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If the "friend" is not a "friend" then you could say she did not have permission to use your car but she took it without your knowledge, the police would then charge her for taking without consent and she would face any charges and you would be in the clear. Perhaps you can advise your friend of this.
If you do not want to do this then follow Loosehead's advice.
A 2005 amendment to the Road Traffic Act 1988 now lists the specific offences of "causing or permitting the uninsured use of a vehicle" for which the Registered Keeper of the vehicle is wholly liable.
http://www.cps.gov.uk/legal/section9/chapter_a.html#09
Allowing a vehicle to be used uninsured carries an IN12 conviction - this can be endorsed with 6 points, so it's possible a new driver can lose their licence.
Unfortunately, the defence that the friend told her he/she had insurance will not be deemed a satisfactory defence, and your daughter should have requested to see the insurance certificate.
It's not a nice situation, but the police won't accept ignorance as a valid excuse for not prosecuting in the majority of cases.
If the friend says he/she never told your daughter this, you have one word against the other, and I would suspect (based o ncases I've seen) that they will both be liable for prosecution.
Ok Kempie pick holes, I used one word "abet" to replace your entire paragraph, note it as a small "a" it was to avoid going into the actual offence. abet is just a word it has no definition in law. The IN12 offence discribed by gouldc is essentially aiding and abeting the offence.
Anyway Bobis the case pivots on whether your daughter thought he had insurance and she did. It would help though if her "friend" also told the police that he convinced her that he had.
As for abet having no definition in law - it forms the basis of legislation governing complicity in criminal offences (s8 Accessories and Abettors Act 1861 as amended by s65(4) Criminal Law Act 1977) which states:
'Whosoever shall aid, abet, counsel, or procure the commission of any indictable offence, whether the same be an offence at common law or by virtue of any Act passed or to be passed, shall be liable to be tried, indicted, and punished as a principal offender.'
...and that in AG's Reference (No 1 of 1975) (1975) QB 773, Lord Chief Justice Widgery stated that the words in s8 should be given their ordinary meaning.
'The natural meaning of "to abet" is "to incite, instigate or encourage" and this can only be committed by an accessory who is present when the crime is committed. This does imply either an express or implied agreement between the parties although there is no need to prove any causative link between what the abettor did and the committion of the offence.'
The only appropriate offence here would be permitting (the friend) to drive without insurance. (She could not be said to have "caused" him to drive as she has no power of compulsion over him.
However, you cannot in law be considered able to permit something you have no knowledge of, so if she had no reason to believe he was uninsured at the time, I would argue that there is no case against her to answer.