Stiff Penalties

DHV (A Protected Party through his Litigation Friend, WTX) v Motor Insurer’s Bureau [2025] EWHC 2038 (KB) – a recent judgment of interest

It has now been over a year since the Court of Appeal handed down its judgment in Nicholls & Anr v. Mapfre Espana [2024] EWCA Civ 718, a decision which confirmed that Spanish penalty interest is a matter of substantive law under Rome II. Thus, in the instant case of DHV v. MIB, where Spanish law applied, it was agreed that, in principle, Spanish penalty interest would be applicable (pursuant to Article 20 of the Spanish Insurance Contract Act 50/1980 (“Article 20”)).

By way of factual background, on 21 July 2017, the Claimant had left a wedding in Mallorca and was crossing the road when he was hit by an uninsured vehicle. In Spain, the Consorcio de Compensación de Seguros (or “CCS”, the Spanish compensation fund) stands ready to compensate parties in Spain injured by an uninsured driver. The Motor Insurers’ Bureau (“MIB”) then stepped in for the CCS by virtue of regulation 13 of the Motor Vehicles (Compulsory Insurance) (Information Centre and Compensation Body) Regulations 2003 (“the 2003 Regulations”), as it applied.

The accident left the Claimant with severe injuries. The MIB notification form dated 19 September 2017 outlined in brief the Claimant’s personal injury as “very severe brain injury along with multiple orthopaedic injuries”, with the Claimant having stayed in hospital as an inpatient for 48 nights. An Immediate Needs Assessment, dated 6 October 2017, outlined the Claimant’s injuries in more detail and included bleeding on the brain as well as several fractures, including one to the skull.

At trial it was agreed by the reconstruction experts that the Claimant had been ‘flush’ with the road at the point of impact. Dias J applied Spanish law and determined that the Claimant bore 65% responsibility for his injuries, see his earlier judgment at [2025] EWHC 2002.  In that same judgment he rejected every argument the Claimant made to try and get round the Baremo quantification tariffs – and the judgment does warrant reading to see the comprehensive dismissal of the Claimant’s arguments that there was any way round the tariffs in a road accident case.

The question now arose whether the MIB ought to have compensated the Claimant sooner for his injuries and whether a failure to have done so required the MIB to pay penalty interest.

As a brief aside, it is also noteworthy that the Claimant sought to rely on first instance English High Court decisions which spoke to the content of Spanish law, as part of his submissions. The Judge refused this – the only permissible sources of Spanish law were (1) the text of the legal provision (here Article 20); (2) the Spanish Supreme Court doctrine; (3) the expert evidence adduced in these proceedings.

Under Spanish law, Article 20 provides that penalty interest will apply if compensation is not paid within 3 months of the insurer having been notified of the claim. For the first two years such interest accrues at the current legal interest rate increased by 50 per cent. After that, it accrues at a rate of 20 per cent per annum. However, under Article 20(8), no penalty interest may be imposed on a defaulting insurer acting as a guarantee fund in two situations:

“There will be no compensation for the insurer’s delay when the failure to pay the compensation or the payment of the minimum amount is based on a justified cause or is not attributable to him.”

The MIB in the instant case accepted that it was in default of its obligation under Article 20(9) to pay compensation within three months of the notification of the claim for damages but submitted that there was justifiable delay for the purposes of Article 20(8). 

The Defendant raised a number of arguments in seeking to rely on Article 20(8).  It argued that it had made interim payments of £50,000 in June 2021, £70,000 in June 2022, and £50,000 in October 2022. The context of these payments, however, was important. The first interim payment was made shortly before a listed hearing for an interim payment application, and almost four years after the initial MIB notification form. The second and third interim payments were only made following fully contested applications before a King’s Bench Master, who ordered the sums payable. Dias J determined this to be “significant in assessing the approach and attitude of the defendant in seeking to justify delay in payment of compensation” and placed limited weight on the interim payments.  As the Claimant had said, the payments were only ever made through gritted teeth.

The Judge also considered the fact that the Defendant had accepted primary liability in October 2020, and that, under Spanish law, the maximum contributory negligence that can be attributed to the claimant in the circumstances of an uninsured driver would be 75 per cent. Thus, even with a finding of contributory negligence, the Defendant must have known that it would have at least 25 per cent residual responsibility once it accepted primary liability.

Additionally, the test under Spanish law does not require full or precise quantification to be made for Article 20 to engage. The Defendant had accepted it had “piles and piles” of information about the claim and the Judge found that it had conflated an obligation to pay some compensation with an obligation to pay full quantification. The Judge also noted several Spanish Supreme Court cases which encapsulated a pattern of disapplying penalty interest only in special cases, and restrictively. Both experts in DHV accepted that.

Other matters relied on by the Defendant included procedural delays in the English proceedings, and the fact that such delays meant that the quantified schedule was only provided to the Defendant more than five years after it would have been provided in Spain. Neither of these arguments absolved the Defendant of the requirement to pay. There was sufficient material for the Defendant to have formed a reasonable assessment of the claim and to have paid at least some compensation.

Dias J thus had “no hesitation” in concluding that there was “no justifiable reason for delay and no other relevant reason for the delay in payment not attributable to the defendant.”

The Claimant’s clear-cut success in the judgment on penalty interest may have been only some consolation in a case where he had been found 65 per cent contributorily negligent (just shy of the maximum 75 per cent) and where his compensation was limited to the strict application of tariffs inextricably associated with Spanish socio-economic assumptions which could not apply to him. But this decision more broadly is clear – an insurer should now be fairly confident that Spanish penalty interest will apply where Spanish substantive law is applicable, and should consider promptly making a payment of compensation to avoid the imposition of heavy penalties.