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

Cite as:[2019] UKSC 16
Hand-down Date:March 27, 2019
 
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Hilary Term [2019] UKSC 16 On appeal from: [2017] EWCA Civ 259

JUDGMENT

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

Lady Hale, President Lord Wilson

Lord Hodge Lady Arden Lord Kitchin JUDGMENT GIVEN ON 27 March 2019 Heard on 13 December 2018 Appellant Respondent Graham Eklund QC

Colin Edelman QC Richard Harrison (Instructed by DAC Beachcroft LLP) Patrick Vincent

(Instructed by Keoghs LLP)

LORD HODGE: (with whom Lady Hale, Lord Wilson, Lady Arden and Lord Kitchin agree)

  1. This appeal is concerned with the interpretation of a policy of motor insurance. The question is whether the policy confers on the insured owner of a vehicle an indemnity against liability for damage caused to the property of a third party which was caused by his acts when he was carrying out substantial repairs to his car in the commercial premises of his employer. The appeal also raises questions about the meaning of the phrase, "damage ... caused by, or arising out of, the use of the vehicle on a road or other public place" in section 145 of the Road Traffic Act 1988, which defines the compulsory insurance requirements for the use of vehicles on such places.

    The factual background

  2. The facts behind this appeal can be stated briefly. In 2010 Mr Thomas Holden was a mechanical fitter employed by the appellants, R & S Pilling, who traded as Phoenix Engineering ("Phoenix"). He was the owner of a car and held a motor insurance policy ("the Policy") with the respondents ("UKI"). On 11 June 2010 Mr Holden's car failed its MOT because of corrosion to its underside. On the following day, he asked his employer, Phoenix, if he could use the loading bay in its premises to carry out work on his car in the hope that he could enable it to pass its MOT. He intended to weld some plates onto the underside of the car to deal with the corrosion. His employer agreed.

  3. He disconnected his car battery to make sure there were no live circuits. He then used a fork-lift truck to lift the car onto the driver's side to gain access to the underside of the vehicle. He first used a grinder to prepare the underside for welding and then welded a plate under the driver's side. He then re-connected the battery, started the car and moved it round the other way before again disconnecting the battery, and lifting it up to expose the underside on the passenger's side of the vehicle. He started welding but then stood up to answer a phone call. When he did so, he saw flames inside the car: sparks from the welding had ignited flammable material inside the car, including the seat covers. As the fire spread, it set alight some rubber mats which were lying close to the car. The fire then took hold in Phoenix's premises and in adjoining premises and caused substantial damage before it was put out.

  4. Phoenix was insured against property damage and public liability by AXA which had to pay out over £2m to Phoenix and the owner of the adjoining premises.

    Page 2

    AXA made a subrogated claim in Phoenix's name against Mr Holden. Mr Holden's only insurance policy which arguably might cover Phoenix's claim ("the claim") is the Policy. As a result, UKI brought an action seeking a declaration that it is not liable to indemnify Mr Holden against the claim, and AXA, denying this, counterclaimed for an indemnity. Mr Holden was named as first defendant in the action but has taken no part in the proceedings because he is not at risk: AXA has undertaken to limit its recovery to such sum, if any, as it can obtain from UKI.

  5. The real dispute is therefore between the two insurance companies. At its simplest, UKI says that the Policy does not respond to third party claims involving the car while the car is being repaired on private premises, such as Phoenix's garage. Phoenix contends that the Policy covers accidents involving the car off-road and that in any event the repair of the car can properly be described either as the use of it, or as arising out of its use, on a road or other public place. The question is the correct interpretation of the Policy against the background of domestic and EU legislation which imposes compulsory third party insurance in respect of motor vehicles.

    The motor insurance policy

  6. The documents which are relevant to Mr Holden's insurance cover are (a) the policy set out in UKI's policy booklet, (b) the certificate of motor insurance ("the certificate"), (c) the motor insurance schedule ("the schedule") and (d) the motor proposal confirmation ("the confirmation"). The policy booklet instructed the insured that he must read the four documents as a whole.

  7. The policy booklet set out in section A the insurance cover in relation to the insured's liability to other people. It provided in clause 1a:

    "Cover for you

    We will cover you for your legal responsibility if you have an accident in your vehicle and:

     you kill or injure someone;

     you damage their property; or

     you damage their vehicle."

    Page 3

    Clause 2 provided the following cover for other people:

    "We will also provide the cover under section 1a for:

     anyone insured by this policy to drive your vehicle, as long as they have your permission;

     anyone you allow to use but not drive your vehicle, for social or domestic purposes;

     anyone who is in or getting into or out of your vehicle;

    ..."

    The booklet listed what was not covered under section A, including liability for more than £20m for any claim or series of claims for loss of or damage to property, and also liability caused by acts of terrorism, unless such cover was compulsory under the Road Traffic Acts.

  8. The booklet contained general exceptions and stated:

    "1. Who uses your vehicle

    We will not cover any injury, loss or damage which takes place while your vehicle is being:

     driven or used by anyone not allowed to drive it, or used for any purpose not allowed by the Certificate of Motor Insurance or Schedule; or

     driven by someone who does not have a valid driving licence or is breaking the conditions of their driving licence.

    This exception does not apply if your vehicle is:

    Page 4

     with a member of the motor trade for maintenance or repair;

     stolen or taken away without your permission; or

     being parked by an employee of a hotel, restaurant or car parking service."

    The general exceptions also excluded damage caused by war etc "unless we have to provide cover under the Road Traffic Acts".

  9. The certificate identified Mr Holden as the policy holder and specified the use limitations as "use for social, domestic and pleasure purposes". It also contained a certificate of the Chief Executive of the insurers in these terms:

    "I hereby certify that the Policy to which this Certificate relates satisfies the requirements of the relevant law applicable in Great Britain and Northern Ireland, the Republic of Ireland, the Isle of Man, the Island of Guernsey, the Island of Jersey and the Island of Alderney."

  10. The motor insurance schedule specified among other things the sections of the booklet which applied to the Policy and the details of the car. The confirmation, which has no bearing on this appeal, set out in summary form details of the policy holder, the Policy, the car and method of payment of premium.

    The context of compulsory insurance

    i) Domestic provision: the Road Traffic Act 1988

  11. It has, since 1930, been a statutory requirement that a driver has third party liability insurance in respect of the use of his or her vehicle on the road and it is a criminal offence if one does not. The current statute is the Road Traffic Act 1988 ("the RTA"). Section 143 of the RTA provides that it is an offence to use a motor vehicle on a road or other public place unless there is in force in relation to the use of the vehicle by that person such a policy of insurance or such security in respect of third party risks as complies with Part VI of the RTA.

    Page 5

  12. Section 145 of the RTA, which like section 143 falls within Part VI, sets out the conditions which the policy of insurance must satisfy. It provides, so far as relevant:

    "(1) In order to comply with the requirements of this Part of this Act, a policy of insurance must satisfy the following conditions.

    ...

    (3) Subject to subsection (4) below, the policy -

    (a) must insure such person, persons or classes of persons as may be specified in the policy in respect of any liability which may be incurred by him or them in respect of the death of or bodily injury to any person or damage to property caused by, or arising out of, the use of the vehicle on a road or other public place in Great Britain ..." (Emphasis added)

    At the relevant time, section 145(4)(b) provided that such a policy was not required to provide insurance in respect of damage to property of more than £1m.

  13. Section 145(3)(a) was amended by the Motor Vehicles (Compulsory Insurance) Regulations 2000 (SI 2000/726) to add the words "or other public place" which I have emphasised, in order to comply with the EU directives on motor insurance, which were later consolidated in the Directive which I describe below. Section 143 was amended in the same way. The amendments responded to the decision of the House of Lords in Clarke v General Accident Fire and Life Assurance Corpn plc and Cutter v Eagle Star Insurance Co Ltd [1998] 1 WLR 1647, which had held that a "road" did not include a car park or other public place. The current wording of section 145(3) is to that extent implementing the relevant EU legislation.

    ii) The EU Motor Insurance Directive

  14. Directive 2009/103/EC of the European Parliament and of the Council of 16 September 2009 ("the Directive") consolidates various earlier EU directives and ensures that civil liability arising out of the use of motor vehicles is covered by insurance.

    Page 6

  15. Recital (2) of the Directive states:

    "Insurance against civil liability in respect of the use of motor vehicles (motor insurance) is of...

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