Non-payment of claim may be blessing in disguise

Insurance Helpline With cedric Stephens

Question: On September 11, 2010, a vehicle ran into the back of my car. The other driver was speeding but reported that I cut into his path. I submitted a claim to my insurer the next day for J$56,000 to replace and repaint the car's rear bumper. When I checked on my claim, I was told that the estimate was reduced to J$49,000. That amount is below my excess of J$55,000. I was charged with careless driving but the other driver was not. I have had a relationship with my insurer for over 15 years. Is it ethical for them to reduce my claim to avoid paying me?

- G.B.

HELPLINE: First things first: I suspect that your collision actually took place in September last year and not 2010 as you texted on January 16. In spite of the criticisms that I level against insurers from time to time, I would be most surprised if it took yours 15 months to make what is really a very simple decision about the claim you submitted.

Your question raises four issues. These are: 1) who caused the collision; 2) your insurer's duty under the policy or contract; and 3) the amount you would have received if your claim had been paid; and 4) the long-term effect on your finances had your claim been paid.

All of these things are connected. They suggest that even though you have been buying motor insurance for over a decade, you do not have an understanding of these things.

REAR-ENDERS NOT ALWAYS LIABLE

The fact that another vehicle ran into the back of your car does not make the driver of that car automatically liable for the collision. Two sources have confirmed this. In one case, the accident reportedly occurred in Trinidad while the other took place in Toronto, Canada.

In the latter case, according to the October 31, 2011 issue of the Law Times, a jury found a rear-ended driver liable in a CDN$5.3 million personal injury award. The rear-ended driver was reported to have stopped suddenly in front of a truck at an intersection while attempting to make a right hand turn.

The information you provided is insufficient for me to make a decision. Liability for accidents like yours can only be properly made on the basis of the facts.

INSURER'S DUTY

Your insurer's duty to you is based mainly on what the policy says - and not about what is right or wrong (ethics). The section of your policy that deals with damage claims would say something like this: "If your car is damaged, as a result of accidental collision, at our option we may either pay for your vehicle to be repaired, or replace your vehicle if it lost, stolen or damaged beyond economic repair".

If it was the opinion of your repairer that the bumper could not have been repaired, shouldn't he have said so? The fact your insurers chose to repair the bumper instead of replacing it is in keeping with the terms of your policy.

REAL IMPACT OF EXCESS

If your claim had been agreed at J$56,000 your insurers would have paid only, J$1,000. The latter amount is arrived at by deducting the excess or deductible, J$55,000, from the estimated repair costs of J$56,000.

Frankly, it would not have made financial sense — as you will see below — for you to have made a claim for J$1,000.

DON'T IGNORE THE IMPACT

You bought comprehensive insurance. Given your 15-year history with the company, I suspect that you have earned a no-claims discount. Have you ever calculated the savings in premiums you have gained from it over the years?

Assume that you are now earning 50 per cent or more. The total savings almost certainly will exceed the J$1,000 that your insurers would have paid had the bumper been replaced and the J$49,000 that it will cost you to fix the car.

What about the extra premium that you will pay in future years if you lose the discount when a claim is paid? Should you 'hug up' the J$49,000 repair bill or make a claim for J$1,000 and lose your no claims discount? Do the sums.

For my part, I suspect that your insurer's decision to repair the bumper instead of replacing it and the non-payment of your claim may turn out to be a blessing in disguise given the rise in motor insurance premiums that I expect will take place this year.

Cedric E. Stephens provides independent information and free advice about the management of risks and insurance.aegis@cwjamaica.comSMS/text message to 812-7233