Out-Law News 2 min. read

Car insurer's repair costs "cannot be in the public interest", judge says

A major motor insurer has been "boosting profits" beyond the actual costs it incurs carrying out repairs, a County Court judge has said.

In a case at Romford County Court earlier this month Judge Platt found that a subsidiary of RSA Insurance had increased labour costs and made other charges it could not account for before passing the cost onto the insurance company of a driver who caused an accident.

The resulting 25% increase in the cost of the insurance claim "cannot be in the public interest", he said in the judgment.

RSA Insurance said in a statement that it had not acted inappropriately.

Cars damaged in accidents are usually repaired by a garage chosen by the insurance company of the owner of the damaged car with the bill sent to the insurance company of the person who caused the accident.

RSA Insurance passed repair invoices to a wholly-owned subsidiary, RSA Accident Repairs Ltd, which then sent a separate bill to the insurer of the party at fault.

Several insurers have disputed the size of claims they have received from RSA Insurance via its subsidiary, claiming the subsidiary was adding its own charges to the original garage bill which cannot be justified, according to a report on Radio 4's Money Box programme. RSA Insurance is then taking these companies to county courts seeking payments, it said.

Judge Platt said that what RSA Insurance saw as a "perfectly legitimate" method of business was being viewed by these insurance companies as falling "somewhere between very sharp practise and outright fraud".

The Romford County Court case involved RSA Insurance seeking £1,825 for a vehicle repair from the insurer Equity Red Star.

Judge Platt said that RSA was only entitled to claim £1,542 as that was the original bill submitted by the garage that had carried out the repair.

The labour rate for the repairs had been increased from £36 to £39.50 an hour without explanation and additional charges had been added, the judge said.

"In my judgment the effect of inserting RSA Accident Repairs Ltd as an intermediary simply inflates the ultimate cost by increasing the hourly rate and adding extra charges, one of which I have disallowed in any event as a fabrication, and another as not reasonably incurred," he said.

"If RSA Insurance is correct in its argument there is nothing to stop every insurer adopting the same procedures which, if this case is a typical example, will lead to an overall increase of some 25% in the cost of minor motor repair claims. That cannot be in the public interest."

Several insurers are now refusing to pay out claims submitted to RSA Accident Repairs Ltd unless original receipts are included, Money Box claimed.

"Subrogation is an established element of the UK insurance industry. [It] allows us to drive suppliers to minimise costs, keep control of our expenses, thereby saving our customers money on their premiums," a spokesperson for RSA said.

The insurer started a test case in the High Court earlier this year to "ensure this remains the right approach", it said.

"In the meantime, we have suspended any proceedings currently underway pending the outcome of that case. We reject completely any suggestion that RSA has behaved inappropriately," it said.

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