Insurance policy holder should be in breach of policy to be held responsible for damages

An insurance company may only claim against a policy holder for damages it paid out if the policy holder is in breach of its insurance policy. This was held by the Court of Appeal, presided by Mr Justice Anthony Ellul, on 14 December, 2016 in Gasan Mamo Insurance Limited -v- Pierre Carabott and Gilmore Cachia.

The insurance company had filed a claim against the defendant to refund €3,944 it had paid following an Arbitration award Citadel Insurance plc as subrogated by law and by insurance policy in the rights of its insured Kenneth Cachia and Kenneth Cachia in his own name -v- Gilmore Cachia, Gasan Mamo Insurance Limited. The Arbitration ruled that Gilmore Cachia was responsible for a traffic accident in March 2009, when he was driving a car owned by Pierre Carabott. Carabott was insured by GasanMamo and it transpired that Gilmore Cachia was not covered by the insurance policy, who at the time of the accident was 23 years old. The insurance policy covered only drivers who were 25 years old or over. GasanMamo alleged that Pierre Carabott was aware that Cachia was driving his car. Carabott in his statement of defence denied this.

A judgement delivered by the Magistrates’ Court on 7 October, 2015, agreed with Carabott and held that he was not responsible for the accident. Since Cachia did not defend the claim he was ordered to pay the €3,944. This judgement was appealed by the insurance company, GasanMamo.

Mr Justice Ellul, examined the evidence produced, from which it resulted that Cachia, 23 years of age,  was involved in a traffic accident when he was driving a Maruti, owned by Carabott. The other car owner, Kenneth Cachia instituted proceedings and the Arbitration ordered that GasanMamo and Gilmore Cachia pay Kenneth Cachia for the damages his car sustained. Carabott had bought the insurance policy, third party fire and theft, declaring that the drivers must be 25 years or over. From the acts of the case, there is no contestation that Cachia was responsible for the accident and that the policy did not cover Gilmore Cachia. Evidence showed that Gilmore Cachia’s mother, who is also Pierre Carabott’s sister, testified that she did not know that her son had taken the car and the car was borrowed from her brother.

The ground of appeal filed by the insurance company concentrated on the contractual relationship it had with Carabott as the policy holder and claimed that he was in breach of that policy. The Court pointed out that there was a contractual relationship between the parties, based on the policy they both signed.

The court quoted from Article 3 of the Motor Vehicles Insurance (Third-Party Risks) Ordnance:

“Subject to the provisions of this Ordinance, it shall not be lawful for any person to use or to cause or permit any other person to use a motor vehicle on a road unless there is in force in relation to the user of the vehicle by that person or that other person, as the case may be, such a policy of insurance in respect of third-party risks as complies with the requirements of this Ordinance.” 

Mr Justice Ellul also quoted from a previous judgement Isabelle Borg -v- Robert Galea et decided on 19 October, 2007, which held that an owner of a car which is involved in a traffic accident and driven by a third party is not responsible for damages if the driver is to blame. The owner is responsible if for example the car is not insured or else allowed the car to be driven by an under age driver.

The Court held that this is not the case because from the evidence produced Carabott lent this car to his sister, because she was getting separated and wanted to help her out. He adjusted the insurance policy to allow 25 years olds to drive the car.

Therese Cachia had four children, two of whom were minors and when the insurance policy was issued, she only had the two minor children living with her. Later on the older children lived with her, including Gilmore. Carabott never permitted his nephew to drive his car. Gilmore’s mother testified that on that night she was asleep and her son took the car. Therefore, Carabott only allowed his sister to drive his car. 

As a result the Court dismissed the appeal.

Dr Malcolm Mifsud, Partner, Mifsud & Mifsud Advocates