Insurer entitled to set its own rates for vehicle repairs, High Court rules

In a preliminary ruling, Mr Justice Cooke accepted that the cost of repairs by MRMM Garages, part of the RSA Group, reflected what policyholders would have to pay had they arranged repairs themselves.

As insurer, RSA arranged for and paid for repairs to be carried out to its policyholders' vehicles by MRMM. Repairs were then billed to the insurer of the at-fault driver. Two of these insurers, Allianz and Provident, challenged the practice in relation to 13 separate cases; claiming that the relationship between the insurer and garage increased the cost of the work by approximately 25%.

Mr Justice Cooke said that the "reasonable cost of repair" was not necessarily the repair cost itself, but the measure of the policyholder's loss. This meant that the policyholder was under no duty to try to obtain a lower price for any repair, as the cost of the repair was "merely a way of measuring the loss in value".

"The authorities make it plain that the loss suffered from physical damage is the diminution in value of the asset which is ordinarily to be measured by the cost of remedying the damage," he said. "Where however, for whatever reason, the claimant does not pay the repair cost in question, he is still entitled to recover ... If he can get a knock-down price for repairs by virtue of a particular relationship that he has, it is still open to him to claim the diminution in value of the car by reference to the market cost of repair."

In addition, the judge said that a reasonable repair charge should be judged with reference to what the policyholder would have been able to obtain on the open market, rather than the price an insurer with its increased bargaining power would be able to obtain.

The case follows allegations that motor insurers have been artificially inflating the cost of car insurance premiums by as much as £225 million a year because they are charging more than is due for dealing with driver claims in the aftermath of accidents. Consumer protection regulator the Office of Fair Trading (OFT) announced that it had "provisionally decided" to refer the market to the Competition Commission for further investigation at the end of last month.

The OFT has suggested that insurers are "competing in a dysfunctional way" following its own study of the market, announced last year. It found that referrals to credit hire organisations and providing courtesy vehicles for "longer periods than necessary" had led to claims for providing such vehicles to 'not-at-fault' drivers being £560 more expensive on average. In addition, some insurers had received fees or rebates for referring repairs to particular suppliers or "approved repairers".

The watchdog is currently consulting on its provisional decision, and expects to make a final decision over whether to refer the motor insurance market to the Competition Commission by October.

In a statement, RSA chief executive Adrian Brown said that he was "not surprised" that the company's approach had been "vindicated".

"If necessary we will continue to pursue our claims through the courts, however, given the clarity of the judgment, I hope this can now be brought to an agreed solution," he said. "We remain keen to resolve the issues that exist within the motor market and are actively working with the government and OFT's efforts to find a solution."