Mea culpa for claims myopia

Insurance Helpline with Cedric Stephens

Question: My car is insured for J$810,000. In February of this year, I met in an accident. The driver of the other vehicle was attempting to turn right while on the left side of the road. He did so without giving any signal. We exchanged details and reported the collision to the police. I then filed a claim for repairing the damage to my vehicle with my insurers.

The cost of repairs was estimated at J$69,333. My insurers have offered to pay J$13,712.50, after deducting the excess, which amounts to J$40,500. Incidentally, initially, I forgot to submit a claim for loss of use. My insurers are suggesting that this is limited to a flat amount of J$1,800 per day for the parishes of Kingston and St Andrew. I am of the view that: (a) The deductible is excessive; and (b) the rate paid for loss of use is too low. What would you suggest that I do?

- C.D., St Andrew

Answer: Your husband and I spoke shortly after I had received the email you sent me. The issues connected with your claim seemed so simple and routine. Unfortunately, I overlooked important things - not unlike the person in the insurance company (or broker) who is handling your claim. I did not see the big picture.

I failed to recognise that this was your first motor claim; that you were unfamiliar with the claims process.

My third error was to have assumed that you had read and understood the insurance contract. Like the PM, I must say mea culpa.

CORRECT DEDUCTIBLE

Comprehensive motor policies usually contain a deductible, or excess. As a rule, most local insurers require policyholders to bear five per cent of the estimated market value of the vehicle in the event of collision damage.

The Excess Clause of one of the policies that your insurer offers says: "We (the Insurers) shall not be liable for the first amount ... of any claim ... for loss of or damage to the Motor Car ... 5 per cent of the Policyholder's Estimate of Value ... and its accessories and spare parts, whilst thereon, subject to a maximum of $75,000 and a minimum of $15,000 ... ."

The $40,500 is actually five per cent of your vehicle's estimated market value of J$810,000.

The deductible that was subtracted from your claim was not abnormal. I have absolutely no problem with how it was applied. The method appears to be consistent with normal industry practice. The repair estimate appears to have been reduced - presumably with the agreement of the repairers - from J$69,333 to J$54,212.50.

The offer of settlement of J$13,712.50 represents the difference between the deductible of J$40,500 and the revised estimate.

CLAIM FOR LOSS OF USE

Loss-of-use expenses arise when the driver in a traffic accident cannot use the vehicle. The costs are incurred after the damage until the repairs are completed. Claims for loss of use should pass two tests. They should be necessary and reasonable.

Most policies like yours provide protection against loss or damage to the vehicle. Costs and expenses that result from accidents, like loss of use, are generally not considered to be damage.

Some insurers have started to offer a limited form of 'loss-of-use protection' in order to gain market advantage.

This extra takes the form of the payment of a fixed amount per day for a limited period. It bears absolutely no relation to the real costs of hiring a replacement vehicle while the damaged unit is undergoing repair.

Your policy, I suspect, contains the loss-of-use benefit. Please contact your insurers to confirm this and that the benefit was not subject to the deductible.

On the other hand, if your policy does not include the benefit, the 'reasonable and necessary' rule will apply instead of the J$1,800 per day limit.

If you hired a replacement vehicle and incurred loss-of-use charges in excess of J$1,800 per day, which it will be assumed amounted to J$4,500 per day, the insurers of the driver that caused the accident should pay the extra amount.

Loss-of-use expenses are legally the responsibility of the negligent driver and are paid by his insurers. Your information suggests that the other driver was to blame. If I am right, that your policy provides token loss-of-use coverage, then your loss-of-use claim should not be limited to J$1,800 per day.

If both insurers agree that you did not cause the accident, then your deductible, J$40,500, plus the extra loss-of-use expenses should be paid by the other driver's insurers after the claim made under your policy has been settled.

Provided the facts clearly show that you were not at fault, and the other driver had insurance that was in force at the time, you should not suffer any financial losses as a result of the collision.

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