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Insurance: Coles v Hetheron [2012] EWHC 1599

The Commercial Court (Cooke J) has decided two preliminary issues in a test case concerning the legitimacy of RSA's repair arrangements following negligently caused damage to its insured's vehicles.

Other insurers have challenged RSA′s repair charges, alleging that they are artificially inflated.

The first issue was whether, where a vehicle is negligently damaged and reasonably repaired, the measure of loss is the reasonable cost of repair. The court concluded that it is. It is well established that where a chattel is negligently physically damaged the loss is its diminution in value. This is a direct loss suffered immediately on damage. The reasonable cost of repair is its ordinary method of assessment. Cooke J held that the court could assess this cost by reference to any evidence sufficient to discharge the burden of proof. Although repair invoices would ordinarily be used, it could also be established by reference to estimates or expert evidence. Importantly, he held that it would not necessarily be the repair cost actually incurred.

He also disapproved of the reasoning of the Court of Appeal in Darbishire v Warran [1963] 1 WLR 1067, in which a claimant who had repaired his car at a cost exceeding its market value could not recover because he had failed to mitigate his loss. He held that issues of mitigation could not apply to an assessment of direct loss by reference to the cost of repair. Darbishire ran contrary to subsequent decisions of the Court of Appeal and the House of Lords (although its result was justifiable on other grounds).

The second issue was whether, when an insurer arranges repairs, the reasonable cost of repair is to be judged by reference to what the claimant or to what his insurer can obtain in the open market. The court held that it should be assessed by reference to the claimant′s position. The insurer′s repair arrangements (and their profitability) are irrelevant, save insofar as they are relied on as evidence of the reasonable cost of repair. It is the objectively reasonable cost of repair that matters, however it is proved.

The result represents a victory for RSA, although, as Cooke J indicated, it was simply the application of well established insurance law principles. Nevertheless, the other insurers are likely to appeal.

Winston Jacob / 1st Aug 2012


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