Coles v Hetherton – Subrogation Ruling Creates a Moral Dilemma

The following has been removed from Shakespeare Martneau’s (Corclaims) website, but also cited in an FoIA request (read more here)

Coles v Hetherton – Subrogation ruling creates a moral dilemma for fleet operators

The practice of inflating costs to make a profit when pursuing claims arising from non-fault accidents has been given the green light by the Court of Appeal and some fleet operators may choose to follow their example.

The Court of Appeal has now concluded that cases brought against Royal Sun Alliance Insurance (RSAI) over how it recovers repair costs following non-fault accidents are groundless. As a result, the practice used by RSAI, which has allowed them to inflate the cost of vehicle repairs and pass on the bill to the at-fault driver’s insurer, has been judged both reasonable and legitimate. In handing down his decision, The Honourable Mr Justice Cooke ruled that RSA’s practices were legal and that any appeal against his judgment was likely to fail.

This ruling has upheld an earlier ruling, by the Commercial Court in June 2012, when the court determined that as long as the vehicle repair costs being recovered by the non-fault insurer were ‘reasonable’ they did not necessarily have to represent the actual costs incurred. In reaching his decision, he also pointed out that the loss is sustained at the point the damage is done, not at the point that the repairs are carried out.

In practice this means that RSAI can continue removing any discounts earned on labour or repair costs, and applying an administrative charge to the overall bill, before passing it on to the at-fault driver’s insurer. It also means that other insurers and larger fleet operators, who regularly carry out non-fault vehicle repairs, can choose to do likewise if they wish.

So where does that leave us? Well of course views will differ. In mine there is likely to be a moral dilemma for some, but the position of the Court of Appeal in this matter is crystal clear. It is perfectly legitimate for those incurring losses associated with non-fault vehicle repairs to add on the value of any discounts they may have negotiated with garages and to apply an administrative charge too. The application of such costs has been found to be perfectly reasonable.

All of a sudden recovering such [inflated] losses has become palatable. While the priority for fleet managers will obviously be getting vehicles back on the road as quickly as possible, the losses incurred as a result of non-fault accidents now represents a commercial opportunity, which they can take advantage of if they wish.

There is a moral issue here too as clearly adding costs into the recovery process could cause insurance costs to escalate and eventually all users of commercial vehicle insurance would end up paying for this through higher premiums.

However, others will take the view that while the commercial opportunity exists they would be foolish not to take advantage of it.

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