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UK Car Insurance Claims Information - Write-Offs and Total Losses

 


An Introduction to Car Insurance claims and the claiming process

Car Insurance Claims in the UK - Write offs and Total losses

Total losses
There is a total loss when a vehicle has been damaged beyond economic repair (i.e. when the estimated cost or repairing the damage is not much less than, or is equivalent to, the market value of the vehicle).

There may be some difficulty in agreeing settlement on the basis of market value at the time of the loss, but this basis must be observed as far as possible (except for agreed value policies) in order to comply with the principle of indemnity.

An indemnity is the cost of replacing the vehicle with one of similar year, model and condition. It is important to appreciate that it is the policyholder’s right to receive replacement cost and not the price he would have received from a private sale or from the motor trade.

Glass’s Guide, a monthly publication containing average car prices fro the preceding month, is usually used as an initial indicator of value. Such factors as mileage, condition and additional accessories fitted would be taken into account when negotiating a settlement which could be more or less than Glass’s figure.

Problems sometimes arise when a vehicle is in a particularly good condition or is a special type.
Unfortunately market value seldom accurately reflects low mileage, single ownership, or the money and care lavishing on good maintenance and additional accessories and refinements. The insured may feel that the car is virtually irreplaceable and press strongly for repairs to be carried out, even though the cost may be uneconomic.
In such cases insurers are generally sympathetic and if a reasonable compromise cannot be reached will sometimes agree to repairs being done subject to the insured making a contribution towards the cost.
It is inevitable that from time to time disputes will arise which may have to be resolved by arbitration.

Constructive Total Losses
A constructive total loss arises when the probable cost of repairs exceeds the market value of the vehicle or the policyholder’s estimate of value, whichever is the less.

Insurers then pay for an actual total loss. In Darbishire v Warran (1963), which concerned a 1951 Lea Francis, it was held that the owner of an old car cannot expect to have it repaired automatically at a cost greater than its market value unless the car is unique and irreplaceable, and that where the car is readily replaceable the measure of damage is the market value.
In other instances of serious damage the insurer’s engineer may recommend repairs, but frequently the policyholder refuses to agree and presses for a cash payment. Often the insurers agree to the policyholder’s request and then dispose of the salvage. Alternatively the policyholder may arrange with the repairer to accept the repaired vehicle in whole or part exchange for another vehicle immediately and avoid incurring loss of use costs.

Right to Salvage
The insurer’s right to salvage arises only where the claim payment provides the policyholder with a complete indemnity. In all other circumstances disposal of the salvage is a matter for negotiation.
Insurers usually will have no qualms about taking over the wreckage of a vehicle in order to dispose of is as salvage. Whilst the insurers are taking over the responsibility for the vehicle (a responsibility which can be onerous since the insurers must take every step to prevent the wreckage from becoming a danger or nuisance to the public), they are also acquiring the opportunity to make the maximum possible use of the salvage; most insurers have arrangements for the sale of salvage to dealers or breaker’s yards and will probably be able to obtain more for the wreckage than the insured could independently. The proceeds which the insurers receive from the sale will be set against the cost of the claim paid to the policyholder.

Salvage
In 1967 the motor insurance industry as a whole entered into an agreement with the Department of the Environment whereby the licensing authorities were informed of ‘insurance write-offs’ and the log books in respect of the destroyed vehicles were returned by insurers to the authorities for cancellation. (The latter was a step designed to prevent the log books falling into the hands of car thieves who might subsequently use the log books on stolen cars, a practise known as ‘ringing’). The effect of the arrangement upon the sums obtained by insurers by the sale of vehicle salvage became immediately apparent: in effect, the sums offered by breakers and scrap merchants for this salvage separated into two levels – the lower amounts applied where the vehicle’s log book was to be marked to show that the vehicle had been written off, whilst the higher amounts applied where the log book was not so marked. Insurers were faced with the dilemma of weighing the public interest against their own private interests: they could obtain much more for a particular item of salvage if the log book were not marked ‘write-off’, but there was a risk that a badly-damaged vehicle would be rebuilt and returned to the road in an unsafe condition. Without doubt and almost certainly without exception, the industry put the public interest first and ensured that log books were returned to the authorities suitably marked, but the 1967 agreement ran into difficulties nonetheless; one of the major problems was how to get several hundred motor insurers to apply precisely the same standard in judging whether a particular vehicle was ‘seriously damaged’.

In 1971 the Department of the Environment terminated the arrangement and since then attention has been focused from time to time on the problem as to whether insurers should be required compulsorily to notify the authorities of any vehicle in respect of which a total loss settlement has been paid, regardless of whether or not the log book has been marked. However, the Department of the Environment and the Association of British Insurance did not consider that the problem is serious enough to warrant special regulations and is not nearly as serious as the problem of the large number of vehicles which are put on the road in an unsafe condition through lack of adequate maintenance.

More recently with the establishment of the Claims Underwriting Exchange aka CUE where all car insurance claim data is pooled, and recent iniitiatives such as the Motor Insurance Database and Car Data history checks online, the problem has reduced.

The policyholder’s impression of the damage suffered by a vehicle may be based largely upon examination of the vehicle before stripping. The removal of badly damaged superficial parts, which may have absorbed much of the impact, frequently indicates that the damage is not as bad as might have been feared. The opposite can also, of course, prove to be the case: the removal of damaged superficial parts may reveal hitherto hidden and serious damage to the vehicle’s chassis or other vital parts, and the cost of repairing the overall damage might be much higher than was originally anticipated.
Where an engineer is employed his report should be made after the vehicle has been stripped, thus enabling him to give a reliable estimate of the cost.

Agreed value car insurance policies
The effect of an agreed-value policy should be appreciated; under such a policy the measure of indemnity is agreed in advance, that is to say at the inception date or renewal date of the policy, rather than at the time of the loss and the principle of indemnity cannot, in consequence, be said to have been breached.
It should be emphasised, however, that settlement of a claim under such a policy is made on the basis of the ‘agreed value’ only when the insured vehicle is a total loss; if the vehicle is being repaired and the insurers are dealing with a claim for those repairs, settlement will be concluded on the usual basis, i.e. subject to inspection and approval by the insurer’s engineer/assessor, etc.

Car Insurance Claims Frequently asked questions
What should I do if I have an accident
Where can I find an Accident Claims Solicitor
What is the role of the Motor Insurers Bureau
What are Car Insurance Claims?
How is the Claim Process controlled?
Fire Theft & Acident claims explained
What is on a Claim Form?
How do I know I'm if I'm covered
Why would a car insurance company deny liability?
What is an Insurable Interest
How do I go about getting the damage repaired?
What are approved repairers?
Who pays for towing charges?
What happens if my car is a write off?
Who decides my cars market value?
What was the World's worst car insurance claim?

 

 
 

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