Bristol Alliance Ltd v Williams & Anor

The question in this litigation is which of two insurers should bear the cost of the damage done to the House of Fraser store at Cabot Circus in Bristol in the early hours of 12 December 2008. The car driven by the First Defendant (“the Driver”) collided with the store. The damage claimed is in excess of £200,000. The insurers of the building (“the property insurers”) paid the claim. On 19 August 2010, by subrogation, they claimed in the name of the owners of the store against the Driver.

The Driver’s motor insurers (“the Motor Insurers”) applied to be joined in the action, and were joined as Second Defendant by Order of 19 October 2010. The reason why they applied to be joined is that the property insurers had announced their intention of enforcing any judgment obtained against the Driver directly against the Motor Insurers pursuant to the provisions of section 151 of the Road Traffic Act 1988 (“RTA” – all references below to the section of statute are to the RTA unless otherwise stated). That section gives rise to a statutory duty upon motor insurers to satisfy a judgment against a person insured, as set out below.

On 22 December 2010 judgment was entered against the Driver for damages to be assessed. That left only quantum and the liability of the Motor Insurers to be determined.

The Claimant’s claim is brought in negligence. If the damage was caused negligently, then there is no dispute that the Motor Insurers would have to bear the loss. The Driver in his Defence admitted that it was a case of negligence on his part. But the Motor Insurers’ case is that the Driver did the damage deliberately, in an attempt to commit suicide. The circumstances are very sad, and there is evidence to support this case. But it is disputed, and the issue may have to be decided at a trial. The Driver pleaded guilty to an offence of criminal damage, but it does not appear whether his plea was on the basis that he acted recklessly or intentionally.

According to the Motor Insurers, the consequence of the damage being caused deliberately would be that it is not covered by the motor insurance policy, and the Driver is to be treated as having been driving while uninsured. The effect of a driver being uninsured is that the Motor Insurance Bureau (“the MIB”) will pay (or cause to be paid) any unsatisfied judgment debt against the driver, pursuant to clause 5 of the scheme for Compensation of Victims of Uninsured Drivers, that is the 1999 MIB Agreement with the Secretary of State. The Motor Insurers are members of the MIB (a company limited by guarantee), as they are required to be by section 95(2), if they are to be authorised to issue motor insurance policies.

In the case of many claims, there would be no point in a motor insurer raising a defence that the damage had been caused deliberately. This is because Article 75 of the Articles of Association of the MIB provides that, if there is an insurer which was providing any insurance in respect of the vehicle from the use of which the liability of the judgment debtor arose, then that insurer is obliged to discharge the obligations of the MIB. There is no dispute that the motor insurer would be the Article 75 insurer in this case. In other words, a motor insurer is generally liable through the MIB to pay for damage done to a third party even if he would not be liable in contract under the insurance policy itself. There are historical reasons why a liability which does not arise directly in contract under the policy may arise indirectly through the MIB.

The reason why the Motor Insurers say it is worthwhile for them to raise the point in the present case is that, by the 1999 MIB Agreement clause 6.1(c)(ii), the MIB is not bound to pay (or cause to be paid) an unsatisfied judgment if the claim is made pursuant to a right of subrogation, as is the position in the present case. Therefore, it is submitted, the Motor Insurers’ liability as an Article 75 insurer is nil.

Of course, as between the driver and the insurers, the driver may be liable to bear the cost of the damage. The Motor Insurers have made a counterclaim in which they seek declarations that they are not obliged to indemnify the Driver in respect of any liability that he may have incurred to the Claimant. But I am not concerned with the Driver’s personal liability at this stage of the action.

The preliminary issue directed to be tried by Master Eyre is:

“Is the Claimant entitled to recover from the Second Defendant even if the Second Defendant is right in contending that:

(a)

the damage to the Claimant’s premises was the result of a deliberate act by the First Defendant; and

(b)

the insurance obtained by the First Defendant from the Second Defendant was set out in paragraphs 8 to 10 of the Second Defendant’s defence.”

So far as material, the particulars of the insurance referred to in the preliminary issues are as follows. There was a policy in respect of the Driver’s car valid for a period including the date the damage occurred. It incorporated the terms of the Policy Booklet and a Schedule.

The Certificate of Motor Insurance was expressed to be subject to

“Limitations as to use: Use for social domestic, pleasure purposes and travel between home and permanent place of business.”

By the Certificate the Motor Insurers stated that the Driver had “insurance cover to comply with the law” and certified that:

“the policy to which this Certificate relates satisfies the requirements of the relevant law applicable in Great Britain …”

Section 3 para 1a provided:

“Liability to other people

We will cover you for everything you are legally liable to pay resulting from an accident in your car … and : … someone else’s property is damaged…”

Section 3 para 5 provided:

“5.

… We will not pay ... any loss damage death or injury arising as a result of a ‘road rage’ incident or deliberate act caused by you …”

There are a number of uses which are expressly excluded by the Certificate of Motor Insurance and the “General Exceptions to your cover” section. They appear to be uses of a car which would have to be made deliberately if they were made at all. And they are less extreme forms of deliberate use of a car than an attempt to commit suicide, or to commit a crime. These include

“racing, pace making, competitions, rallies, track days, trials or speed tests either on a road, track, or at an off road 4 x 4 event”..

Under “General conditions of cover” it is provided that:

“Nothing in this policy will affect the right of any person indemnified or of any other person to recover an amount under or by virtue of the provisions of the law of any country in which this policy operates relating to the insurance of liability to third parties. However you will have to repay to us all sums which we have paid but would not otherwise have paid had the provisions of the laws of such countries not applied”.

Part VI of the RTA (as amended) is headed “Third-Party Liabilities - Compulsory insurance or security against third-party risks”.

Section 143 (“Users of motor vehicles to be insured or secured against third-party risks”) includes:

“(1)

…(a) a person must not 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 … as complies with the requirements of this Part of this Act…”

Section 145 (“Requirements in respect of policies of insurance”) includes:

“(1)

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

(2)

The policy must be issued by an authorised insurer.

(3)

… the policy–

(a)

must insure such person, … as may be specified in the policy in respect of any liability which may be incurred by him … 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, …

(4)

The policy shall not, by virtue of subsection (3)(a) above, be required–

(a)

to cover liability in respect of the death, arising out of and in the course of his employment, of a person in the employment of a person insured by the policy or of bodily injury sustained by such a person arising out of and in the course of his employment, or

(b)

to provide insurance of more than £1,000,000 in respect of all such liabilities as may be incurred in respect of damage to property caused by, or arising out of, any one accident involving the vehicle, or

(c)

to cover liability in respect of damage to the vehicle, or

(d)

to cover liability in respect of damage to goods carried for hire or reward in or on the vehicle or in or on any trailer (whether or not coupled) drawn by the vehicle, or

(e)

to cover any liability of a person in respect of damage to property in his custody or under his control, or

(f)

to cover any contractual liability”.

Section 148 (“Avoidance of certain exceptions to policies or securities”) includes:

“(1)

Where a certificate of insurance … has been delivered under section 147 of this Act to the person by whom a policy has been effected …, so much of the policy … as purports to restrict–

(a)

the insurance of the persons insured by the policy, …by reference to any of the matters mentioned in subsection (2) below shall, as respects such liabilities as are required to be covered by a policy under section 145 of this Act, be of no effect.

(2)

Those matters are–

(a)

the age or physical or mental condition of persons driving the vehicle,

(b)

the condition of the vehicle,

(c)

the number of persons that the vehicle carries,

(d)

the weight or physical characteristics of the goods that the vehicle carries,

(e)

the time at which or the areas within which the vehicle is used,

(f)

the horsepower or cylinder capacity or value of the vehicle,

(g)

the carrying on the vehicle of any particular apparatus, or

(h)

the carrying on the vehicle of any particular means of identification other than any means of identification required to be carried by or under the Vehicle Excise and Registration Act 1994.

(3)

Nothing in subsection (1) above requires an insurer … to pay any sum in respect of the liability of any person otherwise than in or towards the discharge of that liability.

(4)

Any sum paid by an insurer … in or towards the discharge of any liability of any person which is covered by the policy … by virtue only of subsection (1) above is recoverable by the insurer … from that person”.

Section 151 (“Duty of insurers or persons giving security to satisfy judgment against persons insured or secured against third-party risks”) includes:

“(1)

This section applies where, after a certificate of insurance … has been delivered under section 147 of this Act to the person by whom a policy has been effected …, a judgment to which this subsection applies is obtained.

(2)

Subsection (1) above applies to judgments relating to a liability with respect to any matter where liability with respect to that matter is required to be covered by a policy of insurance under section 145 of this Act and either–

(a)

it is a liability covered by the terms of the policy … to which the certificate relates, and the judgment is obtained against any person who is insured by the policy …, or

(b)

it is a liability, other than an excluded liability, which would be so covered if the policy insured all persons …, and the judgment is obtained against any person other than one who is insured by the policy ….

(3)

In deciding for the purposes of subsection (2) above whether a liability is or would be covered by the terms of a policy so much of the policy .. as purports to restrict, …, the insurance of the persons insured by the policy … by reference to the holding by the driver of the vehicle of a licence authorising him to drive it shall be treated as of no effect.”

What is not in dispute is helpfully summarised by Mr Palmer in his written submissions as follows.

The first condition which has to be satisfied is that: “a certificate of insurance has been delivered under section 147 to the [Driver]” – see s. 151(1). It is conceded that this condition has been satisfied.

The next condition is that: “a judgment to which this subsection applies is obtained” – see s. 151(1). It is agreed that a judgment has been or will be obtained against the Driver. The question is whether such judgment is (or will be) a judgment to which subsection (1) of section 151 applies. The answer to this question is contained in subsection (2), which identifies the questions which have to be answered about the judgment in order to work out whether subsection (1) applies to the judgment.

The first thing that subsection (2) requires is that the

“judgment relat[es] to a liability with respect to any matter where liability with respect to that matter is required to be covered by a policy of insurance under section 145 of this Act …” - see s. 151(2)

It is accepted that the judgment against the Driver does relate to a matter (namely his tortious use of his motor vehicle on a road in Bristol) where liability with respect to such tortious use is required by section 145 to be covered by insurance. Section 145 requires the Driver to have insurance cover against liability for damage to property caused by the use of the vehicle – including use of the vehicle as a weapon of destruction (see Hardy v MIB [1964] 2 QB 745and Gardner v Moore [1984] AC 548).

The next thing that subsection (2) requires is that the liability of the Driver to the third party: “is a liability covered by the terms of the policy … to which the certificate relates” – see s. 151(2)(a) (emphasis added by Mr Palmer).

Mr Palmer submits that this condition is not satisfied, because the liability for a deliberate act is not covered by the terms of the policy. So he submits that the judgment which the Claimant has got, or will get, against the Driver is not a judgment to which subsection (1) applies. And since the judgment is not such a judgment, then section 151 does not apply.

Mr Ross submits that section 145 lays down requirements with which all motor policies must comply, and by the Certificate of Insurance the Motor Insurers certified that the policy in question in this case does satisfy those requirements. He submits that the Certificate is correct: properly construed, the policy does indeed satisfy the statutory requirements.

He submits that section 145(3) requires that the policy cover "any liability which may be incurred [by the Driver] in respect of … damage to property caused by, or arising out of the use of the vehicle on a road or other public place …”. That language is clear: the minimum third party cover must extend to, and insure, the person to whom the RTA policy is issued against such liability (subject of course to section 145(4)).

The issue then is whether, in order to comply with section 145(3), the policy must cover loss caused by deliberate acts or criminal activity. He contends that it is clear that section 145(3) does require the policy to cover any liability for personal injuries and property damage which are inflicted in a manner which renders the defendant liable to the victim. That must be so, even if the injuries are inflicted by a deliberate running down of the victim, or in the course of some other criminal activity. The policy is required to cover the loss. This contention was addressed directly in Hardy, Gardner and Charlton v Fisher [2002] QB 578 and answered in the affirmative.

Mr Ross cites in particular the reasoning of Laws LJ in Charlton. It is common ground that the reasoning is obiter, because the injuries in that case were inflicted in a collision that did not occur on a road (which was a condition of liability under the law as it then was). The relevant passages are as followsparas 30-33):

“30.

A useful starting-point, I think, is to have in mind two contrasting propositions, neither of which (taken in isolation) can sensibly be doubted, but which would appear at face value to be inconsistent with one another.

31.

The first of these proposition consists in the general rule that an assured is not covered by an insurance contract in respect of loss caused by his own intentional act: see for example Beresford [1938] AC 586 per Lord Atkin at 595. Rix LJ has described this as "a basic rule of insurance law"…. Lord Atkin stated that the proposition "is not the result of public policy, but of the correct construction of the contract". But public policy would surely vouchsafe at least as much, at any rate in a case where the intentional act in question was also a crime.

32.

The second proposition is derived from the following state of affairs. The user of a vehicle is required by statute (on pain of criminal penalties) to be insured in respect of any liability which he may incur by virtue of the death of or personal injury to any person (or damage to property) which is occasioned by the use of the vehicle on a road in Great Britain, and this includes the case where the injury is deliberately and criminally caused: Road Traffic Act 1988 ss. 143(1)(a), 145(3)(a), Hardy [1964] 2 QB 745, Gardner [1984] AC 548. This state of affairs entails the conclusion that there is a class of case in which a policy of motor insurance may as a matter of construction cover the assured against losses caused by his own intentional and criminal act (else the statute would be incapable of fulfilment in relation to a category of possible events which, upon high authority, was plainly intended to be covered). This conclusion constitutes the second proposition. On its face it is inconsistent with the first proposition or is an exception to it.

33.

It will be obvious that there are two public policies involved here. The first is the broad principle of the common law that no man may rely on his own wrong to gain advantage or benefit against another. That is behind the first proposition. The second is the principle of statute, that innocent third parties should be protected so far as money can do it from the harm - sometimes fatal - that may be inflicted by careless, dangerous and criminal drivers on the public roads: a protection not sufficiently given by the private law of insurance. That is behind the second proposition. The tension between the two arising where the driver’s conduct is criminal is resolved by the rule (derived from Hardy v MIB, confirmed in Gardner’s case) that a policy whose words on their face cover liability for death, personal injury or damage to property occasioned by the use of a vehicle on a road is treated – so as to give effect to the second proposition - as still doing so even where the liability arises on the facts from the driver’s own criminal act; although in that case - so as to give effect to the first proposition - the insured driver himself cannot take advantage of the policy...

35.

In my judgment a policy, such as that in the present case, whose insuring clause contains the word "accident", may readily fulfil the requirements of s.145(3)(a), even in relation to a set of facts where the insured's liability arises from his own deliberate criminal act. I have no difficulty in accepting that "accident" and its cognates may be applied so as to cover such a set of facts: depending on the context of the word's use, they plainly can. Billingham [1979] 1 WLR 747 and Lees [1981] RTR 506, cited by my Lords, vouchsafe as much.

36.

Moreover, if the court’s view of “accident” is conditioned by the force of the first proposition, there at once arises the danger of an approach being taken to the material provisions of the 1988 Act which would undermine the purpose and utility of section 151. As Rix LJ says... the first proposition – the basic rule – applies whether or not the word “accident” appears in the policy. In theory one might, driven by the first proposition, arrive at a result such as would not allow any policy of motor insurance (whether or not containing the word “accident”) to cover the insured’s liability for damages caused by his own deliberate criminal act; but that would contradict entirely the second proposition. Once one recognises (a) that in the field of motor insurance the role of the first proposition is only to disable the insured from recovering for his own benefit in a case of deliberate criminal conduct, and (b) that the policy may nevertheless and at the same time be treated as one which for the purposes of sections 143 and 145 insures the driver against liability for death (etc) in just such a case (and that is the effect of Hardy ... and Gardner ...), it becomes apparent that the presence or absence in the insuring clause of “accident” or its cognates is of little or no significance.”

Mr Ross submits that Laws LJ was there expressing the view that, in order to comply with s.145 of the 1988 Act, the policy must be read to include liability as against the innocent third party arising out of deliberate running down, but can exclude it so that the assured cannot take the benefit where the liability arises out of his deliberate act. Laws LJ reached that view by reference only to English law, without considering EU law. (Kennedy LJ reached the same result, but confined his reason to giving a wide interpretation to the words “accident” in the policy in question in that case). The approach of construing widely the word “accident” provides no assistance in the present case, because the policy wording is different in this case, including an express exclusion for deliberate acts.

Section 148(1)-(4) sets out a list of perils in relation to which liability cannot be excluded by the insurer. This section has its origins in the Road Traffic Act 1934 and Goddard LJ in Zürich General Accident and Liability Insurance Co Ltd v. Morrison [1942] 2 KB 53 commented that the statutory requirement for compulsory insurance in the Road Traffic Act 1930 was of little value if it was open to insurers to freely exclude liability for common risks.

In each of these section 148 cases the prohibition only extends to compulsory insurance. But their existence serves to confirm, not undercut, the underlying policy of the RTA, which is to grant to third parties the right to sue an insurer where compulsory insurance covering the event was required to be provided under the policy issued – Gardner (561E-562B).

Section 151 provides a duty on motor insurers to satisfy judgments. Provided certain conditions are met, and the insurer has none of the statutory defences available to it, by section 151 an insurer must pay a judgment obtained by a third party in respect of death, bodily injury and damage to property. The third party here is the Claimant which has suffered the damage to its property, albeit the Claimant’s property insurers are exercising their subrogated rights.

Mr Palmer submits that even without such clause as Section 3 para 5 (para 14 above), it is ‘black letter’ insurance law that an insurance policy does not provide cover for deliberate acts which bring about the insured event; this is even more so when the deliberate act is a criminal offence; see Beresford v Royal Insurance Co Ltd [1938] AC 586;Gray v Barr [1971] 2 QB 554; Charlton.

He contends that the insuring clause in clause 1a of section 3 (para 13 above) only covers for ‘accidents’ and not deliberate assaults on persons or property. He recognises that this argument did not find favour (obiter) with the majority of the Court of Appeal in Charlton, but submits that Rix LJ’s analysis is sounder (paras [49] ff.).

At paras [67] and [76] Rix LJ noted that:

“67.

… the statute seems to recognise that the insurer may limit the use to which a car is put, because the prescribed form of certificate of insurance itself requires the disclosure in the certificate of limitations on use. The limitations of use in Mr Fisher's case are probably frequently found, and the limitation on business use is obviously a significant one. Thus the insured is on notice regarding what uses to which he might put his car are respectively within or outside his policy. Such limitations on use are not included within section 148(2) so as to be made unenforceable in relation to third party liability by reason of section 148(1).

76.

… The difficulty then, as it seems to me, is that it would seem to be arguable that the direct cause of action against an insurer vested in a third party who has obtained a judgment relating to a third party liability in respect of which the assured is required to be covered does not cover every situation but only, for instance, situations where it is "a liability covered by the terms of the policy" (under section 151(2)(a)) or "a liability, other than an excluded liability…" (under section 151(2)(b)). Those provisions may be said to illustrate that it is contemplated that the actual policy in question may well not cover the precise circumstances in which the car was used in the case in question.”

However, Rix LJ went on to say, at para [75], that “the terms of section 151 … were not the subject of detailed if any submission in this court” and, at para [78], that he was “reluctant to say anything which might be thought to restrict the usefulness of section 151”.

Mr Palmer notes that, in the Amended Reply, the Claimant admits that it is open to the Motor Insurers to contract with the Driver on terms that enable them to refuse to indemnify the Driver for liabilities arising out of deliberate acts (although the Claimant denies that any contract in such terms would enable them to refuse to indemnify an innocent victim who had a direct claim under section 151).

So Mr Palmer submits that the starting point for the correct analysis of section 151 is that the liability of the Driver to the Claimant for deliberately causing damage to the latter’s property is not a liability which is covered by the policy issued by the Motor Insurer.

As to section 143(1) and (2), Mr Palmer submits that the statutory requirement for users of motor vehicles to be insured is a requirement placed upon users not to use such a motor vehicle unless there is in force a motor insurance policy relative to that use which complies with the RTA. It is not a requirement placed upon insurers.

Section 145 sets out the requirements for the insurance which the user must have. The statutory duty (or prohibition) is placed on the user not to use a vehicle unless there is in force a policy which insures the user in respect of any liability which may be incurred by him in respect of damage to property arising out of that use. See § [63]–[65] in Charlton.

It is well known that it is not required of a user of a motor vehicle that he should have insurance to cover business use of the vehicle if he only uses it for social domestic and pleasure purposes. This is recognised in the statutory requirements relating to certificates laid down by The Motor Vehicles (Third Party Risks) Regulations 1972 (as amended) in which the Limitations as to use are to be set out in the Certificate. See para [67] in Charlton.

Nevertheless, of course, in order to remain within the law whilst driving on the roads, a driver’s obligation is to have valid insurance. A man who uses his car as a weapon (on a road or other public place) is required to have insurance against that use. But (submits Mr Palmer) he cannot obtain it. Nevertheless, without such insurance he is committing another offence when committing grievous bodily harm or criminal damage with it. He is without insurance, and even in this extreme condition the MIB is obliged to compensate the victim – see Hardy and Gardner. In spite of dicta suggesting the contrary in those cases, there is no requirement imposed on an insurer, when agreeing to insure a man, to insure him on terms other than those agreed between the parties.

The fact that policies of insurance may have exceptions which limit cover is expressly recognised by section 148(1)-(3). This section makes certain exceptions “of no effect” for the purposes of providing indemnity against liability which is required to be provided by section 145. This statutory provision directly strikes down certain clauses which have been agreed between insurer and insured. Clearly, other clauses which except or limit cover are not struck down and remain “of effect”.

The exception to liability under the policy with respect to deliberate acts is clearly permitted by section 148. In any event, as stated above, the insurance policy does not cover deliberate acts, regardless of the exception.

Section 148(5) of the Act, although not of direct relevance, is also informative. Conditions precedent to liability which require something to be done by the insured after the collision which gives rise to the liability and the claim under the policy (e.g. notification conditions, claims co-operation conditions etc.) are also made of no effect. Other conditions precedent, requiring something to be done by the insured before the collision would be of effect.

Turning to a more general view of the meaning of section 151, Mr Palmer submits that it is quite wrong to think that the statutory draftsman intended that all judgments obtained against policyholders automatically qualify under section 151. They clearly do not. One major exception arises where the insurer is entitled to avoid the policy of insurance for non-disclosure. If the insurer commences an action for such avoidance within three months of the commencement of the action in which the third party pursues the negligent driver, and obtains a declaration of valid avoidance of the policy for non-disclosure, then “no sum is payable by an insurer under section 151”. See s. 152(2) of the Act. (On the other hand, mere entitlement to avoid for non-disclosure or actual avoidance otherwise than in accordance with the conditions laid down by s. 152(2) and (3), does not help the Insurer – see s. 151(5)).

In all these cases of non-response under section 151, the driver or user of the vehicle is uninsured. The victim of the collision is therefore entitled to recover his damages from the MIB under the MIB’s Uninsured Drivers’ Agreement.

I recognise the force of the point made by Mr Palmer that sections 148 and 151(3) avoid certain exceptions to policies, but not others. Limitations of use expressed in the Certificate are plainly permitted by the RTA. And an exception in respect of damage which the driver causes deliberately is not listed in section 148 or section 151(3). Laws and Kennedy LJJ expressly stated in Charlton that they recognised the force in the point made by Rix LJ.

Section 145(4) lists a number of matters which the policy is not required to cover, including some which could give rise to claims by third parties. There are other matters which are not required to be covered: see Bernaldez para [12]. So the construction of Laws LJ for which Mr Ross contends does not deprive section 151(2)(a) of meaning.

In my judgment the submission of Mr Ross, based on the reasoning of Laws LJ in Charlton, is to be preferred. It is consistent with earlier dicta (also obiter) and it gives effect to the policy of the legislation that innocent third parties should be protected so far as money can to it from the harm that may be inflicted by dangerous and criminal drivers.

Adopting this interpretation of s.151 will simply achieve by a direct route that which is already the indirect effect of the MIB scheme, at least in all but a minority of cases (of which this is one).

There is no strain on the language of the policy in adopting this approach. That is clear from the wording of the clause set out at para 16 above.

It follows that I do not need to consider the provisions of EU law.

In case I am wrong in the foregoing, I shall state my conclusions based on EU law. There is no dispute that one of the purposes of the RTA is to implement the EU Motor Insurance Directives. There were five such Directives: the First was 72/166/EEC; the Second was 84/5/EEC; the Third was 90/232/EC; the Fourth was 2000/26/EC and the Fifth was 2005/14/EC. There is now a Codified Motor Insurance Directive 2009/103/EC. This was not in force at the time relevant to these proceedings, but the references given below are to the corresponding article (the wording of the Codified Directive varies slightly in some instances from the earlier Directive which it replaces).

The RTA must therefore be interpreted, so far as possible, to give effect to those Directives in accordance with Marleasing SA v La Comercial Internacional de Alimentacion SA C-106/89 [1990] ECRI-4135

Article 3(1) of the First Directive (and Art 3 of the Codified Directive) provides:

"Each Member State shall, …, take all appropriate measures to ensure that civil liability and respect of the use of vehicles normally based on its territory is covered by insurance. The extent of the liability covered in the terms and conditions of the cover shall be determined on the basis of these measures".

Article 1(1) of the Second Directive (and Art 3 of the Codified Directive) provides:

“The insurance referred to in Article 3(1) of [the First Directive] shall cover compulsorily both damage to property and personal injuries.”

Article 1(4) of the Second Directive (and Art 10(1) of the Codified Directive) makes provision for Member States to set up bodies (such as the MIB)

“with the task of providing compensation … for damage to property or personal injuries caused by an unidentified vehicle or a vehicle for which the insurance obligation provided by paragraph (1) has not been satisfied…”

Article 2(1) of the Second Directive (and Art 13(1) of the Codified Directive) provides

"Each Member State shall take the necessary measures to ensure that any statutory provision or any contractual clause contained in an insurance policy issued in accordance with Article 3(1) of Directive 72/166/EEC, which excludes from insurance the use or driving of vehicles by [persons in particular cases (persons not authorized to drive the vehicle, persons not holding a driving licence, persons in breach of the statutory technical requirements concerning the condition and safety of the vehicle)] shall, for the purposes of Article 3(1) of Directive 72/166/E E C, be deemed to be void in respect of claims by third parties who have been victims of an accident”.

In providing that certain exclusions are to be treated as of no effect, sections 148 and 151(3) implement the Directives.

In Bernaldez a number of questions had been referred to the European Court of Justice, including:

“(1)

Does the wording of Article 3(1) of the [First Directive] allow the internal rules of the system of compulsory insurance against civil liability in respect of the use of motor vehicles in each Member State to lay down any exclusions deemed fit or, on the contrary, must exclusions from cover be limited to those expressly provided fro in [the Second Directive]?

(2)

Does the exclusion from compulsory insurance cover of damage to property caused by vehicles driven under the influence of alcohol comply with the abovementioned legislation?

(3)

Must the cases referred to in Article 2(1) of the [Second Directive] be regarded as a precise and exhaustive enumeration of the statutory provisions and contractual clauses which may remove insurance cover but which are not valid as against the person who has suffered harm, so that any other statutory or contractual exclusion would be valid against him?

(4)

If a statutory provision or contractual clause which excludes insurance cover where the driver responsible for the damage is intoxicated is valid in relations between the insurer and the insured, could its validity as against a third-party who has suffered harm be considered to be in compliance with the system laid down in [the First, Second and Third Directives]?”

In that case the impugned exclusion related to damage caused to property by vehicles driven under the influence of alcohol. The answer to the first four questions given by the Court was:

“Article 3(1) of [the First Directive] is to be interpreted as meaning that, without prejudice to the provisions of Article 2(1) of the [Second Directive] a compulsory insurance contract may not provide that in certain cases, in particular where the driver of the vehicle was intoxicated, the insurer is not obliged to pay compensation for the damage to property and personal injuries caused to third parties by the insured vehicle. It may, on the other hand, provide that in such cases the insurer is to have a right of recovery against the insured”.

Although the answer to the questions given by the Court is specific to the facts of the case, namely a purported exclusion where the driver was intoxicated, the reasoning of the Court is in general terms, as follows:

“18.

In view of the aim of ensuring protection, stated repeatedly in the directives, Article 3(1) of the First Directive, as developed and supplemented by the Second and Third Directives, must be interpreted as meaning that compulsory motor insurance must enable third-party victims of accidents caused by vehicles to be compensated for all the damage to property and personal injuries sustained by them, up to the amounts fixed in Article 1(2) of the Second Directive.

19.

Any other interpretation would have the effect of allowing Member States to limit payment of compensation to third-party victims of a road-traffic accident to certain types of damage, thus bringing about disparities in the treatment of victims depending on where the accident occurred, which is precisely what the directives are intended to avoid. Article 3(1) of the First Directive would then be deprived of its effectiveness.

20.

That being so, Article 3(1) of the First Directive precludes an insurer from being able to rely on statutory provisions or contractual clauses to refuse to compensate third-party victims of an accident caused by the insured vehicle.

21.

In that context the first subparagraph of Article 2(1) of the Second Directive merely recalls that obligation with respect to provisions or clauses in a policy excluding from insurance the use or driving of vehicles in particular cases (persons not authorized to drive the vehicle, persons not holding a driving licence, persons in breach of the statutory technical requirements concerning the condition and safety of the vehicle). However, by way of derogation from that obligation, the second and third subparagraphs of Article 2(1) provide that certain persons may be excluded from compensation by the insurer, having regard to the situation they have themselves brought about (persons entering a vehicle which they know to have been stolen) or to the compensation they can claim elsewhere (victims who may obtain compensation for the damage suffered from a social security body).”

Accordingly, Mr Ross submits, to the extent that the Motor Insurers’ policy as issued to the driver is not in compliance with the requirements of the Directives, whilst that non-compliance may not assist the driver when he pursues his contractual rights as against the motor insurer, it cannot affect the rights of third parties whose entitlements the RTA and the European Directives were designed and intended to protect.

In so far as there is a minority of cases which might be excluded from the MIB scheme, Mr Ross submitted that there is no good reason why they should be excluded. The MIB scheme cannot therefore be seen as implementing the Directives.

There are a number of cases which the MIB might not cover. One is where the property insurance is subject to an excess (which may be substantial). Another is where the property insurance does not cover the whole value of the property. Another may be where the property insurer is a captive, so that the losses are suffered by the group of companies for which the captive insurance company provides cover.

Mr Ross also points to other provisions of the MIB scheme which are less favourable to a third party than section 151, and which are set out in clauses 7 to 15 of the 1999 Agreement under the heading “Conditions Precedent to MIB’s obligation”. Disputes under the MIB scheme are, by clause 19, to be referred to the Secretary of State “whose decision shall be final”, instead of being decided by the courts. Certain provisions of the MIB scheme that had been less favourable to third parties than a claim under section 151 were removed by amendments made to the Agreement on 7 November 2008. But there remain others.

Mr Ross notes too that, although the present case relates to damage to property, the exclusion under clause 6(1)(c) relied on by the Motor Insurers also applies to claims for personal injuries. So Mr Palmer’s submission that his argument results in no prejudice to victims is not correct.

Mr Palmer submits that the obligation set out in Marleasing relates only to national law and not to private contracts such as insurance policies. Thus the Directives can at most be relevant to determining what the RTA requires, not what the Motor Insurers have in fact agreed to.

I accept this submission, so far as it goes. But when the court has determined what the RTA requires, that in itself provides some assistance in interpreting a contract which the insurers certify is in accordance with the requirements of the RTA.

Mr Palmer submits that the Claimant in this case is not a victim within the meaning of the Directive, and in particular within the meaning of Article 2(1) of the Second Directive (and Art 13(1) of the Codified Directive).

First, he submits that a victim is a person who has suffered direct loss and damage. Insurers of property which has been damaged are not parties intended to be benefited by the Directives, and it is open to Member States to implement the Directives so as to achieve this distinction.

In the alternative, he submits that the requirements of the Second Directive do not require that there be a direct action at the suit of a victim against the insurer, and that it is sufficient compliance with the Directive that there is in place an indirect right through the MIB scheme. He cites Art 1(4) of the Second Directive.

Taken as a whole, the UK scheme, involving both the RTA (interpreted as he submits it should be interpreted) and the MIB scheme, fully implement the Second Directive. It is not necessary to interpret the RTA as giving a direct right of action.

Mr Palmer points to the sixth recital to the Second Directive and Art 1(4) as recognition of the rules of subrogation and of the compensation by a body such as the MIB being regarded by Member States as “subsidiary or non-subsidiary”. Art 2(1) also provides in its last sub-paragraph that:

“Member States shall have the option …of not applying the provisions of [the first sub-para of Art 2(1)] if and in so far as the victim may obtain compensation for the damage suffered from a social security body”.

I did not understand Mr Palmer to argue that the MIB is a social security body within the meaning of Art 2(1).

Mr Palmer also notes that in the Codified Directive, which is subsequent to Bernaldez, Art 13 differs from Art 2(1) of the Second Directive by an additional paragraph, Art 13(3). This refers exclusively to clauses purporting to exclude liability to a passenger on the basis that he knew or should have known that the driver of the vehicle was under the influence of alcohol. The new clause requires that national laws should provide that such an exclusion shall be deemed to be void in respect of the claims of such passenger. Mr Palmer submits that it is significant that in this new provision no other purported exclusionary clause is required to be treated as void. So Bernaldez is not to be interpreted as applying to exclusion clauses other than those specified (exhaustively, as he submits) in the Second and now the Codified Directives.

Mr Palmer submits that there is no prejudice occasioned to third parties by the arrangement for compensating victims of road accidents provided in the MIB scheme.

I reject Mr Palmer’s submissions. There is nothing to justify a definition of victim which excludes third parties who have suffered personal injury or damage to property, but who are also insured, and whose insurers exercise their rights of subrogation. On the contrary, such a limitation of the definition of victim appears to be inconsistent with the principle of subrogation. Moreover, the reasoning of the ECJ in Bernaldez is clear, and is not confined to purported exclusion clauses relating to drivers who are intoxicated.

In my judgment, if I am wrong about the effect of English law alone, then, applying Marleasing, Part VI of the RTA must be interpreted as requiring the user of a motor vehicle to be insured under a policy that satisfies the minimum requirements of the Directives. And interpreting the policy in this case, both by reference to the purpose for which it was issued, and having regard to the statements in the Certificate that it provides the cover required by law, the cover it provides does meet those minimum requirements, at least so far as material to this case.

The answer to the question in the preliminary issue (para 9 above) must therefore be in the affirmative.