December 2007 / January 2008
We regularly deal with complaints from people who believe that their insurer has not properly valued their car or motorbike. The problem usually arises after a vehicle has been so badly damaged in an accident that the insurer decides it is a "total loss" (popularly known as a "write-off") and not worth repairing.
In these circumstances, the policyholder is entitled to receive an amount equal to the vehicle's market value immediately before it was damaged - and the insurer should offer this amount straightaway.
These case studies are based on disputes we have dealt with recently. They illustrate some of the issues that can arise after a vehicle has been declared a total loss - as well as showing how we assess whether or not a disputed valuation was correct.
After Mr W's 1989 Saab saloon was badly damaged in a road traffic accident, the insurer offered him £700, which it said was the car's pre-accident value. The insurer had calculated that repairing the car would cost considerably more than the car's market value.
Mr W was far from happy with the insurer's offer. He thought it was based on an inaccurate valuation and failed to take the car's particular features into account. He sent the insurer details of these features and suggested that £2,600 was a more realistic figure.
The insurer subsequently increased its offer to £1,040. Mr W still thought this was inadequate. He complained to us about both the valuation and the poor service he felt he had received from the insurer. To support his view of the car's value he sent us copies of a number of newspaper and magazine advertisements for the sale of similar vehicles.
The advertisements Mr W had sent us were not particularly persuasive. Apart from anything else, they featured many different models - including convertible and turbo Saabs. We pointed out to Mr W that a number of apparently minor details - for example in the model type or mileage - can significantly affect value. And sellers usually inflate the price they state in such advertisements, to allow for a degree of negotiation. So advertisements rarely provide sufficient detail for an accurate "like for like" comparison, such as that needed to provide a proper valuation.
We explained to Mr W that our usual approach when assessing the value of vehicles is to consult the major motor-vehicle trade-guides. These guides are published regularly and provide detailed information on the market valuation of most makes and models.
In this particular instance, we noted that the trade guides showed a value that was significantly higher than the £1,040 that the insurer had offered Mr W. However it was less than the £2,600 Mr W felt the vehicle was worth.
We had been surprised by the amounts the insurer had originally offered Mr W, as we could not see that they had any reasonable basis.
We told the insurer to offer what we considered to be a fair amount, based on the trade guides we had used. We said it should also pay Mr W £150 to compensate him for the distress and inconvenience it had caused him.
Mrs B paid £7,995 for a second-hand 2006 Vauxhall Corsa which had a specialist sports body. Ten days after she bought the car, it was badly damaged in an accident. The insurer declared the car to be a total loss, as the estimated cost of repairs exceeded £7,000. So it offered Mrs B £6,900, which it said was the fair pre-accident retail value of the car.
After Mrs B rejected this offer, insisting that the insurer had not taken the car's special features into account, the insurer offered her £7,175. Mrs B felt this was still not a fair offer, so she brought her complaint to us.
Because Mrs B's car had fairly unusual features, it was not as quick and easy as is usually the case with more standard models to just check in the trade guides for a guide retail price.
However, we told the insurer that if it had contacted the compilers of these guides and made some further enquiries, it should have been able to obtain an accurate guide price for Mrs B's exact model.
The insurer then made the enquiries we said it should have undertaken when Mrs B first made her claim. As a result, it established that the guide price was higher than either of the amounts it had offered Mrs B. We said it should settle the complaint by paying Mrs B the correct guide price.
Mr G's 1999 Daewoo was damaged in an accident in July 2006. When he contacted the insurer to make a claim, he stressed that even though the car was badly damaged, he wanted the insurer to return it to him in due course, so he could get it repaired.
However, after deciding that the car was a total loss, the insurer immediately sold it on for salvage. The insurer then offered Mr G £2,125 - representing what it said was the car's pre-accident market value.
Mr G was extremely unhappy to discover that the insurer had disposed of his car, even though he had specifically asked it not to do this. He also complained that the amount he was offered did not accurately reflect the car's value.
The insurer refused to comment on its sale of the car, and it would not reconsider its offer, so Mr G referred the complaint to us.
Mr G pointed out that the car had benefited from the liquid petroleum gas (LPG) conversion he had carried out just over two years earlier, at a cost of £2,000. He was firmly of the view that the car could have been repaired, allowing him to retain the benefit of the LPG conversion. He said that the insurer had not only prevented him from attempting a repair, it had also failed to take the LPG conversion into account when it valued the car.
We agreed with Mr G that the insurer had not valued the car correctly. And the insurer did not dispute that Mr G had made it very clear, when he reported the accident, that he wished to have the car repaired.
The car had been regarded as a Category "C" in the "Code of Practice for the disposal of motor vehicle Salvage". This meant that although it was uneconomical for the insurer to repair the car, the car was repairable.
We said that the insurer had clearly acted incorrectly. Mr G was still the owner of the car at the time the insurer disposed of it. And he had asked the insurer to return the car to him, so that he could arrange a repair.
We told the insurer it should pay Mr G £4,125. This was £2,000 more than the amount it had offered him, and would enable him to buy a car with LPG conversion, to replace the vehicle the insurer had disposed of. We said the insurer should also pay Mr G £400 for the distress and inconvenience it had caused him.
When Mr H bought a classic car, he took out a motor insurance policy on an "agreed value" basis rather than on the more usual "market value" basis.
Such policies are generally taken out only by owners of classic or particularly valuable cars, where the value is unlikely to depreciate substantially - if at all.
The value of the vehicle is agreed in advance and insurer is then obliged to pay that amount if the car is lost or damaged beyond reasonable repair. However, the insurer is not obliged to pay for the replacement cost of the vehicle.
Mr H agreed the value of his classic car under this policy was £2,500. Unfortunately, the car was badly damaged when Mr H was involved in an accident. The insurer took the view that it would cost more than £2,500 to remedy the damage, so it offered him £2,500, in settlement of the claim.
Mr H thought that this figure was far too low. He told the insurer that, bearing in mind the good condition of the car before the accident, it would cost between £4,000 and £5,000 to replace. He therefore wanted the insurer to pay that amount.
complaint not upheld
We noted that Mr H had renewed his annual policy twice - on the "agreed value" basis - before the claim in question. The policy terms, which had been clearly stated in the policy documents, said that Mr H was entitled to receive the "agreed value" of the car - not the cost of replacing it. So we told him we could not uphold his complaint.
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.