Just before Christmas, the Court of Appeal delivered the long-awaited judgment in the case of Coles v Hetherton  EWCA Civ 1704. As anticipated, its conclusions are likely to have wide-reaching implications for the insurance industry and may impact on every level of case, from the modest county court claims that were the subject matter of Coles itself, to multi-million pound property damage disputes.
The case comprised 13 subrogated claims brought by policyholders who had taken out motor insurance with Royal Sun Alliance (‘RSA’). Although the claims were brought in the names of the policyholders, the real dispute was between RSA, and Allianz and Provident as insurers for the defendants. In each, a road traffic accident had occurred for which liability was admitted. However, the way in which RSA arranged for their insureds’ damaged vehicles to be repaired led to a significant dispute on quantum. The repairs were carried out by a garage for a certain amount, usually not exceeding a few hundred pounds. The work was then invoiced to RSA by a wholly owned subsidiary from within the RSA group acting, in effect, as a middleman between insurer and repairing garage. The invoice it produced was invariably higher than the amount charged by the repairing garage. RSA contended that it was entitled to recover the higher figure, because it was still a reasonably priced repair. Allianz and Provident opposed in strong terms. They said that the policyholders who claimed for sums in excess of the actual amount charged by the garage had failed to mitigate their loss.
Three issues were considered, namely:
1. What is the proper measure of loss for damage to a chattel?
2. Does it make a difference if the repair is organized by an insurer, as opposed to the Claimant himself?
3. If an insurer indemnifies an insured in respect of repairs (which, as in this case, may include sundry incidental or administrative expenses) is the total amount recoverable, provided it is still reasonable?
RSA succeeded on all three points. On the first, and main, issue, the Court of Appeal found that the proper measure of loss was the diminution in the value of the damaged chattel. That loss occurred immediately at the time of the accident so could not be mitigated by having the chattel repaired at a lower cost. Provided the claimed cost of repair was not unreasonable therefore, it was recoverable. Further, it made no difference that the Claimants were backed by insurers. The reasonable cost of repair was the cost the Claimant could have obtained on the open market: it did not matter that his insurer might have been able to obtain a better rate through its industry connections. Equally, provided the final amount claimed was reasonable, it could be recovered even if it did include sundry additional expenses.
The foreboding with which these conclusions have been met by insurers highlight the advantages they offer to policyholders who find themselves in the position of having to make a claim. As long as they can show the sums sought are reasonable (or perhaps, not unreasonable), they will be recoverable. There appears to be no obligation on the policyholder – even if he is backed by an insurer – to obtain the cheapest quote. That would seem to pull the rug out from under insurers who might otherwise have sought to argue that a lower quotation ought to be preferred. It would seem to apply regardless of whether the chattel has been repaired.
Assessing the ‘reasonable’ may create its own complexities. It should be noted that in Coles the RSA invoices were, for the most part, only around 25% higher than those provided by the repairing garages. Claims which are obviously excessive will still be cut down. The Courts will no doubt be alive to the advantages offered to Claimants by Coles and may react adversely if they feel that the judgment is being used to justify overinflated claims. For that reason, it will remain important for loss adjusters who have conduct of repairs – particularly in high value claims where expenditure will be closely managed – to be mindful of the need to ensure that the final bill is kept within reasonable limits.
It remains to be seen how long Coles will remain good law. Defendant insurers are likely to challenge it at the earliest opportunity. However, for the time being, it would appear to be a forceful friend to policyholders pursuing a recovery.