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Churchill Insurance Company v Fitzgerald & Anor: Evans v Cockayne & Anor, Court of Appeal, 24 August 2012

28 September 2012
The issues

Compulsory road traffic insurance – permitted driver – uninsured driver – recovery from insured – whether Road Traffic Act 1988 Section 151 compatible with European law.

The facts

The same issue arose in both appeals.

Where a person insured to drive a car is a passenger in a car which he has allowed to be driven by a non-insured driver and the passenger is injured through the negligence of the uninsured driver, then by Section 151(4) Road Traffic Act (RTA) 1988 the insurer is bound to compensate the passenger. The question was whether the insurers were entitled to reclaim that compensation from the passenger as the insured under Section 151(8) or by virtue of the terms of the policy. In the Evans case, the decision went in favour of the insurers. In the Churchill case, the decision went against the insurers. In the conjoined appeals the question was which decision was right.

The effect of Section 151(8) RTA 1988 had to be to exclude from the benefit of insurance a passenger who was the insured but had given permission to an uninsured driver to drive. Permission, the Court of Appeal had held in Lloyd Wolper v Moore, did not cease to be permission for the purposes of the statute because in good faith the person giving it believed that the person to whom it was given was covered by the policy when in fact the person was not. The Road Traffic Act sought to give effect to the United Kingdom’s obligations under community law. In relation to the impact of community law, the question came down to this. If Section 151(8) was construed so as to exclude an injured insured person from a remedy when travelling as a passenger whom he or she had permitted to be driven by an uninsured driver, would community law hold such an exclusion as void and unenforceable? If so, could Section 151(8) be interpreted so as not to breach community law? In the light of the various authorities it had been thought appropriate to refer the question to the Court of Justice of the European Union.

There were two relevant European cases: Candolin and Lavrador

The Court of Justice of the European Union had given its opinion to the effect that the directives had to be interpreted as precluding national rules, the effect of which were to omit automatically the requirement that the insurer should compensate a passenger who was a victim of a road traffic accident. This was so, even when that accident was caused by a driver not insured under the insurance policy and when the victim, who was a passenger in the vehicle at the time of the accident, was insured to drive the vehicle himself and he had given permission to the uninsured driver to drive it.

A second question had been posed to the Court of Justice of the European Union by the Court of Appeal, namely, whether the answer to the first question would be different if in fact a) the insured victim was aware that the person to whom he gave permission to drive the vehicle was not in fact insured to do so, or b) the insured victim believed he was insured to do so, or c) the insured victim did not turn his mind to that question. The answer was that it made no difference in any of those cases. The court however qualified that answer by stating that a national court was entitled to consider those questions in the context of its national rules on civil liability, provided that the exercise of powers under those rules was in compliance with EU law as laid down in the directives and that the national law did not deprive those directives of their effectiveness. It summarised its views as follows:

“Accordingly, 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 the 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 decision

There were two relevant European cases: Candolin and Lavrador. Candolin involved a road traffic accident in Finland. The driver and three passengers were all drunk. The driver was sentenced to imprisonment after conviction by the District Court of driving whilst drunk and was ordered to pay compensation to the daughter of one of the passengers killed in the accident. The District Court took the view that the passenger should have noticed that the driver was drunk. Relevant Finnish law provided that if a passenger knew or should have known that the driver had an alcohol level above a stipulated limit, then if the passenger was injured, compensation would only be paid insofar as there was a special reason for doing so. The European Court of Justice (CJEU) said that the purpose of the directives was not to harmonise the rules of Member States concerning civil liability and that Member States were free to decide their own rules in such questions. They had however to be compliant with the directive and they must not deprive the directives of their effectiveness. It would be only in exceptional circumstances that the amount of the victim’s compensation could be limited and it would depend on an assessment of the particular case. It was for a national court to determine whether those circumstances existed and whether any limit to compensation imposed was proportionate. The fact that the passenger concerned was the owner of the vehicle, the driver of which caused the accident, was irrelevant.

In Lavrador, the claimant’s young son was riding his bike on the wrong side of the road and was killed when he was hit by a car being driven carefully. The claim was dismissed by the Portuguese court, applying a national law which had the effect of excluding or limiting the right of an accident victim to claim compensation when the injured person’s fault had contributed to the accident. The CJEU was asked for a preliminary opinion by the Portuguese Supreme Court. It noted that there was a distinction between the obligation to provide insurance cover against civil liability for damage caused to third parties by motor vehicles and the extent of the compensation to be afforded to third parties on the basis of the civil liability of the insured person. The former was defined and guaranteed by European legislation. The latter was governed by national law. They repeated the views they had expressed in Candolin that the directive did not seek to harmonise the rules of Member States concerning civil liability. Member States are “free to determine the rules of civil liability applicable to road accidents”. They again drew a distinction between European law, obliging insurance compatible with the directives and national law or between rules which were disproportionate, general and abstract as against rules which limited compensation in respect of the specific facts of a particular case. It distinguished between a limitation of cover and a limitation of liability.

In this case it had to be decided how to interpret Section 151(8) of the Road Traffic Act 1988. Section 151(8) granted to a compulsory motor insurer who had to satisfy a judgment of Section 151(5), the right to recoup his payment from either the uninjured person who created the liability or an insured person who caused or permitted the use of the vehicle which gave rise to the liability. Was Section 151(8) a national rule governing civil liability or a national rule concerning the extent to which the insured could benefit from compulsory motor insurer cover? The Court of Appeal took the view that there was an element of both in the provision. It had to be interpreted in a manner consistent with the interpretation of Articles 12(1) and 13(1) of the 2009 directive given by the CJEU in this case. In a case where an insured passenger victim either caused or permitted the uninsured driver to use the vehicle which gave rise to the liability that the insurer had had to meet under Section 151(5), then Section 151(8) was in the terms of the CJEU’s judgment, a right based on the insured passenger’s victims ‘contribution’ to the ‘occurrence of the loss’. Section 151(8) should be interpreted in a manner which both retained the ability of an insurer to utilise its right to obtain an indemnity from the insured when he was not a passenger victim and so did not affect his right to compensation through compulsory motor insurance, but also ensured that in the case of the insured passenger victim, that it complied with the restrictions envisaged in the CJEU’s opinion. The court preferred the interpretation advanced by the insurers and would interpret Section 151(8)(b) as notionally including the words added in 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 the 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.”

It followed therefore that the appeal from the judgment in the Churchill case had to be allowed to the extent that the judge’s declaration that Churchill did not have the right to recover could not stand. It also followed that the order made by Judge Gregory in the Evans case could not stand insofar as that he ordered that equity was entitled to withhold any sum ordered to pay Ms Evans.

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