On 24 August 2012, the Court of Appeal handed down its long-awaited judgment on what is generally referred to as the ‘circularity argument’. The issue in the cases of both Churchill Insurance v Wilkinson and Evans v Equity Claims  was whether a passenger victim who was also the insured person could be deprived of compensation when he caused or permitted the insured vehicle to be driven by an uninsured driver who was responsible for an accident, or whether this was incompatible with European law.
The Court of Appeal found that when the insured was the passenger victim/claimant, his insurers could recover an amount from the sums he was awarded, subject to such recovery being “proportionate” and “determined on the basis of the circumstances of the case.”
When an insurer dealt with a third-party claim as ‘RTA insurer’ under section 151(2)(b) of the Road Traffic Act, that insurer had the right under s.151(8) to recover the amount paid to the claimant from either the unauthorised driver or the insured, as long as the insured caused or permitted the use of the vehicle by the unauthorised driver. When the claimant and the insured were the same person, in practice this meant he was denied compensation, as whatever sum he was awarded by the court he had immediately to pay back to his insurers under s.151(8).
European Court of Justice
In Wilkinson, at first instance, this was found to be incompatible with the relevant European directives. In Evans, the European law point was not taken and the claimant was found liable to repay all the money she was awarded, in accordance with s.151(8) – in the event, her claim was dismissed. The cases were conjoined on Appeal, and then referred to the Court of Justice of the European Union by the Court of Appeal for a preliminary ruling, before coming back to the Court of Appeal in May 2012.
Under European Law, no victim of a road traffic accident could be “omitted automatically” from compensation. The parties all agreed that s.151(8), as previously interpreted, automatically omitted an insured passenger victim from compensation, because he was required to repay all sums awarded to him – the circularity argument. This was, therefore, incompatible with European law. However, all parties agreed that s.151(8) could be interpreted, by the addition of notional wording, to make s.151(8) compatible. Unfortunately, there was disagreement over what the wording should be.
The claimants contended that the insurer’s right of recovery under s.151(8) should not apply to insured passenger victims at all but the Court of Appeal thought this would subvert the intention of Parliament.
The defendants (and the Secretary of State for Transport as an ‘intervener’) suggested the following additional, notional wording (in bold, below) to s.151(8):
“Where an insurer becomes liable under this section to pay an amount in respect of a liability of a person who is not insured by a policy or whose liability is not covered by a security, he is entitled to recover the amount from that person or from any person who –
(a) is insured by the policy, or whose liability is covered by the security, by the terms of which the liability would be covered if the policy insured all persons or, as the case may be, the security covered the liability of all persons, and
(b) caused or permitted the use of the vehicle which gave rise to the liability, save that where the person insured by the policy maybe 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 was contended that this would ensure the insured passenger victim was not omitted automatically but may be liable to a recovery by his insurer to an extent which was “proportionate” and subject to consideration of the circumstances of the case. The claimants contended that the proposed interpretation was impermissible, as Parliament intended a ‘no fault’ right of indemnity, whereas the defendants’ proposal introduced a need to determine fault. However, the Court of Appeal agreed with the defendants, believing that it had the obligation to interpret national law so as to make it compatible with European law, provided that it was not acting contrary to the “fundamental principle” of s.151(8) by so doing.
UK Supreme Court
Where does this leave us? First, there is the inevitable possibility of an Appeal to the Supreme Court: for more on that, watch this space! Second, how will courts determine what is “proportionate” and appropriate “on the basis of the circumstances of the case”? Clearly, a fault element has been introduced and the extent to which an insured passenger victim is liable to a recovery by his insurers will depend on his knowledge and conduct, which could be:
- Full knowledge: he knew his driver was not insured to drive the vehicle;
- ‘Blind eye’ knowledge: he never addressed his mind to the question;
- No knowledge: he had made reasonable enquiries and believed the driver was insured to drive.
Clearly, there could be further categories – even subcategories – and the circumstances in which the insured came to be a passenger will also be germane. Nevertheless, one can see that in the first scenario there might be a significant recovery and under the last, very little or no recovery, while the second would lie somewhere in between.
The cases have now been referred back to the trial judges to determine what would be a “proportionate amount”, which may provide some guidance. Sadly, there appears scope for much satellite litigation.
For more information about any of the issues raised in this article or about the Road Traffic Act in general, contact our Defendant team or call 0117 904 6000.