Insurance Helpline | Insurers ‘loss of use’ policies defy spirit of fair competition
I am the owner of a two-year-old BMW 5 Series motor car. It was damaged in a collision which I was not at fault. The vehicle has been undergoing repairs for the last eight weeks. My insurers say the other driver's insurance company will fix my car and reimburse loss-of-use expenses. However, a problem has arisen. The insurers have agreed that they will pay no more than an arbitrary $2,000 per day for loss of use. That is not even close to the real cost of hiring a vehicle. Can you shed any light on the subject?
- M.D., Kingston 10
Jamaica is a country of laws. Law, according to Dictionary.com, means: "the principles and regulations established in a community by some authority (Parliament) and applicable to its people (and institutions), whether in the form of legislation or of custom and policies recognised and enforced by judicial decision".
Those who try to become a law unto themselves, for example, the ex-Tivoli Gardens kingpin, usually end up in prison or paying hefty fines.
There is nothing in the Motor Vehicles Insurance (Third-Party Risks) Act or the Insurance Act 2001 that give insurers legal authority to impose monetary limits for loss-of-use expenses. Section 5 (1) of the former act describes in detail the protection that a motor policy must afford. It says, under subsection (b), that the policy must cover "any liability incurred ... in respect of (i) the death of, or bodily to, any person; and (ii) any damage to property caused by or arising out of the use of the motor vehicle on the road."
Your claim against the third party and/or his insurers would fall under subsection (ii). There is nothing in this law that sets a $2,000 per day limit for loss of use.
The Insurance Act explains how the regulator - the Financial Service Commission - goes about the business of regulating the insurance industry. The regulator does not have any power under that law or under its enabling legislation, The Financial Services Commission Act, to give permission to insurance companies to vary any of the provisions of The Motor Vehicles Insurance (Third-Party Risks) Act.
Insurance companies must comply with the Fair Competition Act, 1993. Would agreements between insurance companies to fix the amount payable for loss-of-use expenses at $2,000 per day amount to a violation of the intent and spirit of this act? I believe so.
The Financial Ombudsman Service (FOS) was established by the Parliament of the United Kingdom. It is the 'official independent expert' that resolves problems between consumers and the financial services industry. In 2015, according to information posted on its website www.financial-ombudsman.org.uk more than two million persons contacted FOS about a wide range of problems, including conflicts with insurers about claims for loss of use.
FOS has published what it calls a technical online resource about loss-of-use claims. Given the traditions on which the local legal system was founded, I believe that the general principles that govern how it goes about sorting out these types of claims can be applied locally.
The FOS says: "The law requires us to decide each case on the basis of our existing powers and what is fair in the circumstances of that particular case. We take into account the law, regulators' rules and guidance, relevant codes and good industry practice at the relevant time."
The ombudsman service has listed eight things that may be taken into account in sorting out claims for loss of use. They are as follows:
1. When we decide to tell a business (an insurance company) to pay compensation for 'loss of use', we look at whether the consumer had hired another vehicle while they were without the use of their own.
2. If the consumer had hired a vehicle, we usually say that the insurer should refund reasonable hire charges (plus interest).
3. If the consumer did not hire a vehicle, we usually say that the insurer should pay compensation for any reasonable transport expenses that the consumer incurred. We may also tell a business to pay compensation for the inconvenience caused to the consumer ... .
4. However, this depends on the individual circumstances of the case for example, the consumer may have had 'free' access to another vehicle, or very easy access to good public transport.
5. When looking at these cases, we also consider whether the consumer could have 'mitigated' their loss (in other words, taken reasonable steps to minimise their loss or avoid it entirely). They might have done this, for example: a) by raising funds to buy another vehicle; or b) because the insurer provided an interim payment that enabled them to buy another vehicle.
6. Although some consumers choose to buy a 'temporary' vehicle while waiting for their claim to be dealt with, this is not always an obvious or reasonable course of action.
7. If a consumer could afford to finance a suitable replacement vehicle, we will consider whether it was reasonable for them not to do so. We generally say that wherever it is possible consumers should make a reasonable effort to minimise their loss. But we do not simply assume that a consumer was able to do so and we will take account of all the available evidence.
8. If a consumer bought a temporary replacement vehicle, they could incur a loss when selling it after the claim is settled. In these circumstances, we are likely to decide that the insurer should cover any loss resulting from the vehicle's value depreciating.
I hope that these factors will offer some insights into constructing your claim for loss of use. If any of the insurance company's legal minds that read this column are of the view that the advice offered here is 'way off base', their comments would be most welcome.
- Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: email@example.com