We approach complaints about motor valuations in the same way that the former Insurance Ombudsman Bureau did. That approach has remained largely unchanged for many years and by now most firms should be aware of it. However, we still see a steady flow of complaints where firms appear to have handled matters differently - to the customer's disadvantage.
Where we feel that it would not have been necessary for the customer to complain if the firm had followed good industry practice, then we may sometimes require the firm not only to settle the claim fairly but to make the customer a payment for the distress and inconvenience it has caused.
Most policyholders assume that their insurance policy will enable them to replace with a similar vehicle a car that has been stolen or damaged beyond repair. Our approach mirrors this. We want to see firms making a reasonable assessment of the car's "market value" - and then paying this amount. The "market value" is the likely cost to the customer of buying a car as near as possibly identical to the one that has been stolen or damaged beyond economic repair.
This approach can come as an unpleasant surprise where policyholders have assumed they would get the amount that the car was worth when they first took out the insurance, regardless of the car's actual market value at the time of the incident giving rise to the claim.
The fact that many insurers' proposal forms include a question about the vehicle's "present value" undoubtedly causes confusion for many customers. For most transactions, the question has little relevance for the underwriting of the policy. So it would help if firms left this question out, or clearly explained its limited relevance to the settling of claims.
Of course there can be genuine debates about what represents a fair market value. Our starting point is to consider the approach the firm has taken. We would expect it to have consulted the normal trade guides and to have allowed for any difference from the norm in the car's mileage or condition. In most cases, the firm should have assessed the market value as equivalent to the "guide retail price"(the price that a member of the public might reasonably expect to pay at a dealership).
Sometimes the firm will argue that it would be fairer to use the "guide trade value" (the price that a motor trader might pay). Normally this will be less than the market price that the policyholder will have to pay to replace the car. However, the trade value may be a useful indicator where the car was not in "guide retail" condition or where there is evidence that the customer intended to buy a replacement privately.
Other sources of reference may be relevant when making or assessing a valuation. For example, we would expect the firm to look at the price guides available to the general public, especially where these suggest significantly different results from the trade guides. Specialist publications can help in the valuing of unusual or "classic" vehicles. And it can sometimes be useful to get evidence from an independent engineer (or even from a firm's in-house engineer), especially in relation to 'non-standard' vehicles.
Customers who dispute the firm's assessment of a car's market value often draw our attention to "forecourt prices" advertised in local papers, and - increasingly - to prices quoted on internet sites. Generally we place little weight on such evidence. Advertised prices for cars are widely understood to be a starting point for negotiation, rather than a fixed price. And the information provided is often insufficient to ensure a like-for-like comparison of age, condition and mileage. But we do sometimes take local factors into account when deciding a relevant replacement cost. If, for example, the car has been bought recently from a reputable source, then this may be a sensible starting point for determining its market value.
When a firm values cars that have been permanently modified, it may be appropriate to look at the closest equivalent vehicle, and to then make adjustments for the quality of the modifications. Policyholders may be disappointed if they are unable to replicate the exact modifications they made. However, our general view is that, provided the overall approach is reasonable, the firm is not required to cover the policyholder for the precise mixture of features of the previous - modified - car.
Finally, we see cases where the firm's enquiries after an accident reveal that a car is not quite what its owner believed it to be - and that it consequently has a lower value than the owner expected. It might, for example, be a "grey import" (a vehicle bought from an importer who was not authorised by the manufacturer) or it may have been "clocked".
Where it becomes clear that the customer was aware of the car's true origins, the firm may be justified in rejecting the claim in its entirety. But in many cases, the customer is likely to have been the innocent victim of a fraud. We generally consider that customers should receive the vehicle's true market value, not the value of the car they thought they had bought. However, we may ignore problems that came to light only after the incident that gave rise to the claim (such as a hidden rust problem) if the owner was unaware of the problems and they would not have been apparent at re-sale.
Dr M's insurer valued her car at £2,040 after it was seriously damaged in an accident. She disputed this, saying that she had bought the car new eight years before for £7,500 and that it was now worth £4,500. The firm increased its offer to £2,500. Dr M refused to accept this. She said that the firm had failed to take account of the fact that the car had only 6,000 miles on the clock.
Even considering the unusually low mileage, the firm's offer seemed to us to be quite generous. It was more than the car's "market value" so there was no reason for the firm to increase its valuation.
Miss W insured her car in January 2001 and told her insurer that it was worth £10,000. After the car was stolen in June that year, the firm offered her £2,600. She objected - saying she had paid £9,500 for the car. When the firm looked into the matter further, it found that the car's previous owner had bought it as a wreck and then sold it to her for £1,000.
When challenged about this, she said further work had been done on the car after she had bought it, to restore it to "pristine" condition. Although Miss W was unable to produce the car's service history and had no purchase or repair receipts to support her statement, the firm increased its offer to £4,100. It had referred to the published valuations for "classic" cars, even though she had not taken out "classic car" insurance. Miss W refused the firm's offer, saying she was prepared to accept £7,500. But the firm would not budge, so she brought her complaint to us.
The firm was not liable for the £10,000 Miss W had said the car was worth. The firm's policy documents made it clear that if the car was stolen, the firm would assess and pay the car's "market value". This was the amount it would cost to buy a similar vehicle of a similar age and condition. In our view, the firm had valued the car properly. In fact, it had valued it as if it was in excellent condition, despite its high mileage and the lack of any service history. There was nothing to support Miss W's claim that the car was in "showroom condition", so we were satisfied that the offer was very fair.
Mr Q's car was stolen just over a month after he had bought it. Since he had paid £18,495 for the car, he was extremely upset when the firm valued it at just £15,564.
He pointed out that his policy contained a promise that the firm would replace new cars if they were stolen or became a "total loss" within the first 12 months. However, the firm said the car had not been "new". It said the car had been registered in the dealer's name before Mr Q bought it, and that this affected the car's value.
Eventually, the firm agreed to increase its offer to £16,524. Mr Q refused to accept this, arguing that the car had only five miles on the clock when he bought it. The firm would not change its stance, so Mr Q brought his complaint to us.
The firm had no evidence to support its claim that the registering of the car in the dealer's name, only five weeks before Mr Q bought it, would have affected its value. We required the firm to increase its offer to the full amount Mr Q paid for the car, and to add interest from the date of the theft.
Mr T bought a new car for £25,000. It was a "grey import" - in other words, a car that had been imported by a supplier who was not authorised by the manufacturer.
Just over two months later, after leaving the car in a public car park, Mr T was arrested and taken into custody. The following day, a fixed penalty notice was put on the car, which was still in the car park.
Some time later the car was stolen. The theft was eventually reported to the police in November by Mr T's friend, Mrs C. She subsequently made the insurance claim on Mr T's behalf in January 2001.
The firm valued the car at £17,950 and agreed to add interest to this amount. Mr T said the firm should pay him the full purchase price.
In making a valuation, the firm had consulted a specialist trade guide for valuing "grey imports".
We were satisfied that the insurer's offer reflected the car's full market value, particularly since there was evidence that the car had suffered some damage before it was stolen. We thought the insurer's offer to add interest to the amount it paid Mr T was very fair, since much of the delay was caused by his being detained after his arrest.
We thought it probable that he had paid more than the car's market value when he bought it and we recommended that he should accept the firm's offer.
ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.
The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.