The prevalence of minor road traffic accidents and the number of claims arising from them means that the particular application of certain specific damages principles can have very significant implications for insurance companies’ bottom line, even if they involve only relatively small sums of money in any individual case.
Policies of motor insurance regularly contain provision for the insured to choose to have his damaged vehicle repaired through a scheme run by the insurance company, typically with the provision of a courtesy vehicle in the interim. Each insurance company will have its own structures and processes in place for providing this service to its insured. Disputes can arise between insurers as to whether the expenses/costs generated under these schemes are recoverable from the tortfeasor’s insurer under normal common law duty of care principles.
This area came up for consideration in the recent case of Coles v Hetherton  EWCA Civ 1704, where the Court of Appeal considered appeals by a group of tortfeasors’, lead by their subrogating insurers, Provident Insurance plc (‘Provident’) and Allianz Insurance plc (‘Allianz’) against Mr Justice Cooke’s decisions on 3 important preliminary issues (and to strike out certain parts of the defendants’ pleadings) - permission to appeal having been granted partly on the basis that the Court was told that ‘…there are a number of claims in the County Courts where similar issues have arisen and that the decisions of County Court judges have not all been to the like effect’. The appeals were ultimately unsuccessful but the Court of Appeal took the opportunity to discuss and develop the applicable legal principles.
The underlying litigation related to 13 comparatively small ‘managed claims’ arising out of minor road traffic accidents (‘RTAs’). In each of the 13 cases:
1.the claimant had been involved in a minor RTAs and the defendant had admitted to causing the accident by his negligent driving;
2.the claimant was insured by Royal & Sun Alliance Insurance plc (‘RSAI’) and the defendant was insured by either Provident or Allianz (together ‘P&A’);
3.the claimant’s motor insurance policy with RSAI provided to the claimant the contractual option to elect:
a. to have the damaged vehicle reinstated if the cost of repair was less than the vehicle’s market value;
b. if reinstatement was chosen, to engage his own repairer or elect to use RSAI’s scheme for repairing vehicles.
c. if RSAI’s scheme was chosen, the claimant had the contractual option to require that RSAI provide the claimant with use of a courtesy vehicle;
4. the claimant had elected reinstatement and had selected the RSAI scheme of vehicle repair. Some, but not all, exercised their contractual right to an interim courtesy vehicle.
5. RSAI, exercising its rights of subrogation as insurer, issued a claim in the claimant’s name against the negligent driver, claiming for the cost of repairing the vehicle and, where appropriate, the cost of the courtesy vehicle.
RSAI’s subrogated claim was for the full cost of repair and courtesy vehicle, as being the sum that RSAI had been invoiced for. That invoice was generated by another company in the RSAI group of companies, RSA Accident Repairs Limited (using the trading name MRNM), pursuant to the repair and courtesy vehicle scheme that RSAI had chosen to employ.
Allianz argued that the scheme RSAI had chosen to employ had the effect of inflating by about 25% the total cost of claims for repairs. That while the remaining 75% would be recoverable by the claimants from defendant tortfeasors (in reality by RSAI from P&A), the additional, inflated 25% component was, as a matter of law, unrecoverable. This was the main issue of principle before the Court.
It is therefore necessary to consider the most salient parts of the RSAI vehicle repair and courtesy vehicle scheme (the intricacies of the Scheme are of marginal relevance to the ratio of the case) before considering the preliminary issues.
RSAI’s Vehicle Repair and Courtesy Vehicle Scheme
The key elements of the scheme are these:
1. MRNM owned six garages (called Quality Repair Centres – QRCs) and also maintained contacts with various independent garages, known as MRNM's "Priority Repair Network" (PRN repairers);
2. If an RSAI insured elected to have his damaged vehicle repaired through the RSAI vehicle repair scheme, RSAI engaged MRNM who in turn got the vehicle repaired by either a QRC or a PRN repairer;
3. The Services Agreement ("SA") between RSAI and MRNM stipulated in clause 3.1 that MRNM, through the QRC or the PRN repairers, was required to provide certain specific repair services. These included a delivery/collection service and, if the customer wanted it, a courtesy vehicle.
4. Clause 7 provided that MRNM's contract charges to RSAI had to be those set out in SA Schedule 3 (which are updated from time to time). Clause 7.4 required MRNM to raise invoices on RSAI in an agreed manner and MRNM had to provide such information as RSAI reasonably required to substantiate any charges that it made on RSAI. Clause 28 stipulated that there would be no relationship of agency between MRNM and RSAI.
5. Schedule 3 of the SA provided for the labour and other charges to be made on RSAI by MRNM according to a set formula, which, importantly, allowed MRNM, when billing RSAI, to make a profit on what it had to pay its PRN repairers.
6. In cases where MRNM's net invoice total (to RSAI) exceeded £300 and more than 4 hours labour has been used on the repairs to a vehicle, Schedule 3 provided for an additional flat rate charge (of three times the appropriate hourly rate charged) which was to be made for "Sundry Services" provided, which MRNM and RSAI agreed would cover a number of different services. RSAI asserted (but the defendants did not accept) that in all cases at least some of those services were provided. In summary therefore, what applied was a hybrid formula of flat fees and hourly rates, rather than a purely hourly rate and disbursements approach.
7. Courtesy vehicles were charged at £11 a day and delivery/collection of the damaged/repaired vehicles or courtesy vehicles were charged at £110.
8. The amounts charged to RSAI by MRNM were designed not to exceed the amount which would be payable by an individual who went out into the market to get the same repairs done to his vehicle. RSAI/MRNM was able to negotiate substantial discounts with its PRN repairers and parts suppliers because of its bargaining power and the volume of work it supplied to them.
9. The invoice for the service to RSAI was generated by the QRC/PRN repairer invoicing MRNM, who added a price mark-up and then invoiced RSAI; RSAI then claimed for the latter sum from the defendant tortfeasor.
In essence, Allianz’s objections to RSAI’s scheme were:
1. MRNM charged RSAI higher rates than those charged to MRNM by the subcontracting repairer and those higher charges were the ones claimed against the tortfeasor. The effect of the interposition of MRNM between RSAI and QRC/PRN repairer was to increase the cost by about 25%; and
2. MRNM charged RSAI a flat rate for collection and delivery of the damaged vehicle, for courtesy vehicles and for "Sundry Charges", even if the subcontracting garage charged nothing for one or all of those services.
The three preliminary issue were:
1. Measure of Loss: Where a vehicle is damaged as a result of negligence and is reasonably repaired (rather than written off) is 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 has arranged repair, is the reasonableness of the repair charge to be judged by reference to: (a) what a person in the position of the claimant could obtain on the open market; or (b) what his or her insurer could obtain on the open market?
3. Recoverable amount: Where a vehicle is not a write-off and an insurer indemnifies the insured by having repairs performed and paying charges for those repairs, and where the amount claimed is not more than the reasonable cost of repair (on the correct legal test determined under (2) above), is that amount recoverable?
At first instance, Cooke J answered:
1.in the affirmative to issue 1;
2.the test is (a) in respect to issue 2; and
3.with no answer, having been invited not to answer issue 3. He only made some statements of principle on the issue.
Further, Cooke J struck out certain parts of the defendants’ pleadings.
Preliminary Issue 1 - Measure of Loss
Q: Where a vehicle is damaged as a result of negligence and is reasonably repaired (rather than written off) is the measure of the claimant’s loss taken as the reasonable cost of repair?
The Court took the opportunity to build on Lord Hobhouse’s exposition of the law in Dimond v Lovell  1 AC 384 and, together with statements in other unspecified cases (seemingly those discussed in Payton v Brooks  RTR 169, 173), formulated the following propositions:
1. Where a chattel is damaged by the negligence of another that loss (the ‘direct’ loss) is suffered as soon as the chattel is damaged;
2. The proper measure of that loss is the diminution in value that the chattel has suffered as a result of the negligence of the defendant. This follows the general principle in awarding damages, i.e. that of restitution. In Lord Hobhouse's phrase, "this can be expressed as a capital account loss".
3. If the chattel can be economically repaired, the claimant is entitled to have it repaired at the cost of the wrongdoer, although the claimant is not obliged to repair the chattel to recover the direct loss suffered;
4. Events occurring after the infliction of the damage are irrelevant to calculating the diminution in value measure of damages. Thus, subsequent destruction of the chattel, or a decision to delay repairs, or an ability to have the repairs done at less than cost or for nothing will not prevent the claimant from recovering the diminution in value of the chattel that has been caused by the negligence of the tortfeasor.
5. Generally, the practical way that the courts have calculated this diminution in value is to ask how much would be the reasonable cost of repair so as to put the chattel back in the state it was in before it was damaged. It was stated that, in general this is a convenient practice which the courts should continue to follow. Only if the sum claimed appears to be clearly excessive will the court be justified in investigating whether that sum exceeds the cost that the claimant would have incurred in having the repairs carried out by a reputable repairer.
Further, the Court differentiated between direct loss and consequential loss. Such consequential loss arises after the direct loss. The deprivation or ‘loss of use’ of the vehicle is properly characterized as consequential loss.
The Diminution of Value is the Loss
The Court emphasized that the ‘direct’ loss is the diminution in value of the vehicle. The ‘direct’ loss is not the cost of repairing the vehicle back to its pre-accident condition - ‘strictly speaking, the cost of the repairs is not itself the loss suffered’. What constitutes the loss, is not the remedial cost, but it is the actual damage, the diminution in value. The diminution in value occurred at the moment of the RTA. It did not happen later, it was immediate.
In attempting to reach a figure for the diminution in value, ‘…the “reasonable cost of repair” is, as a rule of thumb, taken as representing the diminution in value of the chattel that has been suffered as a result of the damage caused by the negligence of the defendant’. The charge for the repair is therefore only evidence of the diminution in value of the vehicle that has been damaged, however it is ‘often the best evidence’. Accordingly, invoices, and other such documents are merely evidence tending to show what the diminution in value was. However the reasonable cost of repair ‘may not always represent the full amount of the diminution in value…’, the Court making reference to Payton v Brooks  1 Lloyd’s Rep 241.
In Payton, the claimant ran the argument that despite the excellent repairs to his vehicle, it remained below its pre-accident value. That this was because, on the open market, the very fact of it having been in an accident reduced its value. The assertion that there was some residual irremediable diminution in value because of the accident was not established on the facts, leaving a strong Court of Appeal able to make only obiter indications about what would have been the applicable law. It indicated that it would have followed American authorities that ‘if a diminution in the market value of vessels can be established, despite good repairs, the diminution is a recoverable item of damage’.
In Coles, attempts to argue that claimants should have mitigated their loss, by seeking to have the cost of repairs done at a lower rate, were found to be misguided. Those arguments misunderstood the role of the cost of repairs. The Court summarized the position:
‘…if a claimant, whose damaged chattel is capable of economic repair, chooses to repair it at a cost which is not reasonable, then the reason why he cannot recover that unreasonable cost as damages will be because that cost does not represent the diminution in value of the chattel. What is the diminution in value of a chattel or the "reasonable cost of repair" will always be a question of fact for the trial judge to determine if it is in dispute.’
To put this another way, in essence, it seems that the rule as to the irrecoverability of loss sustained by a claimant which could have been avoided by the claimant taking reasonable steps to mitigation his loss (commonly called the ‘duty to mitigate’ - though it is not actually a duty as such), applies to the sustaining of loss (direct or consequential). It does not apply to the steps taken to remedy the loss, the cost of which is only evidence of what the loss actually was. A claimant can be as indolent as he wants to be in trying to find a reasonable and competitive rate to get his vehicle fixed at in the open market, but that lack of effort will damage the credibility of his invoice as evidence that the figure he paid properly represents the true diminution in value he sustained in the RTA. The actual repair cost is not necessarily the reasonable repair cost.
Preliminary Issue 1 was answered in the affirmative, though with the caveat that “reasonable cost of repair” is a rule of thumb, taken as representing the diminution in value.
Pleadings - General Damages or Special Damages?
A supplementary issue on proper pleadings arose; the Court had to resolve whether the correct jurisprudential analysis of a claim for diminution in value, whether in practice measured by cost of repairs or not, was as a claim for ‘general damages’, or one for ‘special damages’. The Court held that ‘direct loss’ diminution in value should be pleaded as a ‘general damage’ therefore, and that consequential losses should also be. However, ‘if the chattel concerned is one that is normally used in the hope of making a profit, (such as a trading ship, a lorry or a taxi), then a claim for the profits lost because the chattel could not be used for that trading would constitute "special damages". Those damages have to be specifically pleaded and proved’
Preliminary Issue 2 – “Reasonable Repair Charge”
Q: If a claimant’s insurer has arranged repair, is the reasonableness of the repair charge to be judged by reference to: (a) what a person in the position of the claimant could obtain on the open market; or (b) what his or her insurer could obtain on the open market?
Unsurprisingly, this issue did not trouble the Court long; it concluded that (a) is correct - it is from the claimant’s position that the reasonableness of the repair charge is to be judged.
The question could only arise because the claimant was insured. Had the claimant been riding a bicycle uninsured, then the alternative vantage point would not have existed and the question could not have arisen. Merely because the claimant is insured, and has within that contract of insurance, a contractual right to require the insurer to repair the vehicle, should not and does not, as a matter of principle, make a difference.
In reaching this decision, the court relied on two basic long-settled law principles:
(1) ‘Even in a case where a claimant is insured in respect of the loss suffered as a result of the tortfeasor’s wrong and the insurer has indemnified the insured and becomes subrogated to the insured’s right against the tortfeasor, the cause of action against the tortfeasor remains that of the claimant, unless it is specifically assigned to the insurer’; and
(2) ‘…in respect to loss which is covered by insurance, the benefits obtained under the insurance are irrelevant in assessing the correct measure of damages recoverable’. The Court referred with approval to the view in Bee v Jenson (No.2)  Lloyd’s Rep IR 221, that 'defendants have had to accept that a claimant’s insurance arrangements are irrelevant and cannot be prayed in aid to reduce their liabilities’. The rationale being that the benefits received by the insured claimant under his contract of insurance are benefits that he bought by paying the insurance premium demanded. So, in Lord Reid’s words in Parry v Cleaver  AC 1 '…it would be unjust and unreasonable to hold that the money which [the insured] prudently spent on premiums and the benefit from it should inure to the benefit of the tortfeasor’.
In essence, the enquiry into the diminution of value sustained by the claimant occurs and is judged from the claimant’s vantage point – it is claimant centric, as it could only be if there was no contract of insurance existing between the claimant and an insurance company, here RSAI. By reason of the second principle above, the follow are irrelevant:
1.the existence of the claimant’s contract of insurance, and the consequently contractual benefits to the claimant from it and the insurers’ subrogation to the claim; and
2.the position of the insurer and what cost the insurer can obtain repair services for on the open market.
Absence these, this therefore leaves the claimant-centric vantage point undisturbed. So where ‘the claimant’s insurer has arranged the repair, the reasonableness of the repair charge is to be judged by reference to what a person in the position of the claimant could obtain on the open market’.
Comment can be made here that the effect of judging the repair charge incurred from this vantage point, is defendants are likely to find Courts accepting higher repair charges as accurately evidencing what the Claimant’s diminution in value was. This arises because, almost inevitably, the bargain the individual claimant can achieve on the open market for vehicle repair services will not be as good as what a large bulk-buying insurance company could negotiate on the open market. Logically therefore, charges which would have been judged unreasonable had the insurer bargained for them in the open market, will be judged reasonable when the claimant bargains for them. Arguably this means diminution in value is a relative rather than an absolute concept, and a defendant takes the bargaining strength of his victim in the market for redress services as he finds him. Such a position would be consistent with the overarching damages principle, that ‘compensation should as nearly as possible put the party who has suffered in the same position as he would have been in if he had not sustained the wrong’, as per Lord Scarman in Lim v Camden & Islington Area Health Authority  AC 174, 187
Preliminary Issue 3 - Recoverable Amount
Q: Where a vehicle is not a write-off and an insurer indemnifies the insured by having repairs performed and paying charges for those repairs, and where the amount claimed is not more than the reasonable cost of repair (on the correct legal test determined under (2) above), is that amount recoverable?
The first instance Judge did not answer this issue posed, but the Court of Appeal précised Cooke J’s observations on the issue ‘…in arriving at a figure for the cost of repairs which would represent the diminution in value of the vehicle, a court could be justified in taking an overall figure for the reasonable cost of repairs, even if individual items were not, in themselves, reasonable. It was the overall figure that counted’;
P&A challenged certain component charges in the invoice from MRNM to RSAI, which in turn were claimed by RSAI. P&A claimed variously that ‘administrative costs’, costs for ‘sundry services’ and the costs of a courtesy vehicle were either fees for services not provided, or were too high or unreasonable, or did not represent repairs.
The Court of Appeal said P&A’s objections ‘all miss the point’. Where RSAI’s insured had elected to use the RSAI scheme for vehicle repair, and that had been undertaken, the question for the Court was:
‘…whether the actual sum claimed is equal to or less than the notional sum this claimant would have paid, by way of reasonable costs of repair, if he had gone into the market to have those repairs done[?]’
The Court continued:
‘The court will examine the components of the notional overall figure which is said to represent what the claimant (not the insurer) would have had to pay if he had organised the repairs, to ensure that that sum represents the "reasonable cost" of repairs that the claimant would have had to pay. It will then compare that figure (stripped, if necessary, of any "unreasonable" elements) with the total sum representing the actual cost to the insurer, which will be the sum claimed by the claimant.
This is the exercise that the parties will have to undertake…the court will not have to examine details of what "administrative charges", or "sundry service charges" have been included in the total repair cost paid by RSAI to MRNM or why those charges have been incurred…The question is not whether each of the items actually charged by MRNM to RSAI is reasonable, but whether the overall cost charged by MRNM is reasonable. If the total repair cost paid by RSAI is more than the reasonable repair cost that the claimant would have paid if he had arranged the repairs on the open market, then the sum claimed (effectively by RSAI) will simply be reduced to the notional reasonable repair cost.'
Where a claimant is deprived of his chattel for a time, he can recover a sum by way of general damages for that deprivation. If, under the terms of the claimant’s motor insurance contract, he is entitled to be indemnified by having a replacement vehicle provided without further charge to him, then the claimant can still claim general damages for the deprivation of his own vehicle. ‘In practice, the amount of those general damages will be the sum it would have cost the claimant to hire (on non-credit terms) a comparable vehicle’. The Court later approved Cooke J’s summary, that the damages amount may be based on the sum it cost the claimant’s insurer, ‘provided it is at a reasonable rate and was reasonably incurred to cover the cost of the use of the damaged car’. Any such sums received from the defendant will be held by the claimant for the benefit of the insurer Bee v Jenson (No.2)  Lloyd’s Rep IR 221 .
Preliminary issue 3 was answered in the affirmative by the Court of Appeal.
This is an important case for understanding the legal basis for assessing the measure of damages which a person will recover when his personal (as opposed to real) property has been physically damaged by the negligence of another. The disposal stage will involve the Court ultimately seeking to establish what the diminution in value was - as the direct loss sustained from the RTA. To reach a figure for the diminution in value, the Court will use, as a rule of thumb, what it assesses to be the ‘reasonable cost of repair’ of the damaged vehicle. The loss is not what, in the end, it actually cost to get the vehicle brought back up to its pre-accident standard (or would do if the work was done); the loss is the diminution in value. Accordingly, it is misguided to hold the notion that a duty to mitigate applies to steps taken by the claimant to have the vehicle repaired. That is to confuse the sustaining of loss, from the remedying of loss already sustained. The recoverability of sums expended by a claimant (or his insurer) is governed, and limited by, the Court’s assessment of, as a question of fact, what was a reasonable amount for the claimant (not the insurer) to have spent having the vehicle repaired. What was actual spent can be at most only evidence as to what that reasonable amount was (thought it is often the best evidence). Where, as in Coles, the claimant’s insurer’s scheme was used, the Court will still consider whether the overall charge is close or not to what a reasonable repair cost would be, as a precursor to reaching a figure for the diminution in value actually sustained by the vehicle at the moment of the RTA.
NOTICE: This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.