#6612 - Coles V. Hetherton - Commercial Remedies BCL

Coles v. Hetherton

Facts

Cases arising out of a minor road traffic accident in which the vehicle of a person insured by Royal & Sun Alliance Insurance Plc (RSAI) was damaged by the admitted negligence of a driver insured by either Provident Insurance Plc (Provident) or Allianz Insurance Plc (Allianz). In each case RSAI indemnified its policy holder by having the vehicle repaired. The claims are therefore subrogated claims brought in the name of the policyholders.

The claimants are insured by RSAI under a va riety of policies. However the wording of the policies, although not identical, shares a common feature—an option for reinstatement. Each policy contained the option, where the car was repairable for less than its market value, whereby the policyholder could choose a repairer or elect to use RSAI’s system for repairing cars. In each of the managed cases the option exercised was for utilisation of the RSAI system which also entitled the policyholder to the use of a courtesy car, if the policyholder so desired. The RSAI system is the subject of challenge by Provident and Allianz (supported from the sidelines by other insurers) essentially because, it is said, the system has the effect of inflating claims for repairs which fall to be paid by the insurer of the tortfeasor.

Amount claimed was more than what the insurance company (in light of its bargaining power) would have been required to pay: This set out the figures payable by RSAI to MRNM which, in most cases, exceeded the sums paid by MRNM to a subcontractor, as the rates agreed with PRN repairers were, on RSAI’s evidence, lower than those which could have been obtained by any individual obtaining repairs from the same garage because of the discount which MRNM could obtain from the garage by reason of its bargaining power and the bulk volume of work produced to the garage by it.

The argument of the defendants is that the insurance companies, could have used their bargaining power to obtain much cheaper prices than what the figured here indicate. According to them, since the payment was made in this case by the insurance companies and not by the victims personally, the prices which the insurance companies could have obtained must be taken into account – failure to do that according to the defendants excuses their failure to mitigate loss.

Holding

Difference between assessment of direct loss and consequential loss

Direct Loss: 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. It is also clear that the loss is suffered immediately upon the damage occurring, whether or not any repairs are effected. These principles apply across the board to all types of chattels, including ships and cars. This is direct loss.

Consequential Loss: In addition to the claim for physical damage to the asset, there may also be a consequential loss claim for the loss of use of the asset. If it is a profit earning chattel, that loss can be measured by reference to the profit which would have been made during the period of repair, but if it is not a profit earning chattel, special damage can be recovered if a substitute is hired in for the relevant period or general damages may be recoverable for the inconvenience of not having the asset available.

Assessment of direct loss

The usual way in which diminution of value of an asset is measured in consequence of physical damage is by reference to the repair cost. This can be described as “the normal measure”, “the ordinary rule” or “the prima facie” measure. The authorities make it plain however that the victim of the negligence does not have to repair his asset nor does he have to pay for repairs if they are done. He can choose to leave the asset unrepaired; an intervening event destroying the asset may occur before repairs are done; the victim may become insolvent before paying the repairer. The principle is that the victim can recover because, from the moment the physical damage has occurred, the value of the asset is diminished. The cost of repair is the ordinary way of measuring that loss. If repair has taken place, production of the invoices showing the cost of repair would be the ordinary way of establishing the loss. If repair does not take place then estimates for repair or expert evidence as to the cost of repair could equally establish the extent of the recoverable loss.

Direct damage arises at the time of injury: subsequent loss is irrelevant: I need not go into the details of those cases. It is now clear that the shipowner who claims damages in respect of injuries to his ship, if it turns out that before he has in fact repaired her he has suffered the loss of the ship by something other than the act of the defendant, can still recover the estimated amount of the costs of repairing the ship, which he would have had to incur if she had not been lost.

Mitigation is irrelevant for direct loss

Since the loss suffered from the physical damage is the loss in value of the chattel in question and that loss is suffered immediately upon the occurrence of the collision, it is hard to see how questions of mitigation can arise. The diminution in value is ordinarily measured by the cost of repair and self evidently that must be the reasonable costs of the repairs rendered necessary by the damage. As has frequently been said, the notion of “the duty to mitigate” can be seen as a reflection of the issue of causation. Here however the issue which the court has to decide is one stage removed from that, since it is only concerned with the diminution in the value of the asset which can be measured by the reasonable cost of repair, if repair is done. There is therefore a simple question of fact for the court in assessing a loss in respect of the physical damage because the court must arrive at a figure which reflects that diminution of value, whether it is by reference to a repair estimate, a repair invoice or expert evidence as to what repairs would cost.

“Reasonable cost” of repair – measure of “diminution in value of the asset”

The authorities make it plain that the loss suffered from physical damage is the diminution in value of the asset which is ordinarily to be measured by the cost of remedying the damage. Where however, for whatever reason, the claimant does not pay the repair cost in question, he is still entitled to recover. If he himself repairs the car or a friend does so without charge, the claimant is still entitled to recover the amount it would have cost him to have the car repaired had he gone out into the market for that purpose. If he can get a knock-down price for repairs by virtue of a particular relationship that he has, it is still open to him to claim the diminution in value of the car by reference to the market cost of repair. This is because the cost of repair is merely a way of measuring the loss in value. If no repairs are done, as I have already mentioned, the loss can be established by reference to estimates or expert evidence as to the reasonable cost of repair.

In my judgment, the propositions established by the authorities are fatal to the fundamental premise upon which the defendants’ case proceeds. Issues of mitigation may arise in relation to the hire of a substitute car or the use of a courtesy car and conceivably to the cost of collection or delivery of a vehicle for repair (if the latter type of costs are not part of the repair cost itself) but cannot apply to the court’s assessment of the direct loss where it uses the reasonable cost of repair as a way of...