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online technical resource

motor insurance: compensation for "loss of use"

what this covers

This section of our website is about how we decide whether to tell a business to pay compensation to a consumer for "loss of use".

In this context, the term "loss of use" refers to circumstances where the consumer has been unable to use their motor vehicle because their insurer:

  • incorrectly refused to settle a claim;
  • "avoided" the policy (treated it as though it never existed) in error; or
  • took too long to settle a claim (for example, the insurer took too long to carry out repairs agreed with the consumer).

We consider whether compensation for "loss of use" is justified in every motor insurance case we look at.

when we tell a business to compensate for "loss of use"

We usually tell a business to pay compensation for "loss of use" only when we are satisfied that the insurer unreasonably delayed - or wrongly turned down - a consumer's claim. But sometimes we may tell a business to pay compensation for "loss of use" where:

  • the way the policy was described when it was sold meant it was reasonable for the consumer to expect that a courtesy vehicle (or other compensation for being unable to use their own vehicle) would be provided; or
  • the claim was poorly handled (for example, the insurer initially took the vehicle to be repaired, delayed for several weeks and then decided it was a "write-off" after all).

We do not tell a business to pay compensation for "loss of use" when we find that the insurer is not at fault.

For example - where a car is beyond economical repair, the policy did not provide for a courtesy car, and market value is paid to the consumer promptly, we normally say that being without alternative transport in the meantime is just an "uninsured loss".

what we take into account

When we decide to tell a business 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.

If the consumer had hired a vehicle, we usually say that the insurer should refund reasonable hire charges (plus interest).

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. Where we do this, this is generally at a rate of around £10 a day.

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. In these cases, compensation may be based on a lower daily rate.

could the consumer have done anything to reduce their inconvenience?

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:

  • by raising funds to buy another vehicle; or
  • because the insurer provided an interim payment that enabled them to buy another vehicle.

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.

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.

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.

In the House of Lords' case of Lagden v O'Connor [2003] the court said:

The injured party cannot claim reimbursement for expenditure by way of mitigation that is unreasonable.

We take this into account when we decide cases where a consumer incurred significant travel costs (for example, by regularly using taxis) - and where it may have been more reasonable for them to finance a replacement vehicle.

But we carefully consider all the circumstances of each individual case before reaching a conclusion.

If we decide that the steps taken by a consumer to minimise their loss were reasonable, we may tell the business to pay compensation for any costs incurred in doing so.

For example - if a consumer used credit to finance the purchase of a new vehicle, we might say that the insurer should pay the associated credit charges - although we would need to see evidence of the credit agreement.

case studies

case study 1

Mr A complained about the insurer's decision to avoid his policy (ie treat it as if it had never existed), following the theft of his vehicle. While the dispute was ongoing, Mr A hired a small vehicle at a cost of £15 per day and provided us with invoices when he referred the complaint to us.

We decided that the insurer should not have avoided Mr A's policy and we upheld his complaint. As well as telling the insurer to reinstate cover and deal with his claim, we said it should also reimburse Mr A's hire costs (plus interest).

case study 2

Miss B's vehicle was damaged in an accident but her insurer refused to deal with the claim. Miss B's vehicle had a significant amount of damage and she could not afford to finance the repairs herself. Miss B studied at a college 25 miles from her home, so she bought an old vehicle from her grandfather for £500 to ensure she could still attend.

We upheld the complaint and told the insurer to deal with the repairs to Miss B's vehicle. We also said that it should meet any depreciation in the value of the temporary vehicle when Miss B sold it. Miss B was able to sell the vehicle for £350, so insurer paid Miss B £150.

case study 3

Mrs C complained about the time taken by the insurer to settle a claim, after her vehicle was damaged in an arson attack. During the year it took for the insurer to accept liability, Mrs C spent around £20 per day in taking her children to school by taxi. When Mrs C made her complaint, she submitted evidence of the £3,500 she had spent on taxi fares.

We asked Mrs C why she did not take action to minimise her losses (such as using public transport or buying a temporary vehicle) rather than paying to use expensive taxis. Mrs C explained that she lived in a rural area and there was no bus or train service to her children's school.

Mrs C also provided evidence that she was unable to borrow the funds to buy an alternative vehicle - and that the money she was paying toward the taxi costs was all she had left over in her regular income. So, we saw that there were simply no other funds available to Mrs C that she could put toward an alternative vehicle without keeping her children absent from school.

We said that the insurer should pay Mrs C enough to cover the taxi costs, less an amount equivalent to that she would have paid had she run and maintained a vehicle of her own during the same period. We said that an appropriate award would be £2,000.

case study 4

Mr D's vehicle collided with an animal and experienced engine failure some weeks later. After Mr D submitted his claim, the insurer decided that the vehicle was damaged beyond economical repair. The insurer said the engine damage had occurred because Mr D had continued to drive the vehicle after the initial impact, in breach of a policy condition requiring him to "take reasonable care of [his] vehicle by preventing loss or damage". It offered Mr D a 'cash in lieu of repairs' payment for the impact damage but refused to deal with the engine damage.

Mr D referred his complaint to us - but in the meantime he had bought a replacement vehicle of the same make and model, financed by a credit agreement over 36 months. The total charge for credit was £602.

We upheld the complaint as we did not consider Mr D to have breached the 'reasonable care' condition. We said that the insurer should pay the market value of Mr D's vehicle at the date of the incident, less the 'cash in lieu' payment it had already made. We also said that the insurer should pay Mr D the credit charge of £602.

case study 5

Mr E complained about a £250 deduction from a £4,000 settlement made by the insurer when it wrote his vehicle off. After three weeks the insurer agreed that the deduction was unfair and paid Mr E £250.

Mr E then asked the insurer for another £400 to cover the cost of his hiring an alternative vehicle during this time.

We did not uphold the complaint. While we accepted the insurer should not have made the £250 deduction, it had paid the majority of the claim (£3,750) at an early stage and we decided it was not necessary for Mr E to hire an alternative vehicle.

help for businesses and consumer advisers

contact our technical advice desk on 020 7964 1400

This is part of our online technical resource which sets out our general approach to complaints about a wide range of financial products and issues. We would like your feedback on how helpful you found it. Please also use the feedback form below to tell us about anything you think we could clarify or explain better.

image: motor vehicle
  • 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.
    We do not have power to make rules for financial businesses.
    Our current approach may develop in the light of circumstances disclosed by further cases we receive.
    We may decide that fairness requires a different approach in a particular case.