horwich farrelly

Motor Indemnity: Don’t Think the Arguments have All Gone

November, 5, 2019

Last Friday (1 November) amendments to section 152 of the Road Traffic Act 1988 by virtue of the Motor Vehicles (Compulsory Insurance) (Miscellaneous Amendments) Regulations 2019 came into force.

Shortly before the legislation was published, we highlighted that, although time was of the essence, Horwich Farrelly had already put in place procedures to maximise the prospects of securing a declaration.

Between the legislation being published and the deadline of 31 October, we were able to secure 241 declaration orders.  We failed to secure a declaration either at all, or in time, in just five cases. This equates to a success rate of 98%. The total savings to our insurer clients here are estimated to be in excess of £25 million.

However, it should not be assumed these changes will see an end to insurers reducing their status to that of ‘Article 75 insurer’ post-accident, and the associated significant reduction in indemnity spend that can subsequently be achieved.

Whilst it must certainly be the case that the number of instances where an insurer can reduce their status will fall, predictions that such a reduction in status can never be achieved are misplaced.  Indeed, we continue to work with clients to avoid Road Traffic Act liabilities in a number of ways. Of particular interest is the fact that, where a policy is incepted in someone’s name – without their knowledge or consent, a declaration can still be obtained to confirm that the insurer has no RTA liability because the purported insurance policy is necessarily void (see Shogun Finance v Hudson [2003] UKHL 62). Without a policy coming into force, no RTA liability is ever triggered.

The advantage of a declaration in such a case is to provide the insurer and third parties with certainty as to the position.

Even in cases where an insurer cannot escape a liability pursuant to Section 152 on the grounds of material misrepresentation, there is still be plenty of scope for reducing the indemnity spend. For example, how many insurers may have previously avoided a policy on the same vehicle for which they retain a liability?

Post-Deregulation Act 2015, we strongly recommended that insurers switch to cancellation over avoidance where there is fraud at inception. It is clear however, that a number of insurers remain wedded to avoidance. Moreover, there are also problems of insurers confusing cancellation and avoidance and/or purporting to cancel otherwise than in strict accordance with their policy terms.

The indemnity landscape has certainly changed significantly, but the need for specialist indemnity advice remains. In addition to assisting our clients on issues such as those highlighted, our market-leading team has also prepared accordingly to adapt and assist our clients in other related developments and issues.

These include not only changes to MIB member disputes, but also the recently introduced ability to elect for arbitration – legal assistance and expertise that Horwich Farrelly’s specialists are able to provide.

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