Written by Lucia Cocco
When a vehicle is damaged in a collision, it is well understood that the loss to be awarded is the diminution in value of the vehicle. In most cases, the starting point for determining this cost is the tax invoice for the repair works actually performed. These costs are then adjusted downwards based on expert opinions on any extravagant or unreasonable costs to arrive at a fair and reasonable value.
But what happens when the ‘starting point’, the tax invoice, is not all that it seems? Today, many insurers are faced with a rising number of cases involving inflated, if not outright fraudulent, repair invoices. When these are taken as a prima facie value to begin negotiations, this distorts the process of identifying the fair and reasonable cost, resulting in excessive payouts from insurers.
The case of Megally v Bojanic demonstrated that when a tax invoice is shown to be an ‘unreliable document’, it cannot be relied upon as a starting point to determine the fair and reasonable cost of repairs or represent the actual cost of repair within the meaning of the authorities.
Facts
- The Defendant’s vehicle rear ended the Plaintiff’s vehicle causing relatively minor damage.
- The agreed facts were the Defendant’s liability for the collision, the Plaintiff’s vehicle being repaired between the 20th and 27th of April 2021, that the repairs undertaken reinstated the vehicle to its pre-accident condition and that a tax invoice was created by Accident Solutions Australia for the sum of $19,032.24.
- The Plaintiff arranged a desktop assessment by an assessor who determined the fair and reasonable cost to be $16,810.42, which the Plaintiff sought to recover at the hearing.
- The Defendant argued that it could demonstrate that the invoiced amount was not the actual cost and therefore was not a relevant starting point for the assessment of damages.
- A great deal of evidence was presented regarding the repair arrangements. The Plaintiff decided not to claim through their insurance and approached a company named Regatta at Five Dock to repair his vehicle. They refused the work to avoid any problems with NRMA and referred the work to CARS, an accident management company. CARS referred the repair to a company called ASA which had a repair licence but no staff or premises. This company, ASA, played some sort of coordination role where parts were ordered from the originally approached company Regatta and had the vehicle repaired by an unidentified contractor, possibly using Regatta’s facilities.
- The director of ASA was unable to provide any pertinent details as to the repair process. They were also unable to provide any records of these arrangements, or the circumstances of the repairs allegedly done.
- The Defendant provided evidence from an expert assessor. They performed an in-person assessment of the vehicle and determined that the Plaintiff’s invoice contained costs for unperformed work.
- The Defendant’s expert estimated the reasonable cost of repairs were between $5,000.00 and $8,537.96 and provided an opinion that the invoice recorded overserviced and inflated costs outside the industry range.
Judgment
The Court found that:
- It was ultimately satisfied based on the failure to produce records regarding the arrangement of repairs and on the expert evidence, that the invoice created by ASA was not a reliable record of repairs done. As such, it did not represent the actual cost of repair within the meaning of the authorities.
- The Court did not need to decide if it is accurately to be called a ‘sham’; only that it did not represent this cost of repair.
- The Defendant’s expert was the only expert who considered whether the works were completed, whereas the Plaintiff’s expert made an unsafe assumption in his desktop assessment that the invoice was created by an actual repairer demonstrating legitimately completed works.
- The sum of $7,000 was awarded to the Plaintiff which was the reasonable costs of repairs (within the range as determined by the Defendant’s expert) and therefore the measure of damages for the diminution in value caused by the accident.
Takeaways for Insurers
It has become an increasingly worrying and common trend in recent times that invoices are not reflective of the work performed on vehicles. This case demonstrates that is it is unsafe for insurers to trust these repair invoices without first verifying their accuracy.
Where there is no real proof that a document genuinely reflects the actual repairs undertaken and the costs for those works, the document has the capacity to mislead, generate wasted costs and lead to a party being placed in a better position than what they were prior to the collision (at the expense of the at fault party’s insurer). A likely explanation for such a tactic is so repairers and their associated recovery agents maximise their recovery from the insurer.
Insurers should put in place rigorous procedures to request documentation to verify what repairs were in fact performed to the vehicle. It is also beneficial to be aware of which repairers engage in such misleading practices so the claim can be flagged at an early stage. In assessing the fair and reasonable costs of repairs, a document such as an invoice for repairs should only be used as a starting point if it is a genuine representation of the repair works undertaken and costs paid.
When in doubt, insurers are encouraged to undertake a physical inspection of the vehicle to verify if the works claimed have in fact been carried out. Their expert assessor can then provide an opinion on what is necessary to reinstate the vehicle using the invoice as a guide only.
Ligeti Partners work closely with insurers to help implement strategies to combat these claims to ensure the correct outcome is achieved. Should you wish to discuss the decision and its implications, please contact Doran Yacobi on 03 9947 4504 or any member of the Ligeti Partners team on 03 9947 4500.
