R & S Pilling (t/a Phoenix Engineering) v UK Insurance Ltd [2019] UKSC 16

Mr Holden caused a fire while welding repairs to his car in his employer's loading bay, damaging the premises. The Supreme Court held his motor insurance policy did not cover the claim, as the damage did not arise from use of the vehicle on a road or public place.

Facts

In June 2010, Mr Thomas Holden, a mechanical fitter employed by R & S Pilling (trading as Phoenix Engineering), attempted to repair corrosion on the underside of his car, which had failed its MOT. With his employer’s permission, he used Phoenix’s loading bay. Having tipped the car onto its side using a fork-lift, he welded a plate on one side, moved the car, and began welding on the other. Sparks from the welding ignited flammable material within the car, spreading fire to Phoenix’s premises and neighbouring property, causing over £2m of damage.

Phoenix’s insurer, AXA, paid out and brought a subrogated claim against Mr Holden. His only potentially responsive policy was a motor insurance policy with UK Insurance Ltd (UKI). UKI sought a declaration that the policy did not respond; AXA counterclaimed for an indemnity.

Issues

The Supreme Court had to determine:

• Whether the motor insurance policy, read together with the certificate of insurance, covered Mr Holden’s liability for damage caused while repairing his car on private commercial premises.
• The proper interpretation of section 145(3)(a) of the Road Traffic Act 1988, in particular the phrase “damage … caused by, or arising out of, the use of the vehicle on a road or other public place”.
• Whether the policy wording required a corrective construction to comply with statutory compulsory insurance requirements, and if so, what form that correction should take.

Arguments

UKI (Appellant)

UKI argued that clause 1a of the policy booklet, on its ordinary meaning, required the insured to be in the vehicle at the time of the accident. It advanced a novel “two strands” submission: that cover was provided both by clause 1a (on its ordinary meaning) and separately by the Chief Executive’s certificate warranting compliance with the RTA, so no corrective construction of clause 1a was needed. In any event, repairs to a stationary, immobilised car did not constitute “use” and the damage did not arise out of use on a road or other public place.

Phoenix (Respondent)

Phoenix contended that the Policy must be read to cover the full requirements of section 145(3) RTA as vouched by the certificate. It argued the repair was ancillary and incidental to the use of the car, because prior road use caused the disrepair and repair was a precursor to future road use. It also invoked the contra proferentem rule and the Unfair Terms in Consumer Contracts Regulations 1999.

Judgment

Lord Hodge (with whom the other Justices agreed) allowed UKI’s appeal.

Rejection of the two strands approach

The Court rejected UKI’s contention that the certificate provided an independent contractual basis for cover. The RTA treats the policy and certificate as distinct concepts (sections 147, 151, 161), and the certificate certifies the legal effect of the policy without purporting to provide additional cover. Sections 151 and the associated framework focus on liability covered by the terms of the policy, not the certificate.

Interpretation of section 145(3)(a) RTA

The Court reviewed the English authorities (Elliott v Grey, Pumbien v Vines, Brown v Roberts) which interpret “use” broadly to include having the use of an immobilised vehicle on a road. It considered the CJEU’s jurisprudence in Vnuk, Rodrigues de Andrade and Torreiro, which extends the Directive’s concept of “use” to any use consistent with a vehicle’s normal function as a means of transport, irrespective of location.

However, applying Smith v Meade, the Court held that section 145(3)(a) could not be read down to comply with the CJEU jurisprudence because doing so would go against the grain of the legislation and would impose retrospective criminal liability under section 143. The geographic limitation to “a road or other public place” therefore remained effective between private parties.

Causal link

On the phrase “caused by, or arising out of”, the Court endorsed the majority in Romford Ice and Cold Storage Co Ltd v Lister, holding that there must be a reasonable limit on the causal chain. Dunthorne v Bentley remained good law but turned on its particular facts.

Corrective construction of clause 1a

Applying Chartbrook Ltd v Persimmon Homes Ltd, the Court held that clause 1a’s literal wording (“if you have an accident in your vehicle”) was mistaken given the certificate’s promise of RTA compliance. Corrective interpretation was permissible because it was clear both that something had gone wrong with the language and what was intended. However, the Court of Appeal’s reformulation (“if there is an accident involving your vehicle”) went too far, removing the statutory causal link entirely and expanding cover beyond both the express terms and the RTA.

Lord Hodge held the appropriate correction was to add: “or if there is an accident caused by or arising out of your use of your vehicle on a road or other public place”.

Application to the facts

Mr Holden was not in his car when the accident occurred, so clause 1a on its express terms did not apply. The corrective extension did not assist either: significant repairs to a stationary car on private premises did not constitute “use” of the vehicle, and the damage did not arise out of any prior or prospective road use. The Court endorsed Judge Waksman’s finding that the fire was caused by the allegedly negligent repair, not by prior road use. The causal connection was too remote.

Implications

The decision clarifies several important points of motor insurance law:

• Certificates of motor insurance certify the legal effect of the underlying policy and do not constitute an independent contractual source of cover.
• Section 145(3)(a) of the RTA, despite being incompatible with the broader EU concept of “use” established in Vnuk and Andrade, cannot be read down by the courts; legislative amendment is required. Until then, compulsory third-party cover in the UK remains tied to use “on a road or other public place”.
• Where a consumer-facing motor policy fails on its literal wording to meet RTA requirements, courts will use corrective construction under Chartbrook principles, but only to the minimum extent necessary; they will not expand cover beyond what the statute requires.
• Substantial repairs carried out to an immobilised vehicle on private premises do not amount to “use” of the vehicle within section 145(3)(a), and damage caused by negligent repair is not damage “arising out of” prior or prospective road use.

The case matters to motor insurers, property insurers pursuing subrogated recoveries, and policyholders. It demonstrates the limits of the compulsory insurance regime and confirms that the mismatch between domestic law and EU law (as it then applied) must be resolved by Parliament, not the courts. It also provides guidance on the proper approach to correcting drafting errors in consumer insurance contracts.

Verdict: The appeal was allowed. UK Insurance Ltd was entitled to the declaration that it was not liable to indemnify Mr Holden against the claim, restoring the order of Judge Waksman QC dated 8 April 2016.

Source: R & S Pilling (t/a Phoenix Engineering) v UK Insurance Ltd [2019] UKSC 16