INSURERS TOTAL-LOSSING VEHICLES THAT SHOULD BE REPAIRED
Last year at the Automechanika Birmingham, Tim Kelly was a keynote speaker and addressed treating customers fairly in vehicle collision damage. He is an independent industry expert for all sides in the body shop aspect of repair.
Kelly has repeatedly said that it is annoying when insurance companies total-loss cars that are repairable; in fact, it infuriates him even more when the customer wants their car repaired and the insurer ignores them. He says this issue is what he is confronted with more than any other issues.
The huge increase in claims being dealt with on a total-loss basis has significantly increased over the last five years, and it is a dangerous trend that needs to stop.
What is total loss?
Firstly, we need to use the correct terminology. The common phrase used is ‘write-off’, but that is incorrect.
The term ‘write-off’ is an insurance term. The significance of this term is that when you create an insurance policy, you write into the policy that items must be underwritten with a guarantee of indemnity.
The underwriter writes the name of the company accepting the risk under the item that requires insuring: this policy is ‘underwritten’ by ‘insurer’s name.’
When a claim is made and the item declared a total loss, then it is written off out of the book of underwriting – or written off.
However, total loss has a different meaning. It related to the asset that is insured means that the cost of repairing it exceeds the market value, so the cost of repair ‘in totality’ is beyond the level of indemnity.
This is compared to a partial loss, which means the cost of the repair is less than the market value and can be indemnified at the cost of repair.
Indemnification in motor insurance
Insurance has its own field of law, doctrines, requirements and principles. A fundamental principle of insurance is the ‘provision of indemnity’. In case law, this means that “as far as money can do, the claimant should be placed in the same financial situation they enjoyed prior to the loss occurring and not be in a better or worse position.”
Contrary to what a motor insurer will have you believe, motor insurance has nothing to do with repairing cars. The specific role of the insurer is to pay monies to compensate the loss that has occurred, not pay for repairs. In fact, you do not even need to have the vehicle repaired, you should still be paid the full cost of repair inclusive of the VAT element.
The insurance contract
The standard wording of most if not all motor insurance contracts is that they ‘promise to indemnify you up to the market value.” If it is not said it is certainly implied, as it is a fundamental requirement of insurance.
If it is not, it needs to be specified in the contract.
An insurer cannot then limit their liability to less than the market value as it would be a breach of contract and a breach of the legal doctrine of Estoppel. If it is not in the contract, it is not enforceable, and if it is in the contract, then it is an unfair term and not a legal contract.
A vehicle is only ever a total loss when the repair cost exceeds the market value. When a repair costs less than the market value the policyholder still owns the vehicle, and the insurer has no legal rights over it.
As such, they cannot deduct a sum of money for salvage.
As they indemnify up to the market value for the loss that has occurred, the vehicle owner is fully entitled to the full cost of the repair to be paid. Should they wish to have a claim dealt with as a ‘constructive total loss.’ That is their choice, not the insurers.
Repairers repair vehicles – educate your customers.
By Tim Kelly
