How to make something really simple expensively complicated.

Some of you may have noticed the increasing hysteria, whipped up by newspapers and politicians, over the cost of car insurance.  Even I have emerged from my ivory tower long enough to blench at the cost of renewing the insurance on my family runabout. Drastic steps, we are told, need to be taken to bring down the cost to insurers of accident claims.  Chief among these are:

1.  Damages for sore backs and necks - usually averaging somewhere in the region of £2,500 per claim;
2.  Credit hire claims - where the victim of an accident hires a car on credit until his/her own is repaired or paid for as a total loss;
3.  Legal costs - which are now fixed in many cases at as little as £1,200.  The major element under attack is the payment of a referral fee, many of which went to the insurers in the first place, by which a solicitor acquires a client  at the outset.

Sweeping costs changes have been recommended to reduce the costs of accidents to insurers, in order that they can pass on the savings in lower premiums.  No or reduced success fees for lawyers.  Reduced fixed costs for the more valuable claims - up to £25,000 perhaps.

And then comes the next great cost inflator - and just like referral fees, it comes from the insurers themselves!

Royal and Sun Alliance

Coles v. Hetherton

What should an insurer pay for a car to be repaired?  Now you would think the answer to this is blindingly obvious - the amount it cost for the garage to repair it, duh!  Well it seems that this is not so.  Let me explain why.

RSA came up with a cunning scheme to make a profit from repairing cars instead of just from insuring them.  All with relatively little need to fix them themselves.  What they did was this; first they set up a company called RSA Accident Repairs Ltd.  Then they assigned to it a trading name - MRNM.  Doesn't look too much like RSA, does it?  MRNM opened six garages to do motor repairs and 15% of the repairs carried out on RSA policy holders' cars were carried out in those garages.  Or to put it another way, 85% weren't.

Those 85% were repaired at independent garages, who duly invoiced MRNM, for the work they had done.  Then MNRM billed RSA an amount which invariably exceeded what it had paid to the garage.    Then, of course, RSA demanded that the other driver's insurer pay the MRNM charges, not the garage's.  "RSAI accept that the model described generates income for MRNM which is a company in the same group as itself, though not a subsidiary."

So how is this justified?

RSA has two justifications for this system.  In the first place, it says that a private individual would never get the preferential rates it can negotiate with repairers due to its buying power.  It doesn't see why that benefit should be passed to the other insurer - it retains that benefit by this system.

Secondly, it points out that other insurers have different methods of ensuring a similar outcome, such as charging garages a referral fee for passing their drivers to them for the repair work.  RSA is just generating a profit for a group company by a slightly different route.  Obviously a garage which has paid a referral fee to get the work has to recoup it by increasing the cost of the repairs, in just the same way that a law firm does when charging for the personal injury work arising from an accident.

And the legal analysis?

Well it seems that this is actually quite complicated.  The judge points out that the measure of damage is actually the reduction in the value of the car resulting from the accident.  Commonly this is taken as being the reasonable cost of repair because after a repair, clearly the value of the car will have been restored to its pre-accident level.

But what is the reasonable cost of repair?  Is it the amount actually paid to put the damage right or is it the amount the car owner would have had to pay if the insurer hadn't negotiated a better deal?  You can read the judgment if you wish, but I can tell you that it goes over a number of cases stretching back more than 120 years and which in the main part seem to concern ships.  The judge concluded that the actual amount paid to fix the car does not determine the level of compensation to be paid for the reduction in its value.

What should be done?

Parliament is already legislating in this area.  It's declared intent is to protect the interests of car owners by driving down premiums.  Good.  So let's see if our MP's are actually prepared to do just that.  Why leave this in the hands of the courts and cases about ships from the 19th century?  Just enact a nice simple bit of legislation which provides that the measure of damages in a motor accident which can be recovered for the repair of a car is what it actually cost to fix it.

The stupid thing is this - all these cunning schemes, demanding referral fees and the like, increase the amount of money sloshing round the motor insurance industry, but don't improve the insurers' profitability.  Every referral fee received by an insurer simply has to be paid out again as suppliers add it to their own charges.  There's a huge oncost but no additional benefit for anyone.

Is it too much to ask that insurers revert simply to insuring drivers against known risks and leave fixing their cars to mechanics?



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Is there no end to the compensation culture?

Surely the ambulance chasers have gone too far this time?  There's a depressing new judgment on bailii.

Santa and his elf

It seems that a Mrs. Dufosse, together with family members, went to see Santa in his grotto in November 2009.  (Just don't get me started on the subject of how early it is appropriate to be getting into the festive spirit!).  Anyway, Mrs. Dufosse soon found herself on her back in the grotto and in some pain.  Underneath her was an icicle.  This being in November and in a centrally heated store, Selfridges to be exact, it was, of course, an artificial icicle.  Santa's little helpers, the ones from the insurance company, denied liability, so her claim for compensation went to trial before a district judge.

At trial, the main focus was whether or not the whole accident had been faked.  The insurers claimed that there had been no icicle there at all.  Now this was curious to say the least, because there undoubtedly was a plastic icicle there by the time the Selfridges first aider arrived.  Going equipped to claim could be a new offence under the Theft Act perhaps?  Unsurprisingly, that issue was resolved against Santa - the judge was satisfied that there had been an icicle there and that Mrs. Dufosse had fallen because inadvertently she had stepped on it.

The judge found that Santa's helpers had performed a very competent risk assessment, so there was no breach of statutory duty.  Good to see that Santa is well on top of modern Health and Safety Regulations!  Santa and his attendant elf said that although the lighting in the grotto was dim, it would have been bright enough to have seen the icicle on the floor.  However, the judge at first instance found Santa and his elf to have been blameless - it was just one of those thing, an accident.  The Court of Appeal, however, thought differently.

Lord Justice Rix said, "in my judgment, the learned district judge took an overly benevolent view of the performance by Santa and the Elf of their duties in this case and I would allow the appeal."  For some reason, the good Lord tends to write in long sentences with plenty of subordinate clauses.  Here's an example:
" It is true that Santa sat for the 90 seconds or so between one lot of visitors and the other on his throne immobile with nothing else to do than to survey his dominion for the sight of any icicles on the floor. But if the question is: what is the correct inference to make as a matter of probabilities, either that the icicle on which Mrs Dufosse fell, although there, was not there to be seen, or that on this one occasion, Santa and his Elf were not as careful in taking precautions against impedimenta on the floor as they should have been; then, in my judgment, the proper and indeed only possible inference, ultimately, is that on the balance of probabilities, the icicle was there to be seen."  Which being interpreted means, Santa and/or his elf should have seen the icicle before Mrs. Dufosse trod on it and fell. 

So it transpires that Santa is indeed liable in damages to Mrs. Dufosse after all.  Elf and Safety gone mad, I think!  (You knew it had to be said, didn't you?)