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Coles & Others v Hetherton & Others, Court of Appeal, 20 December 2013

20 January 2014

Issues
Road traffic – diminution of value – cost of repair.

The facts
The appeal concerns 13 ‘small claims’ that arose out of minor road traffic accidents. In reality it concerned a conflict between, on one side, the Royal Sun Alliance Insurance Plc (RSAI) and Provident Insurance Plc and Allianz on the other side. In each case the claimant had motor insurance with RSAI and the claimant’s vehicle was damaged as a result of admitted negligence on the part of the defendant driver insured by either Provident or Allianz. In each case the claimant’s motor policy contained an option allowing the insured to have his vehicle reinstated if the cost of repairs were judged to be less than the vehicle’s market value. If that choice was taken then the insured had a further choice under the terms of the policy, namely to elect to engage his own repairer or to elect to use RSAI’s system for repairing vehicles. If he chose the latter he had the option of using a courtesy car if he wanted. In all 13 cases the claimants chose the RSAI repair system option. In some of the cases the claimant also took advantage of the courtesy car offer. In each case the RSAI exercising its right for subrogation brought a claim against the negligent driver claiming the total cost of the repairs paid out by it including some ancillary charges and the cost of the courtesy car. The question in principle was whether the claimant in reality RSAI could recover the full cost of the repairs to the vehicle (as invoiced to RSAI) when it had been repaired using the RSAI repair system which had been set up through another company in the RSAI group. Provident and Allianz argued that the repair system had the effect of inflating by about 25% of the total cost of claims for repair and that the claimant was not entitled as a matter of law to claim that full sum.

There was a subsidiary question concerning the right to recover the cost of the courtesy car. It had been ordered that there should be determination of three preliminary issues namely:

  1. Measure of loss
    Where a vehicle was damaged as a result of negligence and was reasonably repaired rather than written off was the measure of the claimant’s loss taken as the reasonable cost of repair.
  2. Test of reasonable repair charge
    If a claimant’s insurer had arranged repair, was the reasonableness of the repair charge to be judged by reference to what a person in the position of the claimant could obtain on the open market or what his or her insurer could obtain on the open market.
  3. Recoverable amount
    Where a vehicle was not a write off and an insurer indemnified the insured by having repairs performed and paying charges for those repairs, and where the amount claimed was no more than the reasonable cost of repair (on the correct legal test determined under the question above) was that amount recoverable.

When the matter came before the High Court judge, his answers to the first two preliminary issues were 1) yes; 2) the test set out in 2 (a) – he had been asked not to answer the third question and did not do so. Provident and Allianz appealed.

Preliminary issue one
On a strict analysis of the law the preliminary issue asked the wrong question because the measure of the claimant’s loss resulting from the damage inflicted by the tortfeasor was the diminution in the value of the vehicle. Strictly speaking the diminution in value claim should therefore be pleaded as a claim for general damages. Documents such as an invoice for the cost of the repairs undertaken were no more than evident as to the diminution in value suffered by the chattel as a result of the negligence of the wrongdoer which could be used to make good the claim. The cost of the repairs strictly speaking was not itself the loss suffered. Mitigation was not relevant. The loss could not be mitigated by having the chattel repaired free or for a lower cost because it was not the cost of the repairs that constituted the loss. The loss was the diminution in value of the chattel. Derbyshire v Warren illustrated the point. This was a case where the cost of repairs greatly exceeded the undamaged value of the car. The claimant was unable to recover all the cost of the repairs on the basis that the measure of damage was its value or the diminution in value of the car. The answer to preliminary issue 1 was therefore yes.

Preliminary issue two
The first issue was whether as a matter of principle there should be a difference between the case of a chattel that was not insured or which was insured but whose insurer was not contractually bound to arrange the repair of it and a chattel that was insured and whose insurer had arranged the repair in fulfilling his policy obligation. In the view of the Court of Appeal the clear answer to this question was no.

There were two basic principles. The first was that the cause of action against the tortfeasor remained that of the claimant unless it was specifically assigned to the insurer. This was the case even where the claimant had been indemnified by his insurer.

A second basic principle was that in respect of a loss covered by insurance the benefits obtained under the insurance were irrelevant in assessing the correct measure of damages recovered. The short answer to the second question therefore was that unless the Provident and Allianz could take the present cases out of these general rules, what the insurer could obtain on the open market by way of a reasonable repair charge was irrelevant, because the position of the insurer was, as a mater of law, irrelevant. Both defendant insurers relied on Copley v Lawn to demonstrate that in certain circumstances the court could take into account the position of the insurer. However the passages relied on in Copley v Lawn recognised no more than that where a claimant received an offer to make amends, then the claimant should be credited with the advice which he could have been expected to obtain from other professionals. They did not undermine the general principles that:

  • a claim was that of the claimant and not the insurer who would become subrogated to the claim;
  • the present claim was one for direct loss where mitigation was irrelevant, and
  • the fact that the claimant had been indemnified by the insurer could not be prayed in aid to reduce the liability to the tortfeasor.

The answer to preliminary question two was therefore, if the claimant’s insurer had arranged the repair, the reasonableness of the repair charge was to be judged by reference to what a person in the position of the claimant could obtain on the open market. The repair charge was no more than evidence although often the best evidence of the diminution in value of the vehicle that had been damaged as a result of the negligence of the tortfeasor.

Preliminary issue three
The measure of damages recoverable was the diminution in value of the vehicle caused by the negligence of the defendant. That figure was usually calculated by the reasonable cost of repairs in a case where the vehicle was capable of economic repair. If the insurer had arranged and paid for the repairs to the claimant’s vehicle, the court had only one question to consider – whether the actual sum claimed was equal to or less than the notional sum the claimant would have paid by way of reasonable repair if he had gone in to the open market to have those repairs done. The court has to examine the components of the notional overall figure said to represent what the claimant would have had to pay (not the insurer) if he had organised the repair to ensure that the sum represented the reasonable cost of repairs. He would then compare that figure stripped if necessary of any unreasonable elements of the total sum representing the actual cost to the insurer. The total cost paid by RSAI was more than the reasonable repair cost that the claimant would have paid if he had arranged the repairs on the open market and the sum claimed would simply be reduced to the notional reasonable repair cost.

The position of the cost of a courtesy car was different because the cost would not be part of the repair costs. The cases all established that a claimant could claim the cost of a replacement of a damaged chattel provided he had reasonably mitigated his loss and that the cost contained no element that was not legally recoverable. If under the terms of the claimant’s insurance he was entitled to indemnify by having a replacement car provided without further charge, then the claimant could still claim general damages for the deprivation of his own vehicle. In practice the amount of those general damages would be the sum it would have cost the claimant to hire (on non credit terms) a vehicle. The general damages recovered in respect of the deprivation of his own vehicle would then be held for the benefit of his insurer. It was argued by the two defendant insurers that there was a distinction from that position in these cases, namely that the car was provided as a benefit under the policy rather than as an indemnity in respect of the claimant’s loss of use of his damaged vehicle. As such the benefit did not constitute the fruits of the insurance. Secondly by taking this benefit the claimants had mitigated their loss so that the loss of use damages were reduced to nil. Neither argument could be accepted. The right was dependent upon the insured opting to use the RSAI scheme. It was a contractual benefit under the policy which RSAI was bound to supply if the insured exercised the RSAI scheme option. Because the policy provided that the policyholder could have a replacement vehicle at no charge if he used the scheme, there was no question of mitigation of that option. Mitigation concerned actions taken to reduce loss after the breach of contract or tort had occurred. Here the claimant was exercising rights for which he contracted and paid for before the tort occurred. Exercising that contractual right was not mitigation. The answer to preliminary issue three therefore was yes.

The decision
Appeal dismissed.

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