Advantage Insurance Co Ltd v Stoodley & Anor

This is my reserved judgment on the two applications described below.

When a road traffic accident occurs – even one involving only one vehicle – it is not unusual for more than one insurer to have a potential liability. This is partly a product of the fact that motor insurers in the UK insure the driver not the vehicle. (This stands in contrast to the position in the rest of the EU where it is usually the vehicle that is insured.) The potential liability of multiple insurers leads to disputes regarding their status. There exists what has come to be called the liability “tree” with the contractual insurer sitting at the top of the tree and the MIB Central Fund sitting at the bottom. As a general proposition (and looked at from the perspective of an insurer) if an insurer higher up the tree falls out, then liability to indemnify or satisfy a judgment will rest with the insurer immediately below.

This case concerns a dispute between two insurers on the liability tree.

In the early hours of 20 December 2015 Mr Lee Stoodley (the first defendant) was at the wheel of a BMW motor vehicle when it left the road and hit a tree. There were three passengers: Mr Hampton, who was the owner of the vehicle, Mr Rogers and Mr Reed. Mr Rogers was killed. Mr Reed was catastrophically injured and has brought a claim which will be valued in millions of pounds. Mr Hampton was insured to drive the BMW by Trinity Lane Insurance Company Limited (“Trinity”) (the second defendant). That policy did not cover the driving by Mr Stoodley. But Mr Stoodley had his own vehicle, a Vauxhall Frontera, and his insurance policy for that vehicle gave him driving other cars, or “DOC”, cover. That policy was with Advantage Insurance Company Limited (“Advantage”) (the claimant). On the face of it, that DOC cover rendered Advantage the contractual insurer sitting at the top of the liability tree and liable to meet the claim brought by Mr Reed (Footnote: ¹). Trinity sits below Advantage. Trinity has a contingent liability to meet the claim. This is because Trinity is the insurer who, in the absence of a contractual insurer, will be liable to satisfy a judgment in favour of Mr Reed pursuant to the provisions of section 151 of the Road Traffic Act 1988.

In these proceedings, Advantage seeks a declaration to the effect that it is not liable to indemnify Mr Stoodley under the DOC cover section of the policy it issued to him. This is because it alleges that Mr Stoodley failed to comply with the provisions in the policy requiring him to report the accident, cooperate with an investigation etc. (In fact, he denied being the driver at all, though he was eventually convicted of causing death by careless driving whilst over the prescribed limit for alcohol.) As a matter of pure contract law, Advantage might be entitled to refuse to indemnify on those grounds. But the contractual position is modified by section 148(5) of the Road Traffic Act 1988. That section prevents an insurer from relying on such provisions in the policy in order to avoid liability. The section renders them “of no effect”. In relevant part, it is in the following terms:

“148.— Avoidance of certain exceptions to policies or securities.

(5)

A condition in a policy or security issued or given for the purposes of this Part of this Act providing—

(a)

that no liability shall arise under the policy or security, or

(b)

that any liability so arising shall cease,

in the event of some specified thing being done or omitted to be done after the happening of the event giving rise to a claim under the policy or security, shall be of no effect in connection with such liabilities as are required to be covered by a policy under section 145 of this Act.

(6)

Nothing in subsection (5) above shall be taken to render void any provision in a policy or security requiring the person insured or secured to pay to the insurer or the giver of the security any sums which the latter may have become liable to pay under the policy or security and which have been applied to the satisfaction of the claims of third parties.”

The words italicised are the important ones. The statutory intention of the provision as a whole is clear, namely to prevent an insurer from avoiding liability on the ground that the insured has failed to cooperate (to put it compendiously) after the accident. But Advantage seeks to limit the effect of the italicised words. The nub of Advantage’s argument is that the DOC cover conferred by the policy issued to Mr Stoodley was not a liability required to be covered by a policy under section 145 and so section 148(5) does not bite.

The operative part of section 145 states that in order to comply with the Act:

“145 (3)(a) the policy 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 and (aa) must, in the case of a vehicle normally based in the territory of another Member State, insure him or them in respect of any civil liability which may be incurred by him or them as a result of an event related to the use of the vehicle in Great Britain if (i) according to the law of that territory, he or they would be required to be insured in respect of a civil liability which would arise under that law as a result of that event if the place where the vehicle was used when the event occurred were in that territory, and (ii) the cover required by that law would be higher than that required by paragraph (a) above …”.

Advantage says that “the vehicle” in section 145 is the primary vehicle insured under the policy, i.e. Mr Stoodley’s Vauxhall Frontera. It is not any vehicle which the insured happens to be driving under the driving other cars cover. Hence, section 148(5) does not apply and they have a free hand to refuse to indemnify

Advantage joined Trinity to the proceedings because, if Advantage’s construction of the Act were correct, then Trinity would be liable. So Trinity is a person which would be very much affected by the declaration sought. The proceedings are Part 8 proceedings and, in accordance with paragraph 8.1 of the Practice Direction, Trinity’s position has been that the claim should be dealt with shortly on its undisputed facts. Trinity says that Advantage’s argument is clearly wrong and that the declaration should be refused at this interlocutory stage. On 27 April 2018 I had the benefit of argument and submissions from leading counsel instructed by Trinity, Mr Worthington QC, and Advantage, Mr Kennedy QC. (Trinity’s written submissions were drafted by Mr Richard Viney.) Out of respect for those arguments and because of the amount of money which turns on them in this case and, potentially, other cases, I reserved judgment.

The case then took an unusual turn. Following the hearing, I invited the parties to consider whether the Marleasing principle of interpretation applied. Trinity supplied some further submissions directed to this point. That was on 8 May 2018. The following day, Advantage served and filed Notice of Discontinuance under CPR rules 38.2 and 38.3. Advantage subsequently made it clear that they now accepted that their argument summarised in paragraphs 7 & 8 above was not sustainable. By Application Notice dated 31 May 2018, Trinity then applied to set aside that Notice of Discontinuance pursuant to the power in CPR r 38.4. I heard that application on 2 July 2018 and again reserved judgment.

For the reasons that follow, I uphold both of Trinity’s applications. It is convenient to deal first with the application to dismiss Advantage’s claim for a declaration at this early stage of the proceedings. In view of the potential impact on other cases, notwithstanding Advantage’s Notice of Discontinuance, I have tried to set out fully the arguments deployed. But I have substantially shortened and condensed the discussion which follows because there is a short and decisive answer to these arguments (and it was no doubt Advantage’s recognition of that which led to their Notice of Discontinuance).

In relevant part, Mr Stoodley’s policy with Advantage contained the following provisions. Under the heading “Information about your policy documents” the policy provided:

“Your motor insurance contract is made up of:

•

This policy booklet;

•

Your schedule which has details of you, your insurer, your car and the cover provided;

•

Your current certificate of motor insurance which gives details of who may drive your car and what your car can be used for; and

•

Your statement of insurance which shows all the information you have provided us and on which the cover has been based.”

Under the heading “Driving other cars” the policy provided:

“Where cover is shown on the certificate of motor insurance, your insurer will indemnify you while personally driving, with the permission of the owner, any car not owned by you or hired to you under a hire purchase agreement or leased to you under a leasing agreement or provided to you as a courtesy car and not owned or hired or lent to you by your employer or partner.

Your insurer will not indemnify you where the insured vehicle specified in the current schedule, which forms part of the policy, has been disposed of or has become the subject of a total loss.

Note: cover is not provided:

(a)

For loss or damage to the car you are driving.

(b)

If you are covered by any other policy of insurance to drive the car.

(c)

If the vehicle is being used outside the territorial limits of this policy.

(d)

Unless a current and valid policy of insurance is in force for the vehicle being driven under this section of this policy.

(e)

For recovery of any vehicle which has been impounded by any Police or local authority.”

The Certificate of Motor Insurance issued by Advantage contained the following statement: “I hereby certify that the Policy to which this Certificate relates satisfies the requirements of the relevant law applicable in Great Britain”. At the foot of the Certificate, under the heading “Driving Other Cars”, there was a statement in the following terms: “If under persons or classes of persons entitled to drive you are permitted to drive other cars, cover for that car is Third Party only”.

Although it was Mr Worthington QC who opened, it is convenient to set out Mr Kennedy QC’s submissions first. As noted above, his core argument followed these simple stages:

As will be readily apparent, the core submission is that at (2) above. Does “the vehicle” in section 145(3)(a) mean the principal vehicle insured under the policy? Or does it extend to any vehicle covered by the policy, in this case specifically “any car not owned by you or hired to you under a hire purchase agreement or leased to you under a leasing agreement or provided to you as a courtesy car and not owned or hired or lent to you by your employer or partner” which the first defendant was driving with the permission of the owner?

Mr Kennedy QC’s submissions on this point centred on close textual analysis of section 145. His points can be summarised as follows. He drew attention to the fact that the draughtsman of the provision took care to spell out that it applied not just to the insured but to “such person, persons or classes of person as may be specified in the policy”. By contrast, the draughtsman did not extend the reach of the provision to any vehicle(s) other than “the vehicle”. The contrast (which was replicated in later parts of the provision) demonstrated that “the vehicle” was the principal vehicle insured and not any other. Support for that interpretation of section 145(3)(a) was to be found in the fact that the additional provisions in subsection (aa) imposed requirements where the vehicle was normally based in the territory of another member state of the European Union. Those additional provisions were – and could only be – referring back to “the vehicle” in subsection (a). It was the same vehicle. And the concept of the “normal base” of that vehicle was consistent with it being the principal vehicle insured but at odds with it being a vehicle belonging to someone else which the insured was driving only temporarily and with that other owner’s permission. These statutory concepts were, in turn, consistent with what Mr Kennedy QC referred to as the “centrality” of the insured vehicle within the policy of insurance. It was, for example, that vehicle and no other that the insured had to keep in an efficient and roadworthy condition.

During argument Mr Kennedy QC agreed with the proposition that the conception of section 145 for which he was advocating was that it operated as a kind of protocol to insurers. It set out for them what a policy of insurance was required to contain in order to be compliant with Part VI. That protocol applied to the principal vehicle insured under the policy. The anti-avoidance provisions in section 148 applied to that vehicle. They did not apply to other vehicles.

These submissions, which I have substantially accepted, appear sufficiently from the brief discussion which follows.

There are four reasons or groups of reasons why Mr Kennedy QC’s submissions cannot possibly be right and why the declaration should be refused at this stage.

First, it is hard to see how section 145 RTA 1988 can be regarded as a protocol to insurers. Part VI of the Act begins with section 143, which is in these terms:

“143.— Users of motor vehicles to be insured or secured against third-party risks.

(1)

Subject to the provisions of this Part of this Act—

(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 or such a security in respect of third party risks as complies with the requirements of this Part of this Act ….

(2)

If a person acts in contravention of subsection (1) above he is guilty of an offence.”

The purpose of sections 143 & 145 is to tell drivers, road users and all interested parties what type of insurance a driver has to have in order to use a motor vehicle on the road without committing an offence. The Certificate of Motor Insurance issued by Advantage itself certified that the Policy satisfied those legal requirements and Mr Stoodley was entitled to rely upon it as stating that he could lawfully drive another car and be insured in respect of third party liability that might arise from his use of that other car.

Second, whilst I acknowledge that close textual examination of section 145 RTA 1988 is capable of throwing up the internal tensions of construction that Mr Kennedy QC referred to, such tensions only emerge if “the vehicle” referred to in section 145(3) is elided with a specific vehicle identified in the policy & certificate of insurance. Self-evidently, such a construction cannot be correct where, as here, the policy and certificate offered cover for more than one vehicle or class of vehicle. When Mr Stoodley started to use the BMW belonging to Mr Hampton, that car became the vehicle insured for the purposes of the policy and “the vehicle” for the purposes of section 145(3). Nothing in the policy, including its understandable emphasis on the principal vehicle, detracts from that proposition.

Third, the construction for which Mr Kennedy QC contended would lead to the absurd result that a driver using another car under the DOC provisions of their policy of insurance would be committing a criminal offence under section 143(2) RTA 1988 (because driving without insurance that complied with Part VI of the Act). The assurance to the contrary in the Certificate of Insurance, i.e. the statement that the policy complied with the requirements of the RTA 1988 and that they were insured, would, on Mr Kennedy QC’s construction, count for nothing.

Fourth, Mr Kennedy QC’s construction would offend the Marleasing principle. This is the principle that in applying national law, the court should “interpret it as far as possible in the light of the wording and the purpose of [any relevant] Directive in order to achieve the result pursued by it and thereby comply with the third paragraph of Article 190 of the Treaty”; see Marleasing ECC 106/89, a decision of the European Court of Justice. The provisions of Part VI of the RTA 1988 are the UK’s answer to the Motor Insurance Directives, now found in the Sixth Directive (2009/103/EC), which is a consolidating measure. The construction of section 145 RTA 1988 for which Mr Kennedy QC contended (which would involve motorists who availed themselves of their DOC cover driving uninsured and illegally) would plainly be contrary to the underlying purpose of the Directive.

It was the expectation of Trinity that the Notice of Discontinuance would be followed by an unequivocal acceptance on the part of Advantage that it was the contractual insurer and was obliged to indemnify Mr Stoodley against liability in the personal injury claim brought by Mr Reed under claim number HQ17P02973 to which Advantage has been made a second defendant pursuant to the provisions of European Communities (Rights Against Insurers) Regulations 2002. Though it adds nothing to the contractual indemnity in favour of Mr Stoodley, Advantage would also, on the face of it, have an obligation under section 151 RTA 1988 to satisfy a judgment in Mr Reed’s favour. However, the position that Advantage took was that the ambit of the Part 8 claim had been narrower than this. In a letter to Trinity dated 21 May 2018 it stated that the claim had been “solely concerned with the compatibility of ‘Driving Other Cars’ insurance and the Road Traffic Act 1988”. They went on to say that whether Advantage was a “contractual” or “RTA” insurer was not an issue. They now accepted that they were an “RTA” insurer. In a statement dated 25 June 2018, Mr Hibbert of BLM on behalf of Advantage, stated that having reconsidered the matter, the stance Advantage took was that “as a provider of DOC cover it has an obligation to meet any judgment obtained by Mr Reed against [Mr Stoodley] due to the provisions of Part VI of the Road Traffic Act 1988” but “the mechanism by which that obligation arises is, however, still to be resolved and is not one that will be resolved by delivery of the judgment [Trinity] now seeks”. It is apparent from the letter of 21 May 2018 already quoted that Advantage considers that any liability it has to Mr Reed is one that will be shared with Trinity. In his statement, Mr Hibbert referred to there being “various other insurance issues” between Advantage and Trinity which would need to be “borne out in the main action”.

These issues were not further elaborated upon in the witness statement. At the hearing, Mr Kennedy QC was reluctant to go beyond Mr Hibbert’s very guarded position. The furthest he would go was to indicate to me (if I understood him correctly) that it was now accepted that Advantage’s status was that of a contractual insurer whose insurance had been modified by statute. In the jargon of motor insurance, this is sometimes referred to as the “hybrid contractual insurer”. But he indicated that this, in their view, meant that Advantage’s liability (as with Trinity’s contingent liability under section 151) arose under Part VI of the RTA 1988 rather than as a contractual insurer – hence the potential for contribution from Trinity. He indicated that it was not accepted that the European Communities (Rights Against Insurers) Regulations 2002, providing for a direct claim by the injured party against the insurer, applied to such a liability. Finally, he indicated that there would or might be a claim against Mr Hampton for his part in aiding and abetting Mr Stoodley’s offence of causing death by careless driving when under the influence of alcohol and this might be a liability in respect of which Trinity might be obliged to indemnify Mr Hampton. I would observe that these latter two points are not, or not strictly, insurance issues arising between Advantage and Trinity. However, the others plainly are.

Trinity’s position, shortly put, was that it was not permissible for Advantage to open up further issues. The Part 8 claim had been brought precisely to settle who sat where on the “liability tree” and Trinity were entitled to expect that the outcome would decide those matters.

CPR rule 38.4 is in these terms:

“(1)

Where the claimant discontinues under rule 38.2(1) the defendant may apply to have the notice of discontinuance set aside.”

The rule has recently been considered by Robin Knowles J in the case of Stati & Ors v The Republic of Kazakhstan [2018] EWHC 1130 (Comm). He adopted the formulation of Henderson J in High Commissioner for Pakistan v National Westminster Bank plc [2015] EWHC 55 (Ch) that “the Court has a discretion which it should exercise with the aim of giving effect to the overriding objective of dealing with cases justly and at proportionate cost”. It is not necessary to establish an abuse of process although that would be a powerful factor in favour of granting an application, (paragraph 41).

The well-known principle in Johnson v Gore Wood [2002] 2 AC 1 that there should be finality in litigation and that a party should not be twice vexed in the same matter is also relevant. In limited circumstances, in the context of discontinuance CPR rule 38.7 gives this principle statutory force. That rule is in these terms:

“38.7

A claimant who discontinues a claim needs the permission of the court to make another claim against the same defendant if (a) he discontinued the claim after the defendant filed a defence, and (b) the other claim arises out of facts which are the same or substantially the same as those relating to the discontinued claim.”

Because this claim is a Part 8 claim and consequently there is no “defence” as such, it is doubtful whether rule 38.7 would bite. But that, of course, does not detract from the general principle on which the rule is based.

For the following reasons, I have exercised my power to set aside the Notice of Discontinuance.

I do not agree that delivery of this judgment will not resolve the “mechanism” of Advantage’s liability. Its liability only arises under Part VI of the RTA 1988 if that proposition is put forward in a strained and tendentious sense. Advantage’s obligation is to indemnify Mr Stoodley under the DOC provisions of the policy. That is a straightforwardly contractual obligation, albeit one that has been modified by section 148(5) RTA 1988. The fact that section 148(5) has modified the contract does not render Part VI of the Act the source of the obligation. On the contrary, the obligation remains contractual. To the extent that Advantage have argued that this was not a matter within the ambit of the action or the hearing before me on 27 April 2018, I also do not agree. It is true that the proceedings sought a declaration that Advantage was “not liable to indemnify Mr Stoodley pursuant to the provisions of Part VI”. But Trinity’s skeleton argument of 18 April 2018 very specifically addressed this wording. Paragraphs 4 and 5 of the skeleton pointed out that (a) an obligation to indemnify did not arise under Part VI and that (b) the scheme of section 148 was to modify the insurer’s contractual obligation, which was an obligation to indemnify, under the policy. That analysis or refinement seemed to be accepted by Mr Kennedy QC in his skeleton argument in response because at paragraph 2 he said that if Advantage was unsuccessful in its argument that Part VI did not apply to DOC cover then “it cannot rely on breaches of condition to refuse indemnity”. Those exchanges in the skeleton arguments seemed clear enough and it was certainly my understanding at the time that I was being invited to resolve the question whether Advantage was contractually obliged to indemnify Mr Stoodley. That is not a matter from which Advantage should be permitted to resile or seek to leave open for another day. This alone is a good reason to set aside the Notice of Discontinuance, which I regard as having been tactical.

It is also appropriate to set aside the Notice of Discontinuance because the clear purpose of identifying the issues that arose in Advantage’s claim was to achieve an overall resolution of the insurance position as between Advantage and Trinity. CPR rule 1.4(2)(i) places on the court the duty to further the overriding objective by active case management including “dealing with as many aspects of the case as it can on the same occasion”. The “various other insurance issues” which Mr Hibbert has referred to in his witness statement and upon which Mr Kennedy QC elaborated are matters which should have been canvassed at the stage when the relevant issues were being formulated and refined. As Mr Viney put it in his oral submissions: if Advantage wanted to argue that there was parity between an insurer liable to indemnify under the contract as modified by section 148 and an insurer liable to satisfy a judgment under section 151 then that clearly should have been raised so that it could be properly and efficiently dealt with. I agree with that submission. If Advantage now raise it either in the action brought by Mr Reed or in another action, then it will be for the court dealing with that claim to decide whether it amounts to an abuse of the process. However, it is appropriate to record my view that, on present information, it was incumbent on Advantage to bring the issue forward in these proceedings and it is not open to Advantage to “keep its powder dry” (Mr Kennedy QC’s expression) in that respect.

I invite counsel to draw up an order reflecting the above.