The Supreme Court could be asked to decide whether a "drug dealer" badly hurt in a crash when travelling in a car driven by an uninsured driver and being used "for the purpose of drug dealing" should get compensation.
Sean Delaney had initially claimed compensation under a scheme which provides for victims of uninsured drivers - and has been agreed by transport ministers.
And he took legal action against Transport Secretary Patrick McLoughlin after his claim was refused.
Mr Delaney's initial compensation claim was refused by an insurance firm operating within the uninsured drivers' scheme. The firm said compensation did not have to be paid because Mr Delaney "knew or ought to have known" that he was a passenger in a car being used in the "course or furtherance" of a crime.
The firm said that "exception" to the normal rule on payouts was part of a clause in the agreement reached between transport ministers and the Motor Insurers' Bureau - the organisation which is authorised by ministers to handle compensation claims involving uninsured drivers and is funded by insurance firms.
But Mr Delaney - who was cut from the wreckage of a Mercedes being driven by an acquaintance after a head-on collision near Nuneaton, Warwickshire, nine years ago - disagreed and targeted Mr McLoughlin.
He argued that the "exception" was incompatible with European Union directives and said the Government was in breach of European Union law - and he claimed damages from the Government.
A High Court judge ruled in his favour last year - and the Court of Appeal today upheld that ruling.
But a Department for Transport spokesman tonight said ministers might try to take the case to the Supreme Court - the highest court in the UK.
"We are very disappointed by this judgment," said the spokesman.
" We have a zero tolerance approach to dangerous driving and will continue to contest any decision which unfairly penalises the British taxpayer.
"We will explore all possible avenues for appeal."
Mr Justice Jay had analysed the case in June and said European Union directives allowed only certain exceptions to liability for injury compensation.
Lawyers representing Mr McLoughlin had argued that the "exception" applied because Mr Delaney knew that the car was uninsured "on account of the fact" that it was being used for the purposes of a criminal enterprise.
They argued that "everyone" knew that a vehicle being driven in the course or furtherance of a crime was uninsured.
But Mr Justice Jay had said he could not reach that conclusion.
The judge had said it was likely that Mr Delaney "gave no thought" to the question of insurance - and said the "exception" did not apply.
Mr Justice Jay had said people might wonder how it could be that a "drug-dealer" was entitled to compensation in circumstances where he was injured during a "criminal enterprise".
But he had said relevant European Directives "clearly state that there are only certain limited exceptions to liability in these circumstances".
And he had said there was "no rule" which barred a compensation claim such as the one made by Mr Delaney on the grounds of "public revulsion".
Three Court of Appeal judges supported his reasoning - and dismissed an appeal by Mr McLoughlin - in a written ruling published today following a hearing in February.
No mention was made of the amount Mr Delaney might receive in damages in either Mr Justice Jay's ruling or the Court of Appeal ruling.