Summary

The two recent Local Court judgments of Assessor Olischlager demonstrate a shift from the Court’s previous attitude of protecting the helpless insured, to understanding the prejudice suffered by insurers at the hands of repairers and often the insured themselves due to a lack of co-operation during the motor claim process.

In Nerezov v Insurance Australia Limited [2016] NSWLC 18 (‘Nerezov’), the Court assessed the plaintiff’s claim on a quantum meruit basis, and subsequently reduced NRMA’s liability to the amount which they would have otherwise paid for the repairs. In determining this amount, the Court gave weight to the bargaining power of insurers to almost always pay the price that they deem reasonable.

In Jarad Sullivan v AAI Limited [2016] NSWLC (‘Sullivan’), the Court took one step further to suggest that there was no evidence of any liability of the plaintiff to pay for the repairs and in that event, there would be nothing for AAI to indemnify for. However, since the issue of liability was not challenged by AAI, the Court again adopted a quantum meruit approach to determining the amount of loss suffered by the plaintiff. The liability of AAI was then reduced to the amount of a quote AAI had obtained at the outset from an alternative repairer.

Facts

In Nerezov, Mr Nerezov held a policy of insurance for his motor vehicle with NRMA. The insurance policy stated that if Mr Nerezov wished to nominate his own repairer, he must “obtain our [NRMA] authorisation for the repairs and quoted cost before those repairs are commenced” and must co-operate fully with NRMA during the claim process.

Mr Nerezov took his vehicle to his chosen repairer and authorised them to undertake the repairs. He then commenced the proceedings against NRMA alleging a breach of the contract of insurance by reason of a failure of NRMA to indemnify for losses suffered as a result of the insurable incident. NRMA disputed the claim and argued it was entitled to refuse the claim on the grounds that Mr Nerezov breached his obligations under the insurance contract by refusing to allow NRMA access to inspect and assess the vehicle and authorising repairs without their consent.

Similarly, in the matter of Sullivan, Mr Sullivan held a policy of insurance for his motor vehicle with AAI. After his vehicle was involved in a collision, he lodged a claim with AAI and took his vehicle to a repairer providing the repairer with the claim number. The repairer then repaired the vehicle and Mr Sullivan commenced proceedings against AAI for indemnity for the cost of the repairs. AAI argued that Mr Sullivan had breached his insurance contract which contained a term that “you must not authorise the repair of your car without our written authority.”
Actual loss suffered

At the core of a contract of insurance is the principle that the insured has a right to be indemnified by his insurer for his actual loss suffered. However, in the claims discussed here the Court considered whether an actual loss was suffered and if so, how that loss could be calculated.

In both cases there was no evidence of a contract between the insured and repairer, no evidence of payment for the repairs or even a demand for payment. In Sullivan, the Court made comments that there was no evidence of an authority to commence repairs and as such “if the repairer had elected to commence repairs without authority… then there would be no liability on the part of Mr Sullivan to be indemnified by the insurer.” This point was not taken by AAI so the Court inferred that authority to repair had been provided by Mr Sullivan, and therefore followed the approach taken in Nerezov and confirmed that in “the absence of any evidence of a contractual liability the highest that the plaintiff’s claim for indemnity (can be put) is a liability based on quantum meruit.”

How to calculate a claim on quantum meruit basis

The calculation of the value of the service provided was only discussed in Sullivan, whereby the Court held the calculation could be undertaken by way of a Single Expert Report. Ultimately however, the insured’s breach of the contract of insurance meant that in both cases the Court determined that regardless of the value of the service, the insurer was entitled to reduce its liability to the amount the insurer would have paid for the repairs but for the insured’s breach.

Breach of insurance contract by plaintiff

Of most relevance was the allegation by the insurer that the conduct of the insured breached the obligation of good faith and contractual terms of the insurance agreement. The Court found in both cases that the action of the insured in authorising repairs without consent of the insurer amounted to a breach of the contract of insurance. Although, in the matter of Sullivan there was no evidence of this authorisation, the Court had already inferred authority was provided as without it there would be no liability for which AAI must indemnify.

In Nerezov, NRMA argued the breach by the insured entitled NRMA to reduce their liability to nil. The Court disagreed and adopted a practical approach using the remedial provisions of section 54(1) of the Insurance Contracts Act to find that the breach permitted the insurer to refuse to pay a claim only to the extent that the breach had prejudiced the insurer’s interests.

This was confirmed in Sullivan where the Court held the test to be an amount that “fairly represents the extent to which the insurer’s interests were prejudiced as a result of that act.” The Court must therefore determine what would have occurred had the plaintiff not breached the insurance contract. This responsibility rests with the insurer, who must establish what would have occurred but for the breach, and therefore calculate the monetary amount by which the insurer was prejudiced by the breach.

In Nezerov, the Court found that if the contract hadn’t been breached, NRMA would have found a repairer to repair the vehicle for the amount that NRMA’s assessor had valued the repairs at. In doing so, the Court commented on the strong bargaining power of insurers to find a smash repairer who will do the job for the price that the insurer sets. In Sullivan, although the figure set by the Single Expert was adopted as being the market rate available to consumers for the repair, the Court commented that “insurance companies may be able to obtain cheaper rates by virtue of their strong bargaining power” and ultimately calculated the prejudice suffered by reference to an alternative quote obtained at the same time by AAI for the repairs. The Court found that AAI would have proceeded with the cheaper quote, and was therefore entitled to reduce its liability to indemnify the plaintiff to the amount of the cheaper quote.

Implications

In calculating the monetary value of the prejudice suffered by the insurer, the Court took into account the insurer’s “significant market presence within the smash repair industry” which provided them with a stronger bargaining power than the individual insured to negotiate a lower price for repairs. This approach demonstrates an understanding of the commercial bargaining power of insurers in the smash repair market and the prejudice caused should their ability to negotiate the price of repairs be taken from them by the insured. Further, in situations where the repairs are being undertaken on a credit basis, this common sense approach by the Court removes the ability of the repairer to undertake the repairs at any price they wish and then attempt to recover the full amount from the insurer directly, a practice which is often undertaken by the repairer or collision recovery service companies standing in the shoes of the insured during litigation.