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

The Supreme Court considered the proper construction of a motor insurance policy in the light of the Road Traffic Act 1988 (in particular section 145(3)(a)) and the EU Motor Insurance Directive. The court rejected an argument that the certificate of motor insurance operates as a separate strand of cover distinct from the insuring clause and held that, where necessary, a limited corrective construction may be read into the insuring clause to ensure it satisfies statutory compulsory insurance requirements. The Court confined that corrective construction to the minimum words required by section 145(3)(a) rather than the broader formulation adopted by the Court of Appeal. Applying the statutory test of damage "caused by, or arising out of, the use of the vehicle on a road or other public place", the court held that substantial repairs carried out on private premises did not amount to the use of the vehicle for those purposes and that the causal connection to the fire was too remote. The appeal was allowed and a declaration was given that the insurer was not liable to indemnify.

Background and parties:

• Mr Holden, an employee of Phoenix, carried out substantial welding repairs to his car while it was on its side in his employer's premises. Sparks ignited material in the car and nearby mats and caused a fire which damaged Phoenix's and adjoining premises.
• AXA (Phoenix's insurer) paid over £2m and brought a subrogated claim against Mr Holden. Mr Holden's motor insurer was UKI; the dispute between AXA and UKI concerned whether UKI's policy covered the third party loss.

Procedural history:

• High Court (Judge Waksman QC) ([2016] EWHC 264 (QB)): declared UKI was not liable, holding that the fire arose from negligent repair and that repair was not the "use" of the vehicle for the purposes of section 145(3)(a) of the Road Traffic Act 1988.
• Court of Appeal ([2017] EWCA Civ 259): allowed Phoenix's appeal, read the policy to meet the statutory requirements by a broad corrective construction and concluded that the repairs fell within the statutory concept of "use".
• Supreme Court ([2019] UKSC 16): allowed UKI's appeal.

Nature of the claim and issues before the Supreme Court:

• The claim concerned a declaration whether the motor insurer (UKI) was obliged to indemnify the insured for property damage caused while the insured was repairing his vehicle on private premises.
• Main issues: (i) whether the certificate of motor insurance operates as a separate strand of cover distinct from the insuring clause; (ii) whether words should be read into the insuring clause to satisfy section 145(3)(a) RTA and, if so, what those words should be; and (iii) whether the facts satisfied the statutory test that the damage was "caused by, or arising out of, the use of the vehicle on a road or other public place".

Court's reasoning and conclusion:

• The court rejected the "two strands" argument: the certificate is evidence of compliance with the RTA but does not itself create a separate, free-standing insuring obligation distinct from the policy.
• The court held that, because the policy must meet the statutory requirement, a corrective construction is permissible where it is clear that the language failed to express the required terms; but that correction must be the minimum needed to comply with the statute. The appropriate addition to clause 1a was limited to words that brought the clause into line with section 145(3)(a): essentially cover for accidents caused by or arising out of the use of the vehicle on a road or other public place.
• The court considered CJEU jurisprudence on the Directive but held national legislation governs private contractual disputes where national law has not been amended; the court could not read down section 145(3)(a) to match the broader EU interpretation.
• Applying the corrected clause and the statutory test, the Court found the repairs on private premises did not amount to the "use" of the vehicle on a road or other public place and that the causal chain to the fire was too remote. Therefore UKI was not liable to indemnify.

Subsidiary findings: the decision rejects applying contra proferentem or consumer-terms rules to justify a broader corrective construction; Commonwealth authorities with different statutory wording were not persuasive; the court emphasised that corrective construction is available only where the intended meaning is clear.

Appeal allowed. The Supreme Court held that the certificate of motor insurance does not operate as a separate strand of cover; a limited corrective construction may be read into the insuring clause to the minimum extent necessary to satisfy section 145(3)(a) of the Road Traffic Act 1988, but the Court of Appeal had gone further than necessary. The facts fell outside the statutory requirement because the repairs on private premises did not constitute the "use" of the vehicle on a road or other public place and the causal connection to the damage was too remote; accordingly the insurer was not liable to indemnify.

High Court (QBD) Judgment: Judge Waksman QC [2016] EWHC 264 (QB) — declaration for UKI. Court of Appeal: [2017] EWCA Civ 259 — allowed Phoenix's appeal. Supreme Court: [2019] UKSC 16 — allowed UKI's appeal.