4 Issues for Motor Insurers during the Pandemic

It’s now almost eight months since many Australian businesses first began responding to the coronavirus pandemic. In the context of motor insurance claims, the immediate impact, from a legal perspective, was the adjournment of matters across many jurisdictions, and the introduction of new processes to facilitate the hearing of proceedings.

However, the pandemic has also given rise to various legal issues for motor insurers in relation to litigated matters and the assessment of claims. Below are four such matters relevant to motor insurers.

“COVID cleaning” fees

For many businesses, the pandemic has resulted in new cleaning practices being adopted to limit the spread of the virus. For motor insurers, this has resulted in “COVID cleaning” fees being rendered by smash repairers, towing providers and rental companies. The cleaning fees are relevant both in the context of increasing claim costs generally, but also as to whether such fees can be recovered from liable parties.

There has been considerable litigation in recent months regarding this issue, but at this stage there is no binding legal authority that squarely addresses these charges. Should matters proceed to trial, Courts will likely apply established principles as to the assessment of damages in determining whether such fees are recoverable.

In the event a party has incurred a COVID cleaning fee, we suspect the Court may approach the issue in a similar manner to repair costs generally, and apply the principle from Stocavaz v Fung [2007] NSWCA 199 that “a Defendant is only required to pay the fair and reasonable cost of repairs to the Plaintiff’s car, not an extravagant or unreasonable cost.” If a party can demonstrate the cleaning fees were a reasonable part of the repair process, and fell within the “market range” of such fees, they will probably be recoverable.

However, the fees may be overstated in some cases, particularly where repairs are being carried out, or hire cars are being provided, on “credit”. In such cases, we recommend insurers seek further information with respect to the precise nature of the clean being performed. If the clean is little more than a spray and wipe, the time and costs incurred by repairers/rental companies will presumably be limited, and claims for substantial fees should be treated with caution. The amounts charged by non-credit repairers/rental companies is likely to be given weight by the Court.

“Need” for a hire car when in lockdown

It is now well established that a party’s need (or lack thereof) for a replacement vehicle is relevant to determining damages for rental vehicle charges whilst that party is unable to use their vehicle. The unique circumstances of the pandemic, and the Government imposed restrictions, are likely to raise issues in some matters as to whether there was a genuine need for a replacement vehicle. We believe there may be grounds to dispute the need of a party for a
replacement vehicle in a number of scenarios, including:

  • When lockdowns were in place. During the extended periods when people could only leave their homes for limited reasons, the need for a replacement vehicle may have been reduced or eliminated, particularly when another household member had an available vehicle.
  • Where parties were required to work from home. Typically, commuting to and from a workplace is relied upon as a major reason for requiring a replacement vehicle.
  • Where parties were required to self-isolate as a result of potential exposure to the coronavirus.

If there was no such need, the authorities indicate the measure of damages should primarily be calculated by applying the Court interest rate to the capital value of the damaged vehicle. Typically, this results in only a nominal award of damages (in many cases, less than $100 in total).

Fraudulent claims

The significant economic changes now faced in Australia may lead to an increase in fraudulent insurance claims. In times of recession, losses from fraud typically equate to a greater share of profits1. In the months following the 2008 Global Financial Crisis, various metrics showed an increase in fraudulent activity generally, 2and there have been similar predictions for the current slow-down. The National Motor Vehicle Theft Reduction Council has commented
that it expects an increase in fraudulent stolen vehicle claims3, and in recent months both the New Zealand Insurance Fraud Bureau and the Association of British Insurers have foreshadowed a potential increase in fraudulent insurance claims.4

From a legal perspective, establishing the elements of fraud in the context of insurance claims where, for instance, a staged accident is suspected, can be problematic. In our experience, investing in the training of claims staff and establishment of clear systems across claims departments (including those not directly involved in investigations) enhances the likelihood of fraudulent claims being identified and combatted. We believe a focus on such processes is vital over the next 12 months.

Financial hardship and vulnerability

The economic downturn has already impacted many people’s livelihoods, and it is likely to get worse before it improves. The provisions of the General Insurance Code of Practice (“the Code”) will be particularly important for all insurers seeking recovery against uninsured third parties during this time.

We anticipate a complication may arise due to the likely fluctuation many people will experience in their financial positions due to the temporary closure of workplaces and variations to Jobkeeper and Jobseeker payments. These variables will likely be relevant in many cases when considering reasonable repayment proposals, particularly when any such plans are likely to take place over an extended period of time.

The Code allows insurers to request information which is reasonably necessary to assess a third party’s position (section 115), and this may extend to some of the matters mentioned above. The Code also allows insurers to agree to delay the date on which payment of a claim or an instalment falls due (section 123), which may be a useful option for insurers during these uncertain times.

1 “Fraud vulnerabilities and the global financial crisis”, Levi M & Smith Rm 2011, Trends & Issues in Crime and Criminal Justice, Australian Institute of Criminology.
2 “The Reasons Fraud Spike in a Recession”, Time, 20 May 2009.
3 “Strategic Plan 2020-2022 Informing Australia on vehicle crime”, pp. 17-18.
4 “The Covid effect on insurance fraud”, New Zealand Insurance Fraud Bureau, media release, 17 September 2020; “Rising to the challenge: Responding to the pandemic fraud threat”, ABI, Mark Allen blog, 1 June 2020.

Ligeti Partners Contacts

Picture of James Mulcahy.

James Mulcahy

Managing Director

Melbourne