Can a motor vehicle insurer avoid liability towards third parties in respect of material damages?
This is the precise question which the Supreme Court was recently called to adjudicate upon, sitting on appeal against a decision of the Intermediate Court . The undisputed facts of the case were that (i) the insured was driving the vehicle under the influence of alcohol, with an alcohol concentration exceeding the prescribed limit; (ii) the insurance policy contained an exemption clause in case of drunk driving; and (iii) the claim was only for material damages. The question which then arises is whether the insurance company was entitled to invoke a breach of the contractual agreement it had with its insured in order to avoid liability towards third parties for material damages.
An answer to this question requires an interpretation of various provisions of the Road Traffic Act (“RTA”) which governs the issue of liability of an insurance company towards third parties. The Supreme Court even made a historical analysis of the origin, wording and substance of the relevant provisions of the law. It found that at its inception, the relevant provisions of the RTA were intended to protect third parties in the event of the insured becoming insolvent and as such, the law would invalidate provisions in insurance policies which had the effect of terminating the insurance protection afforded to third parties. The Supreme Court further remarked that the relevant section, i.e. section 62(2) RTA as it presently stands, is drafted in a totally different language than originally enacted in 1962 with the result that it may now be read and interpreted as prohibiting an insurer from excluding liability in relation to any type of damage or prejudice, including material damage. The Supreme Court further found out that the alteration to the original text was not brought by an amending legislation but as a result of a revision of laws undertaken by the Law Revision Unit in 1981, which resulted in an unauthorised change in substance of the law and a material departure from what had been originally enacted by the legislator. The revision brought by the Law Revision Unit was declared null and void.
The correct approach according to the Supreme Court was therefore to consider the combined effect of a number of provisions of the RTA as creating a requirement to have compulsory third party insurance to cover “death of, or bodily injury to” third parties. The Supreme Court opined that in view of the clear wording of the law (prior to the 1981 revision), it cannot be expanded or stretched to include compulsory insurance cover with respect to material damage. Insurers are allowed under section 60 RTA to restrict the insurance or impose restrictions thereon in a number of situations but they are precluded from excluding liability in respect of the compulsory protection afforded in cases of death or bodily injury. In other words, the law does not restrict or prohibit an exclusion other than the compulsory insurance cover imposed in respect of death or bodily injury to third parties. It would therefore be lawfully permissible for an insurance company to restrict its liability as regards material damages sustained by third parties as a result of an accident.
The Supreme Court went on to consider the law in England and in France. Whilst in England, from whom our RTA is borrowed, the law was amended in 1988 to include compulsory third party insurance in respect of damage to property, a similar amendment was not brought to the Mauritian legislation. Like in England, in France there is an express statutory provision in the Code des Assurances to prevent exclusion of liability in the event that the driver was under the influence of alcohol at the time of the accident. Again, no similar provision is to be found in our local laws and as such a contractual clause excluding liability of the insurer when the driver is under the influence of alcohol at the time of the accident would be legal and would not contravene any local laws.
The counter argument that was offered is that a breach of the insurance policy by the policyholder should be of no effect on third parties, irrespective of whether the damage is material or otherwise. Any prejudice to third parties, be it material or personal cannot be excluded by an insurer. Reliance was also placed on article 1983-92 of the Civil Code which provides for compulsory third party insurance in respect of both material damage and physical injury. The Supreme Court rejected this argument on the ground that the provisions of the Civil Code must be read subject to the RTA, which reasoning is further buttressed by the opening words of section 57(1)(b) RTA which provides “notwithstanding any other enactment”.
Whilst the Supreme Court acknowledges the need to protect innocent third parties in respect of material damages when a vehicle is being driven by someone under the influence of alcohol, it is also of the view that this can only be achieved by the legislator who has to legislate as in England and in France to expressly provide for compulsory insurance cover against third party risks with respect to material damages arising out of the use of a motor vehicle.
To conclude, until such time that our legislature does not change the law, the answer to the opening question remains yes. Insurance companies are increasingly relying on exclusion clauses in a number of pending cases before our courts to exclude liability for material damages. In my humble opinion, it is urgent and necessary for the legislator to intervene forthwith and legislate to cure this anomaly in our law and provide that henceforth third party insurance for material damages is compulsory.
Associate – Barrister