The body that compensates victims of car accidents caused by uninsured drivers is planning to petition the Department for Transport to tighten up guidelines on who is eligible for compensation after losing a major court case this morning.

The Motor Insurers Bureau (MIB), which is funded by individual car owners, will ask the DFT to make it clear that the dependents of a passenger killed while travelling with a driver they knew was uninsured are not eligible to claim compensation.

The MIB, which pays out millions of pounds to accident victims and their families each year, is demanding the change after losing a High Court appeal on the issue today.

It was challenging a previous judgment ordering it to pay compensation to Louise Phillips, whose husband Neville died after his friend Mohammed Rafiq fell asleep at the wheel of Mr Phillips’ car on the M25 in 2002.

Since Mr Phillips knew, or ought to have known, that Mr Rafiq was not insured to drive the vehicle the MIB argued it was not liable to compensate his wife, according to the terms of the Uninsured Drivers Agreement 1999.

However, lawyers for Mrs Phillips successfully argued that the exclusion for claimants who knew they were being driven by an uninsured driver was limited to the passenger and did not extend to Mrs Phillips, who was the claimant in this case.

The Court of Appeal this morning endorsed this view and rejected the MIB’s appeal in a decision that Mrs Phillips’ lawyers, Field Fisher Waterhouse, believe could cost the body “millions of pounds.”

However, a spokesman for the MIB said the case concerned accidents with very specific circumstances that occurred in limited numbers. It added that it hoped to significantly limit the financial consequences of the judgment by petitioning the DFT – a move that would prevent similar claims in the future.

Nick McMahon, a partner at Reynolds Porter Chamberlain, said it was possible that honest motorists would suffer as a result of the judgment.

The MIB is funded through a compulsory levy added on to car insurance premiums and Mr McMahon said it was likely this would need to increase following today’s decision.

The MIB declined to comment on whether it need to ask for additional funds but sources close the group suggested that was unlikely given the limited number of claims involved and the plan to limit the financial fallout by changing the terms of the Uninsured Drivers Agreement 1999.

The Association of British Insurers said it cannot comment on individual cases but said that uninsured drivers cost the motor insurance industry around £500 million a year and that the average motorist pays £30 a year towards the cost of the MIB.

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