In our first newsletter entitled “Car Values and Insurance” we outlined the reasons for having an Agreed Value insurance policy through a specialist insurance broker, the main one being of course that if the car is stolen or damaged to the point of it being a total loss the insurers pay the Agreed Value and there is no argument. Whether you have an Agreed Value or not the maximum the insurers will ever pay is the sum insured on the policy so in a market like the current one it may be necessary to review values midway through the policy rather than wait until renewal.
This means that settlement of your claim should be straightforward and insurers will pay you promptly. If the damage was caused by someone else they are then entitled to set about recovering their outlay from that third party.
The situation becomes more complicated when the car is damaged whilst in the hands of a third party such as a restorer, dealer or storage company, who are regarded as custodians or bailees for reward. There seems to be an overwhelming presumption that if a car gets damaged whilst in the possession of a custodian that he should pay for the damage as this is the “right thing to do”. In fact, in the absence of any specific contract between the two parties, the common law of the land applies and the custodian is only liable in the event of their negligence or that of their employees. Most storage companies have a contract reiterating that common-law position but few others in the classic trade have an express contract with their customer.
Custodians do of course carry their own motor trade insurance which will include customers vehicles being driven on the road or whilst on the premises. When a vehicle suffers some minor damage either in an accident or in the workshop they usually get on with the repair without involving the customers insurance and make the claim under their own policy without going into the question of whether or not they were negligent. The situation becomes different when the car is totally destroyed.
Our advice is that it is crucial that the claim be made under the owner’s policy and you should not hesitate to do so because:
1. You should never rely on someone else’s insurance to cover the loss because even though arranged with the best of intentions the custodians cover could fail to operate due to a failure to comply with a warranty or something similar.
2. In the event of a major loss such as a fire the cover may be inadequate and there may not be enough money to pay for your car.
3. Once you get into this situation months may elapse while insurers investigate the cause of the loss and agree liability. Repairs to your car will not commence until this point is reached and if there proves to be a problem with the custodians insurance the failure to report the loss immediately to your own insurer could prejudice your cover.
4. Clients often feel that they always have a legal remedy against a custodian but ultimately you have to prove them negligent and you will rack up extensive legal fees which may not be fully recoverable.
If you rely on the custodians insurers you can easily find yourself haggling about the value particularly if the vehicle has been stolen and can’t be inspected. If you have had the forethought to have agreed the value of your car with your insurer there should be no quibble and you should get immediate settlement at that figure without any wrangling over the value. Your insurers are then entitled to retain the salvage and sell it off to reduce their loss. If you want to retain the salvage this can usually be arranged fairly swiftly as it is the easiest course for the insurer but you will have to pay a reasonable amount for it. If the vehicle was destroyed whilst in the hands of a third party you should not be penalised under your own policy because of the claim.
Having paid you, the insurer is then entitled to seek a recovery against the person who caused the damage and if necessary sue them in your name. These are known as “subrogation” rights and you cannot prevent your insurer from exercising them if they wish. It would be up to your insurer to prove negligence on the part of the third party. If it’s a dealer or restorer they have to show that they failed to take reasonable care of your vehicle.
In a recent case the burglar alarm at the traders premises had been playing up and had been switched off for a couple of months prior to thieves breaking in and stealing a customer’s car. The trader was woefully under insured and the maximum he could claim under his own policy was 10% of the loss so he had to take the position that as the premises were locked up he was not negligent. Unfortunately the owner had committed the cardinal mistake, which many do, of cancelling his insurance whilst the car was with the trader so that he could save some money but in so doing he had lost a very valuable car and had no recourse against the custodian.
In another case a dealer had a car on consignment to sell for a customer and during an accompanied demonstration the prospective purchaser negligently crashed the car rendering it a total loss. The owner had a sale price in mind which included a commission for the dealer and the dealer’s first reaction was to submit the claim under his trade policy. The trade policy covers the trade price of cars and not the owners “asking” price on the car (unless it has already been sold and there is a written sales contract evidencing this). So immediately there is a difference of opinion between the owner’s view of value and the trader’s insurers. In this case the negligent party is the prospective customer, not the dealer, and getting compensation from him may prove difficult unless he has a “top drawer” collector’s policy allowing him to drive other people’s cars with comprehensive cover. So, a relatively straight forward situation can turn into a can of worms.
In summary, there are a number of points which come out of this for both the owner and the custodian;
1. The owner should ensure that he has an Agreed Value policy keeping that value up to an adequate level in this fast moving market.
2. The owner should keep his policy in force even if the car is undergoing long term restoration and in the event of a major loss submit his claim under his own policy to avoid delays in payment and haggling over value.
3. The trader as custodian of the vehicle should at least have a simple contract showing his terms of business. On the insurance front this should require the customer to maintain full insurance cover and should then re iterate the fact that the trader is only responsible for acts of negligence on the part of the company or its employees (the trader can then stand behind this if necessary or submit a claim to his insurers if he chooses).
4. The trader should make sure that his sums insured are adequate to meet a loss such as a major fire in his premises.
We spend many hours explaining this and other situations to clients but as a specialist broker this is what we are here for and we are always happy to make sure that clients get the right advice.
Classic Insurance Services Ltd