Supreme Court: Motor insurer not liable for fire damage caused by policyholder repairing vehicle
Legal Development27 March 201927 March 2019
UK & Europe
Insurance & Reinsurance
The Supreme Court has held that vehicle repairs on private property are not considered 'use' of the vehicle for the purposes of the Road Traffic Act. Therefore, any third party property damage caused by negligent repairs in these circumstances will not be covered by the motor insurance policy.
Mr Holden owned a vehicle insured by UK Insurance Limited ("UKI").
Clause 1a of the UKI policy stated that "We will cover you for your legal responsibility if you have an accident in your vehicle and you kill or injure someone [or] you damage their property".
The policy was required to satisfy the relevant legislation, including S145(3) of the Road Traffic Act ("RTA"). The RTA states that policies must provide cover "in respect of any liability incurred… in respect of… damage to property caused by, or arising out of, the use of the vehicle on the road or other public place."
Mr Holden was employed as a mechanical fitter employed by the appellants trading as Phoenix Engineering (“Phoenix”). He asked Phoenix if he could carry out repair work on his vehicle needed to pass its MOT. As part of the repair works, he had to move the vehicle inside Phoenix's premises and then start to use welding tools.
Whilst welding, Mr Holden answered a phone call, then saw flames inside the car. It was found that sparks from the welding had ignited flammable material inside the car. The fire spread to other flammable materials outside of the vehicle, taking hold and causing substantial damage to Phoenix’s and adjoining premises.
Phoenix was insured by AXA against property damage and public liability. AXA paid in excess of £2 million to repair and reinstate the damage caused. They pursued a subrogated action in Phoenix's name against Mr Holden.
UKI sought a declaration that they were not liable to indemnify Mr Holden for the claim. AXA / Phoenix counterclaimed for such an indemnity.
Court of Appeal
The High Court granted the declaration sought by UKI. Phoenix appealed.
The Court of Appeal held that Clause 1a of the policy was inadequate and did not satisfy the requirements of the RTA. They construed Clause 1a to mean "We will cover you for your legal responsibility if there is an accident involving your vehicle," thus covering repairs which were commonplace for drivers.
The Master of the Rolls also held that the repairs amounted to 'use' under s145(3), as this was consistent with the recent ECJ jurisprudence and the objective of the Motor Insurance Directive.
The Court of Appeal overturned the decision of the High Court and granted AXA the indemnity sought. UKI appealed to the Supreme Court.
The Supreme Court unanimously granted the appeal, Lord Hodge giving the only judgment:
The policy should be construed to satisfy the requirements of the RTA, however, the analysis undertaken by the Court of Appeal was excessive. The necessary interpretation was to extend the cover to that required by the RTA, and no more
Taking this into account, Lord Hodge stated the corrective interpretation of Clause 1a was "we will cover you for your legal responsibility if you have an accident in your vehicle or if there is an accident caused by or arising out of your use of your vehicle on a road or other public place."
Whilst recent ECJ jurisprudence has expanded the concept of 'use' of vehicles to include accidents on private property, national legislation still applies. The Court could not disapply the requirement under the RTA that the repair of the vehicle must have been on a road or other public place
Furthermore, in considering the phrase 'arising out of the use of the vehicle', it was apparent that the fire was not caused by the use of the vehicle. Whilst previous use may have prompted the repairs, the operating cause of the fire was "Mr Holden's alleged negligence in carrying out the repair."
It was Lord Hodge's judgment that the accident did not fall within the corrective interpretation of Clause 1a, and therefore, UKI were entitled to the declaration that they were not liable to indemnity Mr Holden for the claim
What can we learn?
This decision will be welcomed by motor insurers as it offers clear guidance "that the carrying out of significant repairs to a vehicle on private property" is not 'use' within the context of the RTA
The judgment makes clear the limitation to roads or other public places still apply when UK Courts are required to consider the concept of 'use'. However, Lord Hodge did make clear that the recent ECJ decisions such as Vnuk do "demonstrate a need for Parliament to reconsider the wording of section 145(3)(a) of the RTA to comply with the Directive."
When addressing recent ECJ jurisprudence on 'use', Lord Hodge made clear that he was not "persuaded that a vehicle which is on its side being repaired on private property, such as a garage, is being used as a means of transport"
This interpretation appears consistent with the recent Advocate General opinion on the matter of Linea Directa. In this AG opinion, it was summarised that the failure of an electrical system used consistently as part of the vehicle's transport functions was causative of third party property damage, and was deemed to be 'use'. The motor insurer in Linea Directa would therefore be expected to indemnify the driver for the third party subrogated action – the very indemnity sought by AXA in Phoenix
However, there is a clear distinction in the circumstances of the fires, Linea Directa caused by an internal electric fault, and Phoenix caused by the negligent welding. Therefore, it could be argued that even if the RTA was correctly transposed and fully compliant with the Directive, that UKI's appeal would have been successful in any event.