Update: 'Coles v Hetherton' In The Court Of Appeal

What was the case about?

Coles v Hetherton [2013] EWCA Civ 1704 concerned an insurer's approach towards the recovery of motor repair costs.

The claimant insurer operated a model which was based around a group repair company. Its policyholders' vehicles were repaired either by the group repair company or by a subcontracting garage. The insurer then sought to pass on the profit costs of the group repair company as part of its recovery from the insurer of the third party vehicle.

A number of insurers objected to the model, arguing that it increased repair costs by approximately 25%. The insurer argued that, as the group repair company centralised the procurement of repair services and brought down the overall cost of repair, it should be entitled to recover its profit cost.

What were the issues?

The case raised an interesting issue concerning the amount of subrogated recovery claims. Is the claim of a subrogating insurer limited to its actual cost of repair, or should the insurer be entitled to claim the notional cost which the individual policyholder would have incurred when having the vehicle repaired without the benefit of group procurement?

What did the Court decide?

The Court of Appeal held that:

Damage to a policyholder's car is ascertained by the diminution in its value, which is usually the reasonable cost of repair. The reasonableness of the repair cost is assessed by reference to the notional cost to the policyholder, i.e. without the benefit of group procurement. Where the insurer's actual repair cost is comparable with the notional cost, it is recoverable. However, an insurer is not permitted to claim a repair cost which exceeds the notional cost. Where the insurer has provided a courtesy car, that cost is also recoverable as the policyholder would have been able to claim for the cost of hiring a replacement car. What are the implications for insurers?

First party motor insurers can take comfort that they can recover the notional cost of repair, even if their centralised procurement departments can...