Law of Compulsory Motor Vehicle, The

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CHAPTER 8 Third party victim’s right of direct action against insurers

8.1 The RTA 1988 controls not only the terms of the contract to be entered into between the assured and the insurers but also the statutory rights of the third party against the insurers. There is no contract between the insurer who insures liability as required by the RTA and the third party victim the protection of whose interest is the main concern of the relevant statutory provisions. The statutory compulsory liability insurance regime grants a direct right of action by the victim against the motorist’s insurer. Currently there are two parallel sets of rules with regards to such direct right of action. The current section 151 of the RTA 1988 represents the approach that had been first adopted by the 1934 Act and retained until today. The RTA 1988 has no effect on the direct enforcement action under the Third Parties (Rights Against Insurers) Act 20101 (TPA 2010) that under the RTA 1988 s 153 the right of the third party to proceed against the assured despite the assured’s insolvency is preserved. As will be examined below, similar to the regime under the TPA 2010, section 151 of the RTA 1988 demands the third party to satisfy some requirements as set out by the section before a right of direct action is available for him. 8.2 By the Consolidated Directive2 Member States are required to ensure that where insurance is provided as required by the Directive, an injured third party victim should have a right of direct action against insurers. 8.3 The European Communities (Rights against Insurers) Regulations 2002/3061 adopts a system that also stipulates a right of direct action against the insurer by the third party victim with no pre-condition of a judgment awarding damages in favour of the claimant and against the assured motorist. The conditions of section 151 and the 2002 Regulations will be discussed separately in this chapter.

The regime under section 151 of the RTA 1988

8.4 Section 151 of the RTA 1988 provides the victim with a right of direct action against the insurers to meet a judgment left unsatisfied by the user. The basis of the third parties’ claim is the judgment against the user rather than a claim under a policy at all. As a result, if the policy provides defence against the assured they cannot be enforced against the third party. Section 151 therefore represents a very different position to the TPA 2010 which provides for the transfer from an insured person of his right against his insurers to a third party in circumstances where the

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insured person is insured against third party risks and becomes bankrupt with an outstanding liability to the third party. 8.5 The Courts have acknowledged that the interpretation of section 151 is “not easy.”3 It is an enforcement mechanism only and to trigger such tool the third party victim has to satisfy three requirements4:

(1) a judgment to which this subsection applies is obtained (s 151(1));
(2) the judgment relates “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,” (s 151(2)); and
(3) the liability is “covered by the terms of the policy… to which the certificate relates,” (s 151(2)(a)).

Delivery of certificate

8.6 As referred to in , before it was amended by the Deregulation Act 2015, section 147(1) of the RTA 1988 used to provide, “A policy of insurance shall be of no effect for the purposes of this Part of this Act unless and until there is delivered by the insurer.” It followed that the RTA 1988 s 151(1) used to require a certificate of insurance has been delivered under section 147 before a third party victim has a right of direct action against the insurer. 8.7 Before the implementation of the Deregulation Act 2015 the requirement about the delivery of the certificate could be satisfied after the accident took place but before the judgment against the assured was given. The Privy Council held in Motor & General Insurance Co. Ltd. v Cox 5 that section 1516 did not compel that the policy that covered the required liability should have been in existence at the moment when liability was incurred. All that was required was that a policy had been effected prior to judgment which covered the liability in question. Accordingly, if a policy retrospectively effected for such liability, it satisfied the requirements of section 151(1). There followed a discussion on whether section 147 had any influence on section 151. The Privy Council answered in the negative as their Lordships read section 147 as providing neither that a policy cannot have effect at common law without the issue of a certificate nor that, having become effective, it cannot operate retrospectively. As a result, if the certificate had not been delivered to the assured, it would have seemed that he had the right to demand such delivery from the insurer, on the basis that the contract with the insurer was for a policy complying with the RTA 1988.7 After the amendment of s 151(1) by the Deregulation Act 2015 the point is no longer of significance. One point, however, which still is important in respect of the link between the certificate and the policy is that in R&S Pilling (t/a Phoenix Engineering) v UK Insurance Ltd 8 Lord Hodge confirmed that, with

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respect to coverage, exclusions, avoidance or cancellation, the focus of section 151 of the RTA 1988 is on the policy but not on the certificate.

Liability covered by section 151(2)

8.8 Two different forms of recovery for the third party victim are available under the RTA 1988 s 151(2), and they will be explored in the following paragraphs.

Section 151(2)(a)

8.9 Where the policy itself covers the loss, then if the victim obtains a judgment against the insured driver the insurers are required to satisfy the judgment. What triggers section 151(2)(a) is liability and not the identity of the driver: there has to be liability actually covered by the policy.9 One illustration of a situation that falls outside the scope of section 151(2)(a) is seen in Stych v Dibble 10 where A, who did part-time work at a garage, was driving a vehicle that he took from the garage. The vehicle belonged to a customer of the garage, and A did not have a permission to take it. The vehicle was covered by a valid road traffic policy insurance with T, but A clearly was not insured under this policy; he was not authorised by the owner to drive their vehicle at the time of the accident. It follows that the default judgment obtained against A was not a judgment obtained against the person who was insured by T as required by s 151(2)(a).

Section 151(2)(b)

8.10 Second, if the user was not insured but ought to have been insured in accordance with the requirements of the RTA 1988, then the victim is again entitled to enforce against the insurers any judgment against the user. It will be seen that section 151(2)(b) contemplates that the insurer may be liable to satisfy a judgment even though the person driving the vehicle is not covered by the policy. It is the motorist’s liability to the third parties that is required to be covered by a policy of insurance.11 8.11 Art 13(1)(a)12 of the Consolidated Directive disallows the insurer to argue an exclusion towards the third party victim on the basis that the user is a person who does not “have express or implied authorisation to do so.” Hence, s 151(2)(b) implements Art 13(1)(a). 8.12 There are two obvious situations where s 151(2)(b) might apply. The first is where the assured has loaned the vehicle to an uninsured person. A typical example would be where the person driving was a partner or friend who was not actually a named driver on the policy. Second, where the vehicle has been stolen, section 151 would extend to driving by a thief.13

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8.13 Before the adoption of this provision, in compliance with the EU law, the liability would have been faced by the MIB, but the effect of section 151(2)(b) is to transfer that liability back to the insurer. In Wake v Wylie 14 the claimant was injured by an accident that took place when he was a back seat passenger in a vehicle being driven by the defendant, who turned into the path of an oncoming car and thereby caused a collision. The defendant driver was not himself an insured driver under the terms of the policy that was taken out by his mother and insured her. It was apparent that any compensation would have to be provided by the defendant’s mother’s insurers under their statutory obligation in section 151 to meet judgments in respect of liabilities which would have been covered had the vehicle been properly insured. 8.14 In Churchill Insurance Co Ltd v Wilkinson 15 Waller LJ divided the potential insurers providing the guarantee into three: (1) contractual insurers, which cover the vast majority of cases (s 151(2)(a)); (2) statutory (sometimes called the RTA) insurers whose liability arises under the RTA, though there would be no contractual liability (s 151(2)(b) and s 151(3)); and (3) the Motor Insurers’ Bureau (MIB). 8.15 The facts in Stych v Dibble 16 as mentioned above would fall under section 151(2)(b) as A’s liability to the passenger was, for the purpose of the subsection, a liability which would be covered by the T policy if it insured all persons. The passenger obtained a judgment against A as that of against a person other than one who was insured by the policy. However, this matter must not be concluded without considering the RTA 1988 section 151(4).

Unlicensed driver exclusion – section 151(3)

8.16 It is to be noted here that, where section 151(2) is disputed, and the insurance policy excludes coverage for injuries caused by a driver who does not hold a driving licence, such an exclusion will be ineffective against the victim under section 151(3). The insurer, however, after having compensated the victim, may recoup against the person who caused the injury or the insured person under the contract.17

Excluded liability – section 151(4)

8.17 The RTA 1988 s 151(2)(b) covers “a liability, other than an excluded liability.” The “excluded liability” in this context is then described in s 151(4) which provides:

a liability in respect of the death of, or bodily injury to, or damage to the property of any person who, at the time of the use which gave rise to liability, was allowing himself to be carried in or upon the vehicle and knew or had reason to believe that the vehicle had been stolen or unlawfully taken, not being a person who:

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