MM v. SH & RSA Insurance Plc

June 15, 2016

By Simon Earlam

In this case, Master Leslie was ultimately persuaded to approve judgment for the Claimant for 60% damages to be decided by the Court on the basis that, from the damages so assessed or agreed, the Defendant insurer would be entitled to deduct a sum of about £105,000 paid out to third parties involved in the accident. Master Leslie was disconcerted by the fact the Claimant had already been subjected to a 40% reduction and felt that the additional deduction of £105,000 was unfair as a double deduction.  He was persuaded not to refer to the High Court Judge for approval and that the order he finally approved was correct.


The Claimant’s mother was disabled and owned a VW Car under the Motability Scheme which was insured for the Claimant to drive. The Claimant drove this car to Burton on Trent where he and his friends had a night out. They drank a substantial amount in a club. The night ended in a brawl involving the Claimant. A friend wished to get the Claimant away from the club and drove the Claimant in his VW car away from the club.  He had got the keys from the Claimant who was sitting in the back seat with a woman passenger. The purpose of the journey undertaken was not entirely clear, but what was clear was that the Claimant, an insured driver for the vehicle, had caused or permitted the use of the VW by his friend when he in fact had no reason to suppose his friend could drive the VW on any insurance policy of his own.

The friend then drove the vehicle down the M1 in the early hours of the morning and apparently fell asleep at the wheel.  He ran into the rear of a lorry causing injury to the driver and physical damage, and the lorry was shunted into another vehicle, also causing personal injury to the driver and physical damage, and a crash barrier belonging to the Highway Authority was also damaged in the accident. The insurers were required by section 151 of the Road Traffic Act 1988 to indemnify the uninsured driver against the claim by the Claimant as a passenger in the vehicle which he had driven negligently. The driver was fractionally in excess of the drink driving limit. The blood/alcohol level of the driver was 81 mgs of alcohol per 100 mls of blood after a road side breath test which showed a somewhat higher reading of alcohol in the breath at the scene.

The Problem

Because the Defendant was a section 151 road traffic accident insurer, section 151(8) of the Road Traffic Act 1988 applied. Section 151)8) states:

Where an insurer becomes liable under this section to pay an amount in respect of 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”.

Here, the driver was not insured. If he had been insured by the policy, liability for the accident would have been covered. Therefore, the insurer was entitled as of right to recover from either the uninsured driver if he had sufficient assets or “from any other person” the amount paid by the insurer.

Since the accident was the fault of the driver, who was uninsured, no claim was made by him against which the insurer was entitled to recover by set off what amount the insurer had paid to the third parties involved. Since the Claimant’s mother had not given the Claimant’s friend permission to drive, the insurer could not surely recover the amount paid to the third parties involved from her.

However, section 151(8) permits recovery of the amount paid to the third parties from “any person” insured by the policy – here, the Claimant who was an insured driver under the policy who would have been an insured driver at the time of the accident which the policy would therefore have covered and, on the facts, who had caused or permitted the use of the vehicle which was the cause of the accident. In these circumstances, the insurer was entitled to claim recovery of the amount it paid to the third parties from the Claimant, whose only relevant asset was his award of damages.

In Churchill Insurance Company Ltd v. Fitzgerald & Wilkinson and the conjoined appeal of Evans v. Cockayne & Equity Claims Ltd [2012] EWCA Civ 1166, the Court of Appeal read down section 151(8) to be compliant with the EU Directive 2009/103/EC which the ECJ had held to be non-compliant with the Directive. It was argued the “insured victims” should be entitled to full damages and that the insurers be denied any indemnity under section 151(8) where the person entitled to the benefit of the relevant judgment was also an insured under the policy. This argument was rejected in favour of a deduction from the damages proportionate to their fault in permitting the uninsured driver to drive.

Hence, the Court of Appeal created a new species of “fault” hitherto unrecognised which is discrete from contributory fault, e.g. because a seat belt was not worn or because the passenger knew the driver to be intoxicated.

The Future

Permission was granted to the “insured victims”  to appeal to the Supreme Court. The appeals were cannily settled by the insurers before the case got to the Supreme Court.

The following remain areas of debate:

(i) If the passenger who was an insured driver under the policy gave permission to an uninsured driver to drive and is therefore subject to a deduction from his damages proportionate to his fault in doing so, does section 151(8) permit a deduction in full from his award of damages already reduced by the element of his fault of the amounts paid in full to third parties?

This is what troubled Master Leslie because he was concerned there was an unfair double deduction. If section 151(8) contravened the EU Directive and had to be read down to secure its compliance with the Directive, should it not also mean the amount which the insurer was entitled to deduct from the damages should also be proportionate to fault? It is said that, while it may appear unfair, the deduction in full is permitted by the words of the statute rendered compliant by this interpretation with the EU Directive.

(ii) Section 151(8) triggers the entitlement to set off against the Claimant’s damages where the insurer has to pay an amount to a third party and contemplates recovery of that amount from the insured victim’s damages.

However, what right does a Claimant have to contest not only the degree of fault by which his damages fall to be reduced as a result of his fault but also the amount paid by the insurer to the third party or parties?

It would appear just that the Claimant should be able to do so, otherwise the insurer paying out third parties has no incentive to pay out just amounts because he is reducing pro tanto his award to the Claimant, especially where the Claimant’s claim is substantial and likely to exceed the payment made to third parties.

(iii) Food for thought: in these circumstances, should the Claimant seek to intervene in any claim brought by third parties to enable him to contest their damages? But what if the third party claims are paid out before litigation is instituted? It is more than arguable the Claimant in her own proceedings should be entitled to contest the sums paid out, but the words of the statute do not make it obvious he can do so.

(iv) Because the appeal to the Supreme Court was compromised, there is no guidance as to how the degree of fault should be judged, and the outcome is likely to be very fact sensitive. Questions such as: did the Claimant know the driver was uninsured, or believe he was insured without checking or turned his mind to the question of insurance at all will all be relevant to the degree of fault, but litigants have been given no guidance as to what value judgment the Courts will impose in any given set of circumstances.

This is therefore a grey area ripe for future litigation.