Coles & Ors v Hetherton & Ors [2012] EWHC 1599
Coles & Ors v Hetherton & Ors [2012] EWHC 1599
Before The Hon Mr Justice Cooke - 15th June 2012
On 15th June 2012 Mr Justice Cooke handed down his judgment of three preliminary questions requiring determination in a class of thirteen actions under a combined case management order in the High Court. The issues concerned relate to claims under policies of motor insurance which are currently the subject of much debate in the media as premiums continue to spiral upwards. The judgment also gives a significant restatement of the principles for assessing damages in actions in tort and the principle of res inter alios acta in relation to contracts of insurance.
The claimants in the matter held policies of insurance with Royal Sun Alliance Insurance Plc (RSAI). Each policy contained an option of reinstatement. In the event of damage to the customer’s vehicle the customer had the option to choose a repairer or elect to use RSAI’s system for repairing cars. Under this system RSAI would engage MRNM, which is the trading name of RSA Accident Repairs Limited and a member of the RSA group to undertake the repairs. MRNM operates 6 garages which are staffed by their own employees. Around 15% of repairs are undertaken at these garages. The remainder of repair work is subcontracted to independent garages outside the RSA Group and on occasion MRNM is able to benefit from bulk discounts due to the amount of work they pass to certain garages. This often leads to the situation whereby the sum payable to MRNM by RSAI exceeds the sum payable by MRNM to the independent garages. MRNM make a profit from this difference. The defendant insurers challenged this system essentially on the basis that the system has the effect of inflating claims for repairs which fall to be paid by the insurer of the tortfeasor.
The three issues that Mr Justice Cooke was asked to determine were:
- Measure of loss: Where a vehicle is negligently damaged and is reasonably repaired (rather than written off), is the measure of the claimant’s loss taken as the reasonable cost of repair?
- 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?
- 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 no more than the reasonable cost of repair (on the correct legal test determined under (2) above), is that amount recoverable?
Mr Justice Cooke was asked to refrain from passing judgment on the third issue as it was interconnected with the claimants’ application to strike out various parts of the defendants’ case. Therefore his judgment dealt primarily with the first two issues.
The principles of law applicable to the first issue
Mr Justice Cooke provided an extensive analysis of the current state of the law in relation to measure of loss. He opened this analysis on the basis that it is clear in law that where a person’s chattel is damaged by the negligence of another, the loss suffered by the victim is the diminution in value of the asset resulting from the physical damage caused. He added that it is also clear that the loss is suffered immediately upon the damage occurring, whether or not repairs are effected. This is direct loss. Mr Justice Cooke drew a clear distinction between direct loss (arising immediately) and a claim for consequential loss which may subsequently arise for loss of use.
Mr Justice Cooke described the usual way or “normal rule” or “prima facie” measure of diminution of value in consequence of physical damage would be by reference to the repair cost. However in a detailed review of the case law dating back from The Endeavour [1890] 6 Asp MC 511; The Glenfinlas [1918] P 363; The Kingsway [1918] P 344; The London Corporation [1935] P 70 right up until the Court of Appeal decision in Jones v Stroud District Council [1986] 1 WLR 1141 and the House of Lords decision in Dimond v Lovell [2002] 1 AC 384, Mr Justice Cooke concluded that the authorities are clear that the victim of the negligence does not have to repair his chattel nor does he have to pay for the repairs if they are done. The loss remains the same and the tortfeasor remains liable for it. For example A has a car which is worth £10,000 and as a result of the negligence of B it is damaged and it is now worth £8,000. Even if A has the car fixed by his friend C for free, B is still liable for the £2,000 diminution in value. The cost of repairs are merely a way of measuring that loss The principle being that the victim can recover because, from the moment the physical damage has occurred, that is the moment that the value of the asset is diminished.
(1) Measure of Loss: Where a vehicle is negligently damaged and is reasonably repaired (rather than written off), is the measure of the claimant’s loss taken as the reasonable cost of repair?
The claimants’ submission was that the basis of the claimants’ loss is the diminution in value of the asset. This is measured by the reasonable cost of the repair which can be established by different kinds of evidence. The claimants accepted that when a car is repaired the conventional way of establishing loss would be by reference to the costs incurred but, in reliance on the authorities cited above, the claimants argued that the loss could also be established by reference to estimates or expert evidence about the cost of the repair. The actual repair invoice may not reflect the reasonable cost of repair.
The defendants argued that the underlying principle was that of restitution. A claimant should not be able to recover more than the cost of repairs which are actually effected and that this figure may be discounted if there has been a failure to mitigate by not acting reasonably in obtaining a lower price for the repairs. The defendants submitted that there should be a rule of law that the actual cost of repairs is the measure of damages and presents a cap upon it. The claimants argued that this confuses the measure of loss with the evidence adduced to support a claim.
Mr Justice Cooke provided his conclusions on this point at paragraph 42 of the judgment:
“I conclude therefore that, where a vehicle is negligently damaged and is reasonably repaired, rather than written off, the measure of the claimant’s loss can be taken as the reasonable cost of repair. That reasonable cost is not necessarily the repair cost actually incurred, whether by the claimant or its insurer or indeed by anyone else who pays a repairer since the reasonable cost of repair is only a way of ascertaining the diminution in the value of the chattel by reason of the physical damage, though it is the normal and conventional way. Moreover it is clear that recovery is possible regardless of repair or payment for repair. Thus, a Court can assess “the reasonable cost of repair” by reference to any evidence which is sufficient to discharge the burden of proof upon the claimant to establish the amount in question. Whilst this would, in the ordinary case be achieved by producing invoices for repair costs, this need not necessarily be the case since estimates for future repairs might be sufficient as might be surveyors/engineers or other experts’ reports, whether by reference to photographs, reports of damage and tables of rates for labour charges parts and paint or otherwise. In each case it will be a matter for the Court to determine whether the claimant has made out its case, whether or not repairs have been done and whether or not an invoice is produced for the repair costs.”
In the judgment of Mr Justice Cooke the answer to the first question is clear. Where a vehicle is damaged the correct measure of damages is the diminution in value of the chattel, which is taken to be the reasonable cost of repairs. The reasonable cost of repairs is not necessarily the repair cost actually incurred and can be proved by any evidence, not limited to invoices, which can properly discharge the burden of establishing the relevant amount.
(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?
The claimants submitted that the answer to the question was (a) and the defendants argued, with a degree of qualification, it should be (b). The defendants’ position was that whilst the insurer cannot be substituted for the policy holder the court should look at the situation in the round. A claimant’s position should be considered with that of their insurers so that the options that may be available to the insurer fall to be treated as available to the policy holder when establishing the reasonable cost of repair. Thus, when acting with the policy holder’s authority, an insurer chooses to undertake repairs through an ‘in-house’ system, any amount saved against the amount the policy holder would pay on the high street should be taken into consideration when assessing the reasonable cost of repair.
The claimants argued that when assessing damages it was not permissible to “look behind the curtain” at arrangements made between the claimants and their insurer or arrangements between the insurer and third parties. They sought to rely on the principle of res inter alios acta alteri nocere non debet, that a transaction between two parties does not prejudice someone who was not a party to it.
Mr Justice Cooke provided his conclusions at paragraph 60 of the judgment:
“In my judgment therefore, the answer to the second question is (a). The reasonableness of the repair charge, as a measure of the diminution in the value of the damaged car, is to be assessed by reference to the position of the individual claimant, without reference to his insurers or to any benefits which he obtains under his insurance policy, for which he has paid a premium. The well known and well established principles of insurance, as set out in the authorities to which I have referred, mean that the claimants’ dealings with their insurers and the insurers’ actions in relation to the indemnity granted are res inter alios acta, in the context of assessment of diminution in market value or costs of repair and behind the curtain for any tortfeasor who seeks to argue about mitigation of loss in payment of repair costs.”
It seems clear that the principle to be gleaned from Mr Justice Cooke’s judgment in relation to the second question is that a tortfeasor will not be able to rely on any arrangements made by a claimant’s insurer who provides an indemnity by having the car repaired. It follows that the tortfeasor cannot argue that it is the actual cost to the insurer that is to be taken as the measure of loss, nor that such arrangements represent a failure to mitigate such loss or were a partial cause of the loss. The only question that the court needs to address is whether the amount claimed by the claimant does or does not represent the reasonable cost of repairs to him, without any reference to his insurer.
As noted above Mr Justice Cooke was asked to refrain from passing judgment on the third issue.
The decision has already generated a hugely critical response from the defendant insurers. Allianz claim that the judgment will pave the way for insurers to inflate claims by 25%. They have already announced their decision to appeal the matter to the Court of Appeal and it is highly likely that this case will go all the way to the Supreme Court. It seems that all those who deal in road traffic insurance litigation will need to watch this space.
A copy of the judgment can be accessed here:
http://www.bailii.org/ew/cases/EWHC/Comm/2012/1599.html
Simon O’Dwyer
