Law of Compulsory Motor Vehicle, The

ÖZLEM GÜRSES

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CHAPTER 1 Brief history of the insurance obligation and interaction with the EU law

Introduction

1.1 Motor vehicle insurance is a type of compulsory insurance the absence of which renders the use of a motor vehicle a criminal offence under the Road Traffic Act 1988.1 The rules that govern the compulsory liability insurance for motor vehicle accidents (Motor Third Party Liability (MTPL)) do not derive from the domestic legislation or the common law court cases only. The Directives of the European Union2 aiming to harmonise the rules applicable to insurance of civil liability with respect to motor vehicle accidents also influence the interpretation of such rules considerably. Therefore, the sources of the principles applicable to insurance of civil liability for motor vehicle accidents may be summarised mainly as the domestic statutory provisions, the relevant EU Directives, the common law court cases interpreting the domestic provisions and the decision of the Court of Justice of the European Union (CJEU) interpreting the relevant EU Directives. 1.2 The starting point to analyse the scope of the compulsory liability insurance for motor vehicle accidents is to determine the meaning of “use” as this phrase unlocks the key for the compulsory insurance requirement. However, before exploring the meaning of this term a brief history of compulsory motor vehicle liability insurance will be provided.

History (domestic law)

1.3 Insurances were offered in the nineteenth century for “indemnifying the owners of horses and vehicles against their Common Law liability for accidents arising through the negligence of their drivers.”3 The policies had been initially domestic, but with the growth of the commercial use of vehicles the first commercial policy was observed in 1901.4 From 1903 onwards car users increased rapidly which led to a proportionate rise in motor vehicle accidents between 1912 and 1928.5 In the 1920s the life of a car was estimated as four–five years.6 At those times the premiums were assessed on a per capita basis with regard given to the number of drivers employed and the amount of indemnity

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required for any one accident.7 Two different types of cover were available.8 First, insuring third party risks only, ie covering the assured’s liability for personal injury and damage to property of the public. Second, in addition to the third party liability, it was possible to purchase insurance for damage to the assured’s own vehicles and harness and fatal injury to his horses. In South Staffordshire Tramways Co Ltd v Sickness & Accident Assurance Association Ltd 9 a tramcar was insured for “claims for personal injury in respect of accidents caused by vehicles for twelve calendar months from 24 November 1887,” to the amount of “£250 in respect of any one accident.” When the insured tramcar was overturned as a result of which 40 passengers were injured, the word “accident” was interpreted by the Court as meaning “in respect of any single injury to person or property accidentally caused.” 1.4 The policies excepted from the cover for instance damage to any viaduct, bridge, road or anything beneath, by the weight of the vehicle; earthquake, war, riot or civil commotion; wear and tear, depreciation, mechanical fracture, and/or breakdown of any part of the vehicle unless caused by external impact and loss arising out of the explosion of the boiler of the vehicle.10 Personal injury claims by passengers in the vehicle was excluded unless specifically provided for and an additional premium paid to cover the risks.11 1.5 On the other hand, the increasing number of victims of automobile accidents had created social problems.12 Traffic on the highways was regulated by the out-dated Highways Act 1896 and the Motor Car Act 1903. It had become apparent that people who were injured by the negligent driving of motor cars were in a parlous situation if the negligent person was unable to pay damages. As a result, the injured party was deprived of appropriate compensation.13 1.6 In 1928, a Royal Commission was appointed to examine the whole problem of transportation. First Report of the Royal Commission on Transport (“The Control of Traffic on Roads”)14 emphasised the urgency of the need for legislative steps to regulate this area of law.15 On the basis of recommendations which the Commission embodied in its first report, after a careful survey, the government proposed a Bill which became the Road Traffic Act 1930 (RTA 1930). This Act imposed, for the first time, a statutory obligation on the users of all motor vehicles to provide security against their legal liability for the death of or bodily injury caused to third parties. The Road Traffic Act 1930 received Royal Assent on 1 August 1930. The Act was a comprehensive statute providing for (a) the regulation of motor vehicles and traffic on roads (eg by classification of automobiles, licensing of drivers, driving offences and penalties etc); (b) the protection of third parties

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against risks arising out of the use of automobiles; (c) amending the highway laws; and (d) the grant of power to local authorities to regulate public service vehicles. 1.7 The RTA 1930 was then amended by the Road Traffic Act 1934, and then the relevant legislation was amended by the Consolidation Acts of 1960 and 1971 and 1988. Currently the Road Traffic Act 1988 (RTA 1988) is in force and governs the compulsory insurance requirement in its Part VI.16

Third Parties (Rights Against Insurers) Act 1930

1.8 The RTA 1930 was supplemented by the Third Parties (Rights Against Insurers) Act 1930 (TPA 1930). Prior to the adoption of the TPA 1930 it was held by the Courts that a third party victim had no right of direct action against the insurer in the case of the assured becoming bankrupt or insolvent or the case of a winding up order being issued.17 As a result, the insurance indemnity had to be part of the insolvent assured’s asset from which the victim had to try to recover his loss. Consequently, if the assured had a claim against the insurers, the payment by the insurer under the insurance contract was to be made to the liquidators and the third party victim would claim it as pari passu with the other creditors. The injustice of this rule had been acknowledged by the Court of Appeal in Re Harrington Motor Co Ltd Ex p. Chaplin,18 in which a taxicab belonging to the assured company knocked down the victim pedestrian by the negligence of a driver of one of its cabs. The victim recovered judgment against the company for £324. The judgment was given on 28 January 1927, and on 15 February an order was made for its compulsory winding up. At the time of the accident the company had a third party liability insurance under which the insurer paid to the liquidator on 14 April 1927. The victim’s argument that the amount awarded for him by the judgment did not form part of the assets of the company available for distribution among the creditors in the winding up was rejected by Eve J whose judgment was affirmed by the Court of Appeal. There was no such principle of equity supporting the claim, the liquidators did not owe any fiduciary duties to the victim, and neither the assured nor the liquidator can be treated as a trustee for him in enforcing the claim against the insurers. Although it was strenuous and able,19 the Court felt obliged to dismiss the claim because of the absolute break in the absence of a contractual relationship between the insurer and the victim.20 The Court of Appeal however expressed that “if any alteration is to be made in it that must be made by the proper authorities and by the proper means.” Parliament then addressed this issue by the TPA 1930 which did not create privity between the third party victim and insurer but enabled the former to vest in the assured’s contractual rights against the insurer in some certain cases which the assured’s financial difficulties create.

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1.9 The TPA 1930 did not apply retrospectively. In an action brought against the insurers by a motor vehicle accident victim the Court of Appeal confirmed21 that no statute shall be construed so as to have a retrospective operation unless its language is such as plainly to require such a construction.22 1.10 The TPA 1930 was not confined to motor insurance cases as it had general application. It created a statutory subrogation that upon assured’s insolvency the third party victims who can make a claim against the assured stepped into the assured’s shoes with regards to the assured’s claim against the insurers under the insurance contract. The Third Parties (Rights Against Insurers) Act 2010 (TPA 2010),23 which replaced the TPA 1930, retained this position and also has general application. Notably, because of the developments in the motor vehicle compulsory insurance regime that is analysed throughout this book, the TPA 2010 is less significant for motor accident victims than the victims of other types of liability of the assured.

Objectives of motor third party liability insurance

1.11 The RTA 1930 was described as “social legislation.”24 The long title of the RTA 1930 was “An Act… to make provision for the protection of third parties against risks arising out of the use of motor vehicles.” The main aim of the Act was the protection of the public25 by providing that there should be a body of insurers behind every driver of a vehicle,26 and hence, guaranteeing that an injured person will obtain the compensation that he or she is awarded against the negligent driver.27 The following consolidating Acts retained such objective and the compulsory insurance requirements. 1.12 Part VI of the RTA 1988 regulates “Third Party Liabilities.” The rules governing “Compulsory insurance or security against third-party risks” are to be found under sections 143–156 of the RTA 1988. 1.13 In summary, under the current regime, the protection of the public is provided by:

(1) imposing an obligation on all drivers to insure against third party liability under sanction of the criminal law;28
(2) conferring on a successful claimant a right of action against the assured’s insurer after obtaining a judgment against the assured;29
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(3) the two Agreements between the Motor Insurers’ Bureau (MIB) and the Secretary of State for the Environment having been voluntarily entered into, in the case of a guilty driver who may either be uninsured altogether or turn out to be untraceable so that it is not known whether he is insured or not and if so by whom;30 and
(4) the European Communities (Rights against Insurers) Regulations 2002/3061 which implements the relevant Directives of the European Parliament and of the Council, in the case of a further direct right of action by a victim of a traffic accident against insurers (with no pre-condition of a judgment awarding damages in favour of the claimant and against the assured motorist).

All of the issues listed above are analysed in this book.

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