Hire and reward insurance: new requirements for London PHVs
Transport for London (“TfL”) has made a suite of regulations amending the existing rules applying to the private hire vehicles, drivers and operators it licenses.
In this blog post, I take a look at the new insurance requirements for private hire vehicles (“PHVs”).
I will firstly set out what I consider to be the relevant provisions of the law of the land as it relates to the insurance of motor vehicles generally.
I will then see how that general law has been built upon to date so far as PHVs in London are concerned.
Then I will set out the new reforms to the regulations, and consider how this may impact upon the owners and drivers of PHVs in London, and their insurers.
The Road Traffic Act 1988
So, some context. S.143 of the Road Traffic Act 1988 (“RTA 1988”) makes it an offence to use (or to cause or permit someone else to use) a motor vehicle on a road or other public place unless there is in force in relation to the use of the vehicle by that person such a policy of insurance or such a security in respect of third party risks as complies with the Act’s requirements. This is what is commonly known as third party insurance. For those who are interested, the precise requirements are set out in s.145 RTA 1988.
The registered keeper of a motor vehicle that is covered by road tax commits an offence if the vehicle is not insured: s.144A RTA 1988. The DVLA is able to cross-reference its records of taxed vehicles with the Motor Insurers’ Bureau’s database of insured vehicles (known as the Motor Insurers’ Database ("MID")). Appear on the former and not the latter, and you will find - in the first instance - a fixed penalty notice plopping on your doormat. This is known as the “Continuous Insurance Enforcement” scheme
As part of the move away from reliance on paper certificates, the Deregulation Act 2015 amended, with effect from 30 June 2015, s.147 RTA 1988 so that
Insurance certificates must still be delivered to policyholders but delivery is no longer required for the policy to be effective.
Where a policy is cancelled mid-term the policyholder is no longer required to return the certificate or make a statutory declaration or any statement acknowledging the policy has ceased to have effect (and not doing so ceases to be an offence).
Insurers no longer have to seek the surrender of certificates for cancelled policies as a pre-requisite of avoiding contractual liability.
Since 30 April 2010, by virtue of amendments brought about by the Motor Vehicles (Electronic Communication of Certificates of Insurance) Order 2010, delivery of the certificate for the purposes of s.147 can be effected by electronic transmission or the making of the same available on a website.
S.165 RTA 1988 gives a constable (or a vehicle examiner) the power to issue what is known as a “producer”, requiring, from the driver of a motor vehicle on the road, the production of an insurance certificate satisfying the requirements of the 1988 Act at a police station within 7 days. Amendments to this section brought about by the 2010 Order mean that a producer can be dealt with by providing electronic access to the certificate. These days, of course, the police can and do take a more proactive approach by using automatic number plate reading (ANPR) technology fitted to their own vehicles to identify other road users who might be uninsured.
The Private Hire Vehicles (London) Act 1998
PHVs, a feature of the provincial landscape since 1976, became regulated in London following the enactment of the Private Hire Vehicles (London) Act 1998.
The 1998 Act expressly provides (that the London licensing authority (now TfL) shall grant a PHV licence for a vehicle if it is satisfied, amongst other things, that “there is in force in relation to the use of the vehicle a policy of insurance or such security as complies with the requirements of Part VI of the Road Traffic Act 1988”: s.7(2)(b). This is the mandatory insurance requirement. As set out above, RTA 1988 insurance is third party insurance, not hire and reward insurance.
S.21 of the 1998 Act gives a “producer” power not just to constables but also to authorised officers (of TfL). The producer power again relates to RTA 1998 insurance, so third party insurance. There is 6 day period for a s.21 producer to be complied with: again, something of an anachronism in these days of MID.
However, a more flexible power derives from s.27 of the 1998 Act, which makes it an offence to wilfully obstruct a constable or authorised officer acting in pursuance of this Act.
The Private Hire Vehicles (London PHV Licences) Regulations 2004
S.7(2)(c) of the 1998 Act provides, in effect, that TfL can require to be satisfied of “any further requirements that may be prescribed” before granting a PHV licence.
These further requirements are found in Schedule 1 of the Private Hire Vehicles (London PHV Licences) Regulations 2004 (“the 2004 Regulations”). Prior to the amendments in question, none of these requirements involved insurance. So the existing position was that it was possible to licence a London PHV with third party insurance that complied with the RTA 1988. Hire and reward insurance was not necessary.
The 2004 Regulations set out in Schedule 2 the prescribed conditions subject to which a London PHV licence is granted. Breach of condition is a ground for suspending or revoking a licence (s.16(3)), although not, of itself, an offence.
The conditions prescribed in Schedule 2 included at condition at 4(c)(ii) that upon the change of ownership, the new owner would declare to TfL that the vehicle was insured in accordance with s.7(2)(b) (in other words that it third party insurance). More importantly, condition 14 provided:
14. The owner shall not use the vehicle, or permit it to be used, as a private hire vehicle at any time when there is not in force for the vehicle a policy of insurance, or such security as complies with the requirements of Part VI of the Road Traffic Act 1988, covering the use of the vehicle to carry passengers for hire or reward.
The Private Hire Vehicles (London PHV Licences) (Amendment) Regulations 2016
The new regulations make the following amendments to the insurance provisions of the 2004 regulations.
First, a new requirement is place at paragraph 11 of Schedule 1:
11. The vehicle must be insured to carry passengers for hire and reward.
This means that a PHV licence cannot be granted unless there is in place at the time of the application a policy of insurance for hire and reward.
Second, there is a corresponding amendment to the prescribed condition at 4(c)(ii), so that when there is a transfer of ownership the new owner has to declare to TfL that the vehicle is insured to carry passengers for hire and reward.
Third, and most importantly, there is a new condition 14:
(1) The vehicle must be insured to carry passengers for hire and reward at all times for the duration of the licence.
(2) Details of the insurance must be displayed in the vehicle at all times for the duration of the licence. Transport for London shall specify from time to time the details which are to be displayed and how they are to be displayed.
So, the change is to now require the vehicle to be insured for the purposes of hire and reward for the duration of the licence. This is a radical change from the existing requirements, where the vehicle only had to be insured - at all - at the time of grant and transfer of ownership (although the reality, I suspect, that it would not pass periodic inspection without insurance). The very practical difference is that the regulations expressly contemplated that the vehicle would not have to have hire and reward insurance when not being used as a PHV.
The Notice accompanying the new regulations says:
All private hire vehicles must have hire and reward insurance in place both at the point they are licensed and for the entire time the vehicle is licensed, including when the vehicle is not in use as a private hire vehicle.
What this means for you:
If you are a new applicant or are renewing your vehicle licence, from 27 June 2016 you will only pass your vehicle inspection if you have hire and reward insurance in place at the point of licensing. You will also need to have your hire and reward insurance available for inspection when your vehicle attends the vehicle test centre (see 'carry or display of hire and reward insurance' below). If you do not have the appropriate hire and reward insurance in place, you will not be issued a new or renewal licence.
If you are an existing licensee, we expect you to make sure that, by 11 July 2016, you have hire and reward insurance in place that is valid until the date your vehicle licence expires. If you fail to meet this requirement, you may face licensing action.
What policy durations are likely to be acceptable?
This appears to have been interpreted as an indication that applicants for PHV licences will need to furnish, at the date of application, an annual policy lasting for the 12 month duration of the licences. And similarly that those with existing licences need to extend such policies as they have by 11 July 2016 so that it runs to the end of the licence.
In my view such a stance would be highly unlikely to be lawful.
Hire and reward insurance is expensive. The insurance industry has adapted to this fact by selling such insurance for shorter periods than one year. Monthly, indeed weekly certificates can be purchased. In the past, some provincial licensing authorities have expressed a dislike of short term insurance policies, asserting that they cause extra administrative work, or permit vehicle owners to present a short term policy at the time of grant, renewal or a scheduled inspection, and to be uninsured or not properly insured at other times. But attempts to prevent the use of short term insurance policies (say by refusing to accept them as valid proof of insurance) have met with challenges from the insurance industry.
Further, it is easy to see how insistence upon, say, an annual certificate at the date of grant actually achieves little in enforcement terms. An annual certificate can be cancelled at any point, so a committed fraudster will simply take out the policy for the purposes of the grant and cancel it once the grant is made. The abolition by the Deregulation Act 2015 of the offence in s.147 RTA 1988 of failing to surrender a cancelled certificate of insurance (in practice honoured more in the breach than in compliance) and the current focus on the MID makes paper certificates an increasingly unreliable source of whether a vehicle is insured or not.
My understanding is that TfL will shortly issue written guidance as to what documentation will be acceptable, and I understand that it will not be requiring insurance certificates that are presented at grant or on an inspection to run for the full course of the licence. The devil is always in the detail, and as yet we do not have the detail. But I do not think that the effect of this new regulation will be to require the owners of PHVs to insure their vehicles for hire and reward for 12 months upon the grant of the licence. It will be a condition of their licence that the vehicles are insured for that duration, but I suspect it will be up to individual owners whether they chose to do so by annual policies or a series of shorter policies.
Are the new insurance regulations immune from challenge?
The 1998 Act expressly contemplates licensed London PHVs not being used as PHVs for all the time they are licensed. In this regard, a PHV is different from a hackney carriage, which is always a hackney carriage whatever it is doing: Stockton on Tees Borough Council v. Fidler  EWHC (Admin) at paragraphs 56-57
For example, and there are many examples, a licensed PHV driver, when he the driver of a vehicle “being used as a private hire vehicle” (which is defined in the Act) must (s.14(3)) wear his badge: the inference being when the vehicle is not being used as a PHV, he need not wear his badge. So, if he is going to the shops. Or caravanning in Wales. The 2004 Regulations themselves contemplate a London PHV being used as a London PHV some of the time and as a provincial PHV the other time (condition 12)
If the Act and the Regulations accepts that licensed PHVs are not always being used as PHVs, then it may be hard to justify why they need to be licensed for hire and reward at all times.
Drivers might ask why should their vehicles have expensive hire and reward insurance in place if, say, they are absent abroad on a trip, or unwell, or for whatever reason unable to work for an extended period of time.
The counter-argument to this is that there is a balance to be struck between the financial cost to licence holders of compliance with conditions and the public benefit the condition brings: essentially the principle of proportionality derived from EU law. If there is perceived to be a problem of London PHV drivers carrying passengers for reward without being properly insured because they take advantage of the flexibility offered by the old condition 14 to claim, when challenged to show their hire and reward insurance that they are “not working”, then, if it can be shown that there is no less onerous solution than removing that flexibility, the new condition will be upheld.
The way forward
It is easy to think of situations where the new condition will cause additional expense to PHV owner/drivers who were perfectly law abiding the first place. An owner/driver who habitually leaves the country for an extended period of time each year, and when he does so garages his PHV and places it on third party cover rather than expensive hire and reward is to be potentially penalised by this change for no advantage to the public so far as he is concerned. Whether financial harm of that nature to drivers is disproportionate to the wider advantages to be achieved by conditioned continuous hire and reward cover is a matter for the courts if any challenge is brought. It may be the best system that there is.
But it seems obvious that what is really required in the long term is some form of electronic database, either in conjunction with or alongside the MID, where a regulator like TfL is automatically informed of a lapse in hire and reward on a licensed PHV in much the same way as the DVLA is told of a lapse in third party insurance on a taxed vehicle. Until then, a system based on paper certificates that (with the ironic exception of 7 day certificates) can be cancelled at any time by the insured is a system that will help the dishonest and potentially cause additional unnecessary expense to the honest.