Case Comment: Fallows v Harkers Transport (Royal and Sun Alliance, vehicle insurance)

Mr Fallows’ car was damaged by a vehicle owned by the defendants. Liability was not an issue. Mr. Fallows’ vehicle was insured by Royal and Sun Alliance, who sought to recover their costs from the defendant’s insurers. The costs were £1825.53. Not a large sum. However, the defendants objected.

The reason for the objection was that Royal and Sun Alliance arranged repair via a wholly-owned subsidiary, which then contracted with a subcontractor, who actually repaired the vehicle. The subcontractor billed the subsidiary the sum of £1542.78. The subsidiary added on further costs, and billed Royal and Sun Alliance.

In Romford County Court, the defendants questioned the sum claimed. It was held that, given the duty to mitigate, the best evidence of reasonable cost of repairs was that which RSA’s subsidiary negotiated with the subcontractor. There was no evidence that RSA itself could only negotiate a higher price. While administration costs have been allowed by the courts in the past, there are no decisions allowing them to a subrogated insurer, let alone a subrogated insurer’s subsidary. And in counterbalance, there are decisions where administration costs have been disallowed.

The Judge (Platt J) said:

Since RSAARL is wholly owned by RSA the effect of these extra charges if they are paid by defendants is simply to boost RSA Group’s profits beyond the actual cost of repair by the margins inserted by RSAARL. I can find no basis in law for saying that this is a course of action which a claimant insurer is entitled to take […]. On the evidence the defendant has clearly established a failure to mitigate on the part of the claimant.

Now that this judgment is public, the utility of this business arrangement to RSA is probably moot. Other insurers could use the same model. This however was found to be likely to lead to an increase in costs to the insured members of the public of some 25%.

RSA were held liable in costs to the defendant — exceedingly unusual in a small claim. Even though they were the claimant, they almost completely failed to comply with pre–action protocol and with the court–ordered discovery process. For example, the existence of a formal invoice from the repairer to RSA’s subsidiary was not disclosed, even once its existence had become apparent during the trial.

Permission was given to appeal.

Judgment in the case can be found on BAILII at Fallows v. Harkers Transport (A Firm) [2011] EW Misc 16