In the last few months, there has been a rush of actions for declarations under section 152(2) of the Road Traffic Act 1988, to avoid policies of motor insurance. The purpose of these actions, is to reduce the status of the insurer from Road Traffic Act 1988 insurer to article 75 insurer: this would permit the insurer to repudiate an obligation to indemnify any judgment where the a claimant has a subrogated claim, or a right to make a claim on his own insurance policy, to reduce his own losses. In practical terms, that would mean that if a claimant had comprehensive insurance-then the article 75 insurer would not be liable to pay for the pre-accident value of his vehicle. He should claim that loss, from his own insurers. I would also point out, that if a claimant had an entitlement to a courtesy car under his comprehensive insurance policy, that would also impact on any credit hire claim.
The wording of section 152(2) changed on the 1st November 2019 by reason of the Motor Vehicles (Compulsory Insurance) (Miscellaneous Amendments) Regulations 2019 to render such actions for declarations otiose. The former version of section 152 provides as far as is material:
(2)Subject to subsection (3) below, no sum is payable by an insurer under section 151 of this Act if, in an action commenced before, or within three months after, the commencement of the proceedings in which the judgment was given, he has obtained a declaration—
(a)that, apart from any provision contained in the policy or security, he is entitled to avoid the policy under either of the relevant insurance enactments, or the security] on the ground that it was obtained—
(i)by the non-disclosure of a material fact, or
(ii)by a representation of fact which was false in some material particular, or
(b)if he has avoided the policy under either of the relevant insurance enactments, or the security] on that ground, that he was entitled so to do apart from any provision contained in the policy or securityand, for the purposes of this section, “material” means of such a nature as to influence the judgment of a prudent insurer in determining whether he will take the risk and, if so, at what premium and on what conditions.].
(3)An insurer who has obtained such a declaration as is mentioned in subsection (2) above in an action does not by reason of that become entitled to the benefit of that subsection as respects any judgment obtained in proceedings commenced before the commencement of that action unless before, or within seven days after, the commencement of that action he has given notice of it to the person who is the plaintiff (or in Scotland pursuer) in those proceedings specifying the relevant insurance enactment or, in the case of a security, the non-disclosure or false representation on which he proposes to rely.
(4)A person to whom notice of such an action is so given is entitled, if he thinks fit, to be made a party to it.
It will be noted that there is an obligation to give notice to the claimant of the action for a declaration. But sometimes notice is not given.
If the action seeking a declaration by the insurer was issued after proceedings were commenced by the claimant, then they should have provided notice to the claimant of the action for a declaration under section 152(3) and thus the claimant could have joined in the action under section 152(4). In such circumstances, I don’t think a claimant should apply for an order that the declaration under section 152(2) should be set aside, but rather he should simply apply for a further declaration under section 152(3) that the insurer may not rely upon any such declaration due to the failure to give notice.
Suppose however, that the action for a declaration was commenced before the claimant issues proceedings? On that factual premise, there is no duty under section 152(3)-(4) to give notice to the claimant, as the statutory duty to give notice only arises if the claimant starts proceedings first. However, this is a problem which has arisen before exemplified by a very old case called Zurich General Accident and Liability Insurance Co. v. Livingston 1938 SC 582 where an action for a declaration under an earlier version of section 152, preceded an injured party’s own action for damages. The Scottish courts had no difficulty on appeal, in finding that the injured party had at common law a right to be heard, when the action for a declaration might defeat their own contingent interest:
The situation with which that proviso is dealing occurs when the third party has, before the company has raised an action for declarator, raised proceedings against the party by whose fault the third party alleges that he has been injured. That is not the situation in the present case, and therefore the proviso does not apply. But it was argued that the proviso provides the only remedy open to a third party where the company was seeking to avoid the policy. I do not so read it. I think that the proviso is not intended to deal exhaustively with the third party’s right to be made a party to the action of declarator, but is only dealing with the particular case where notice falls to be given by the insurer when he raises such an action. In general the section under construction does not deal with detailed procedure, and it deals with it only in this particular case where it is known, or ought to be known, to the insurance company that a claim by a third party has actually emerged and has been asserted in an action in Court. It provides that in that particular case the action for declarator shall be notified to the third party. It is obvious that notification is not appropriate to the case where the insurance company’s action of declarator has preceded the action by the third party. I am unable to hold that, because this particular provision is made for enabling the third party to be heard where he has anticipated the action of declarator by raising an action against an insured person, we ought to imply that the third party has no right to be heard when the order of events is reversed.
So, the claimant has standing to intervene in any action and can apply to set aside a declaration, such application being made under rule 40.9 CPR. That however will have a certain consequence. If the declaration is set aside, then because no new declaration can be granted after 1st November 2019, the insurer’s action becomes meaningless as for the purposes of the 2019 amendments, it is the date any declaration is made, not when the action was commenced, which is the material date.
Thus, the insurer’s action will fall to be struck out.
That in turn will provoke further argument. The insurer may argue that they should be entitled to hang on to their declaration dealing with their accrued rights, but the counter argument will be that for the court to refuse to exercise it’s discretion would be counter to the claimant’s common law right to a fair trial (article 6 ECHR currently being out of favour) and also contrary to European Union law, which the country was in breach of and had to remedy, by the 2019 Regulations.