Written by James Mulcahy
The recent floods in Queensland and New South Wales have resulted in widespread damage, including in respect of thousands of motor vehicles. Aside from the immediate impact of increased claim volumes, there are likely to be longer term consequences for insurers and their claims departments in responding to various scenarios in the coming months. Below are four issues likely to emerge during the remainder of 2022 as a result of the floods, and some approaches insurers might consider adopting to minimise the impact.
More PAV Disputes
By mid-March, it was reported that approximately 20,000 vehicles had been destroyed as a result of the
floods. Since then, that figure has increased significantly given the ongoing weather conditions in parts of Queensland and New South Wales. Consequently, demand for new and used vehicles is likely to soar as people seek to replace their damaged vehicles. This will probably result in market value increases for vehicles.
In itself, a higher vehicle price does not necessarily need to translate to a dispute. However, the rise in prices may happen quickly, meaning the value of a particular vehicle in February 2022 may differ significantly from that same vehicle type’s worth several months later.
Claims that fall within this period will require careful consideration of the value of a given vehicle as at the date of the collision. Insurers and their assessing teams should be mindful to ensure claims made upon them for total losses are limited to the value of the vehicle as at the time of loss, which may differ from the date upon which it is assessed.
“Ongoing” Hire Car Where Third Parties Are Impecunious
Higher vehicle prices may also reduce the proportion of vehicles that are commercially written off, as repair costs may be smaller in comparison to a vehicle’s market value than previously was the case. This, together with the fact that uninsured third parties may now require access to more funds to purchase vehicles equivalent to their own, could increase the prevalence of ongoing hire car claims.
Such claims are typically brought in circumstances where vehicles are written off and a third party vehicle owner alleges they do not have the financial means to purchase a new vehicle. The rate of hire sought in these scenarios is typically much higher than the market rate for an equivalent vehicle, meaning insurers can face significant exposure if the claims are not actioned promptly. Intervention strategies whereby assistance is offered directly to third parties
immediately after claims are lodged is likely to be the best counter-measure in minimising the impact of these claims.
Vehicles Damaged by Flood Water When at a Repairer’s Premises
In some circumstances, vehicles that were in the process of being repaired may have been damaged further, or become irreparable, as a result of flood damage. This can give rise to a number of potential legal issues:
- Is an ‘at-fault’ insured or their insurer liable for further damage arising from water damage whilst at the repairer shop? (Probably not, although there could in theory be situations where a repairer is liable if they failed to take reasonable care to prevent water damage to the vehicle);
- How is a third party to be settled if their vehicle is rendered a total loss by flood damage before it is repaired? (Usually by the market cost to repair the original damage caused by the insured);
- Where a third party vehicle is written off due to flood damage sustained at a repair shop, can a third party continue to claim hire car charges from the ‘at-fault’ insured (whose negligence initially resulted in the vehicle going to the repair shop) after the flood damage occurs? (Probably not. Whilst a third party would be entitled to hire car charges up until the time of the flood damage, from that point onwards the flood damage and unavailability of the vehicle would most likely be seen as an intervening event that breaks the chain of causation from the insured’s negligent driving).
Bigger Hire Car Claims
The number of vehicles off the roads because of flood damage has also increased demand for rental vehicles, which in turn may result in higher rental rates. This will probably be concentrated in Queensland and New South Wales in the short term, but the delays in purchasing vehicles generally may result in higher market rates in other locations. Similarly, such delays may result in prolonged rental periods in total loss claims, where third parties may face delays in sourcing new vehicles.
For insurers, relying upon market rate evidence is still likely to be advantageous compared to credit hire rates. In addition, and in the context of vehicle writeoff’s, third parties will often be aware they are unlikely to obtain a replacement vehicle immediately. In these circumstances, there is a strong argument that a tiered rate (such as a weekly or fortnightly rate) best reflects the true market rate for a rental vehicle. Evidence that insurers can obtain as to what third parties were told regarding expected timeframes for new vehicles is likely to be critical.
In Summary
The floods are likely to create a range of unusual and unique claim scenarios which insurers will need to respond to. Training for relevant claims staff and early intervention where possible will assist in minimising the disruption caused by these claims.
From past experience, similar events have created a myriad of other issues for insurers, including fraudulent claim activity associated with specific weather events (such as hail storms), and longer term repercussions in respect of vehicles damaged by flood and rainwater (such as mould claims arising at later points in time).
For any support with training or advice, please contact James Mulcahy or any member of the Ligeti Partners’ team on 03 9947 4500.
