vehicle may be used while parked or immobilised. Prompt repairs intended to restore a car to a safe and lawful roadworthy condition can therefore be use, even on private premises. Damage may arise out of use where it is consequential and the use is a relevant causal contribution. Different issues may arise where the car has been unused for a substantial period, the work is reconstruction, or there is no near-future intention to drive it.

The appeal concerned third-party motor cover for a fire caused while Mr Holden, an employee, welded plates to his MOT-failed car at his employer’s premises. Sparks ignited materials in the car and nearby premises. Phoenix’s insurer paid the property losses and pursued Holden’s rights against UK Insurance.

UK Insurance sought a declaration of non-liability in the London Mercantile Court. Phoenix counterclaimed. The High Court judge held that the policy did not respond and, by an order dated 8 April 2016, declared UK Insurance not liable. The central issues were the construction of clause 1a, its interaction with section 145 of the Road Traffic Act 1988 and Directive 2009/103/EC, and whether repair work constituted use of the vehicle or damage arising out of that use.

1. The appeal was allowed. Sir Terence Etherton MR rejected the argument that clause 1a covered only an accident occurring while Mr Holden was personally in the car. The defective wording should be read as referring to an accident involving the vehicle.
2. The booklet and certificate formed one policy. The certificate’s statement that the policy satisfied the relevant law extended cover, by necessary implication, to matters required by section 145(3) of the Road Traffic Act 1988. It did not narrow the express contractual cover. The policy also contained broader cover than the statutory minimum in geographical scope and property-damage limits, while section 145(3) required cover for some deliberate conduct which clause 1a did not expressly mention.
3. On the proper construction of the policy, the fire was covered. The car had been driven to the premises after failing its MOT, the repairs were intended to restore it to a safe and roadworthy condition, and the accident occurred by virtue of and during those repairs. The court recognised that different questions could arise where a car had not been driven for months or years, the work was reconstruction rather than repair, or the vehicle was not intended for use in the immediate or near future.
4. Section 145(3) had to be interpreted, so far as possible, consistently with the Directive. Applying Vodafone 2 v Revenue and Customs Commissioners [2009] EWCA Civ 446; [2010] Ch 77 and Vnuk v Zavarovalnica Triglav D.D [2016] RTR 188, use was not confined to driving or actual operation. It could occur while a vehicle was parked or immobilised and included anything consistent with its normal function.
5. The court adopted the causal distinction illustrated by Dunthorne v Bentley [1999] Lloyd’s Rep IR 560: damage may arise out of use even where it is consequential rather than immediate, provided the use is a relevant causal contribution and not merely fortuitous. Repairing a car that had been driven but was unsafe or unlawful to drive, with the intention of promptly restoring lawful and safe use, was therefore use within section 145(3)(a). Alternatively, the resulting damage arose out of that use.
6. Beatson LJ agreed with both judgments. Henderson LJ agreed with the Master of the Rolls and added that Commonwealth authorities supported a relatively broad approach to vehicle use, although those observations were unnecessary to the result. The High Court declaration was set aside and the counterclaim succeeded.

• Court of Appeal (Civil Division): Appeal allowed. The High Court declaration was set aside and the policy was held to respond to the relevant liability.
• High Court of Justice, Queen’s Bench Division, London Mercantile Court: Following a judgment dated 19 February 2016, an order dated 8 April 2016 declared that UK Insurance was not liable to indemnify Mr Holden and dismissed Phoenix’s counterclaim.