Sold, Not Transferred: Insurable Interest and Permission to Drive
Priya bought a 2019 hatchback and insured it comprehensively under a private car policy in her own name. On 3 March she sold the car to her cousin, Dan, for £11,500. Dan paid in full, collected the keys, service history and registration document, and drove the car away. Priya forgot to cancel the policy, which ran to 30 April. On 19 March Dan lent the car to his friend, Luke, whose licence had six penalty points for speeding. Luke lost control on a wet bend and hit a parked van. The hatchback suffered £7,800 of damage and the van £2,400. Priya reported the accident to her insurer and asked for her own damage to be paid. The insurer also received a claim from the van owner. Luke is not named on Priya's policy. The policy says: 'We insure the vehicle and any person driving it with your permission.'
1. Must Priya's insurer pay her claim for the £7,800 damage to the hatchback? Explain the principles.
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No. A motor policy is a contract of indemnity and requires the insured to have an insurable interest at the time of loss. Priya transferred ownership, possession and risk to Dan on 3 March. After that she had no economic interest in the hatchback and suffered no loss when it was damaged. The policy is also personal to Priya; it does not automatically follow the car to Dan. There was no assignment of the policy with the insurer's consent and Dan did not apply for cover. The phrase 'we insure the vehicle' does not create a free-standing insurable interest for a former owner. Paying Priya would put her in a better position than before the loss, contrary to indemnity. The own-damage claim should therefore be declined, with a clear explanation. Dan may have a claim against Luke, but not under Priya's policy.
2. If the insurer pays the van owner under the policy, what rights of recovery may it have against Luke or Dan?
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First establish whether Luke is an insured. The permission clause requires the policyholder's permission. Priya had sold the car and had no possession or control, so she could not realistically authorise Luke; Dan's permission was not hers. On that basis Luke is a stranger to the policy and the insurer is not obliged to indemnify him. If, however, the insurer pays the van owner to satisfy a compulsory third-party judgment or to protect its position, it should take a subrogation assignment. It may then pursue the legally liable party - Luke as driver, and possibly Dan as owner who permitted the use - for the amount paid. It cannot subrogate against its own insured. Any recovery must avoid double recovery and reflect the driver's means and any other insurance. The insurer should also consider whether the van owner has cover, to avoid circuity.
3. What should Priya have done, and what administrative action should the insurer take now?
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Priya should have notified the sale immediately, cancelled the policy from 3 March and returned the certificate of insurance. The insurer should send a cancellation confirmation, calculate any pro-rata return premium and update the motor insurance database so the car is not shown as insured for her. It should not simply keep the premium and leave cover apparently in force. On notification of the accident, the insurer should record the claim, explain the insurable-interest position, and deal promptly with the van owner's claim. If it has concerns about the driver, it should not make an admission of liability without checking the permission clause. This is also a conduct issue: clear communication prevents the customer believing she is still covered.