INDUSTRY OBSERVATION

We have recently received two excellent explanations from the Short Term Ombudsman in respect of two areas that greatly affect Commercial Vehicle Insurance.

The first was a succinct clarification in respect to the position on second hand spares for the motor industry, I assume with specific reference to the car industry. On a point, we could definitely make this the subject of another article for purposes of clarity.

The other matter is the position that we have with a minority number of unethical panelbeaters who purposely leave the “door” on quotes wide open. This in our opinion is with the specific intention to “catch” the “repair job” and then once the job is completed, present the Insurer with a Claim quantum way in excess of the original estimate or provision.

Our perspective is and was that this type of Claim just can never be “finalized”. As a result it creates unnecessary difficulties with our clients and means we battle to provide adequately for Claims provisions/ costs.

I have quoted the Ombudsman’s reply verbatim for purposes of clarity:
“Subject to the specific provisions of a policy defining an insurer’s obligation to indemnify for any loss or damage suffered, an insurer is entitled, as of a right, to offer to an insured a “cash in lieu” settlement and is not obliged to either repair or reinstate damage to an insured article. Any “cash in lieu” payment must naturally represent a fair and reasonable indemnification for the loss suffered so as to enable the insured to repair or reinstate the damaged article. In the event of a total loss the cash in lieu offer must represent a fair and reasonable reflection of the market value of the article in question and would represent the diminution in value of that article in a case where the insured retains the damaged article. If the insurer elects to retain the salvage, then the cash in lieu offer would represent the market (or retail) value of the article, having regard to the method of indemnification specified by the policy.”

An insured person is not entitled to demand of an insurer that it repair or reinstate any damaged article and the insurer has the option of so doing or of settling on a cash in lieu basis. However, where the insurer elects to repair or reinstate any loss or damage, then it assumes the obligation of adequately and correctly repairing or reinstating the damaged or lost article so as to place the insured (as far as practicable), in the same position as he enjoyed prior to the loss.

I trust that this clarifies the position adopted by this office in relation to the matters referred to above.”

Yours faithfully,

Brian Martin
Ombudsman For
Short-Term Insurance

The two critical areas of commentary which bear highlighting are the following: