17 July 2012 #Dispute Resolution
Motor vehicle insurance has been the subject of several Court decisions in the past year. Last month it was the turn of vehicle repair charges incurred after motor vehicle accidents to be looked at by a Judge.
Where there has been a motor vehicle accident, the party responsible for the accident has to pay damages to the innocent party. Assuming that both parties have insurance, payment is usually dealt with by the respective parties’ insurers. The general rule is that the innocent party is entitled to recover the loss in value of the vehicle caused by the accident. This is generally calculated as the cost of repairing the vehicle.
In the very recent case of Coles –v- Heatherton, the Commercial Court was asked to consider whether the cost of repair accurately reflects the losses suffered by the victim of a car crash. The point arose because the vehicle repairs were arranged through a repair company owned by the insurance company and this structure was believed to be artificially increasing the repair costs. This was a test case brought to determine the law in relation to a number of similar cases.
Facts of the case
The Claimant car owner (the Claimant) was involved in a minor road traffic accident and had arranged with their insurer (the “Claimant’s Insurer”) to have the vehicle repaired under his insurance policy. The Claimant’s insurer then brought a claim against the Defendant driver to recover its losses. The Defendant, through their insurer, admitted that they were responsible for the accident but disputed the damages claimed by the Claimant’s insurer.
Under the terms of his insurance policy, the Claimant could either have his vehicle repaired using the Claimant’s Insurer’s repair system (and be provided with a courtesy car) or make his own arrangements for his vehicle to be repaired. The Claimant had opted to have the vehicle repaired under the Claimant’s Insurer’s repair system. This meant that the repairs were handled by an auto repair company owned by Claimant’s Insurer (“the Mechanics”) who either repaired the vehicle themselves or sub-contracted the repair works out to independent third party auto repairers.
The Defendant’s Insurer alleged that this system operated by the Claimant’s insurer increased the costs of repairs by as much as 25%, especially where the repair works were sub-contracted to third parties. The Defendant’s insurer argued that as a result of these contracts and sub-contracts, the cost of repair were increased and that the Claimant should not be entitled to recover the amount of the increase. The Claimant’s Insurer countered by arguing that the cost of the repairs was approximately equivalent to what the Claimant would have had to pay at any repair garage. This was because the Claimant’s Insurer’s actual repair costs were lower than market value because the Claimant’s Insurer’s were able to put a large volume of business with the Mechanics who were in turn able to reduce individual repair costs.
The Court was asked to consider what damages the Defendant should be required to pay.
The Court’s decision
The Court determined that the usual rule for determining damages should remain that the Claimant should be entitled to the loss in value of the motor vehicle, which should be calculated as the reasonable cost of repairing that damage. (Even if the repairs were not actually done, the Claimant was entitled to claim damages equivalent to what it would cost to have the vehicle repaired).
In order to work out the reasonable cost of the repair, the Court looked solely at the position of the individual Claimant and what the Claimant’s reasonable cost of repair were at the time of the accident. The Court specifically did not take into account the Claimant’s insurance position or his benefits under his insurance policy. The fact that the insurer’s actual costs of the repair were lower than the amount claimed in the legal case was immaterial. Since the overall costs were still broadly what it would have cost the Claimant to have his vehicle repaired had he made the arrangements himself, the Defendant’s insurer were ordered to pay the full amount.
Although this decision is correct as a matter of law, in practice it does mean that Claimant insurers are able to claim more for repair costs than they actually need to incur which inevitably will another factor in keeping insurance premium’s higher than necessary.