The scenario described is as follows:
- A motorcycle rider sold his motorcycle;
- He did not cancel his insurance policy;
- The buyer did not obtain his own insurance;
- The buyer caused an accident;
- The seller’s insurance company was said to be liable to pay out for the accident;
- The seller’s insurance company was then said to be entitled to recover from the seller for its loss in doing so.
Instinctively, one would not expect the insurance company to be liable for the actions of someone who was not insured under the policy. So where does this come from?
The answer would appear to be section 151 of the Road Traffic Act 1988. That appears to say – paraphrasing – that if a vehicle is covered by a contract of insurance, the insurer must pay out for third party loss on claims that would have been covered had the policy insured all persons, in circumstances where the claim arises against someone other than someone who is insured by the policy.
Section 151(8) appears to be what entitles the insurance company to recover from the policyholder, in circumstances where the policyholder “caused or permitted the use of the vehicle that gave rise to the liability”.
That might seem straightforward where an insured person had lent their vehicle to someone who was not insured. In that situation, there appears to be a degree of protection in the authorities for the policyholder, in that where he or she does that, but on condition that the person who is to drive has obtained his or her own insurance, that is not permission in the event that the person has not in fact obtained insurance but goes ahead and drives anyway. Permission given subject to a condition that is not fulfilled is not permission (Newbury -v- Davis  RTR 367).
But isn’t it rather odd to talk about “permission” at all once a vehicle has been sold? After that point, it seems to me that the seller simply no longer has any role in permitting or denying the vehicle to be used, or imposing conditions as to its use such as insurance. Can it really be said that the act of selling the vehicle itself amounts to “causing or permitting” its use by the buyer? It would be surprising indeed if this were held to be the case in relation to the comparable offence of causing or permitting a vehicle to be used without insurance under Section 143 of the Road Traffic Act 1988. If so, every seller would face potential liability for that offence.
I have looked for a case where a court has actually found a seller liable in a situation like this for “causing or permitting” the buyer to drive without insurance, but cannot immediately find one. I’m not entirely surprised, because it doesn’t seem to quite fit. If this ever happened to me, I’d certainly be inclined to push back on this issue before turning my assets over to the insurance company.
Indeed, I would have thought that the situation that the legislation is aimed at is not this one at all, but rather that where an insured vehicle is lent to someone or is stolen. There, if the borrowed or stolen vehicle is crashed, it makes sense as a matter of public policy for third parties to be able to claim even though technically the driver was not insured to be driving, rather than being left high-and-dry with no-one to claim against. If the policyholder permitted the use, I can see why he or she ought then in theory to have some responsibility to the insurance company. But if the situation where ownership of the vehicle actually passes but the buyer doesn’t bother to insure is covered at all, that looks to me more like an unforeseen consequence. Couldn’t insurance companies avoid this liability (and therefore any need to pass it on) by providing that cover automatically terminates upon the policyholder ceasing to own the vehicle?
All that said, this story suggests that the safest policy must be to inform one’s insurance company promptly in writing upon sale of an insured vehicle.