Supreme Court success for Keoghs and UK Insurance

Facts of the case

Mr Holden accidentally set fire to his vehicle whilst repairing it at the premises of his employer, Phoenix Engineering. Mr Holden was using a welding torch to repair the vehicle when he set fire to it. The fire spread and caused over £2million of damage to Phoenix and its neighbours premises.

Clause 1a of the motor policy provided that “we will cover you for your legal responsibility if you have an accident in your vehicle and: you kill or injure someone; [or] you damage their property …..” The policy also included a certificate that it satisfied the requirements of relevant legislation. Under the Road Traffic Act 1988 (RTA) motor policies must provide cover “in respect of any liability…incurred… in respect of… damage to property caused by, or arising out of, the use of the vehicle on a road or other public place.”

The High Court held that the motor policy did not cover Mr Holden’s accident because it arose out of his negligent repair of his vehicle, not its use. Phoenix appealed the decision to the Court of Appeal. It allowed the appeal and held that as the wording did not provide the cover required by the law, they would construe Clause 1a of the policy to mean “we will cover you for your legal responsibility if there is an accident involving your vehicle”. UK Insurance appealed this decision to the Supreme Court.

The decision

The Supreme Court unanimously allowed the appeal and found that:

1. The policy must be construed so that the third party cover meets the cover required by the law. This meant reading words into Clause 1a.
2. The Court of Appeal went too far by doing so in a way to extend cover to any accident involving Mr Holden’s vehicle.
3. The necessary correction to the policy is to extend cover beyond what was expressly provided to that which the RTA requires and no more.
4. Mr Holden’s accident did not fall within the cover provided by Clause 1a as interpreted by the Supreme Court as his vehicle was being repaired on private property and was not being used. Further, the damage caused arose out of his negligent repair not his prior use of the vehicle as a means of transport.

Keoghs comment

Matthew Rogers, partner in the Property Risks and Coverage team who led the case on behalf of UK Insurance, commented:“This is an important decision for motor insurers because if the Court of Appeal decision was allowed to stand, it could have widened the potential liabilities covered by motor policies to any accident involving a vehicle.”