Settling a claim for damages out of court is likely to save costs. Claims start with a letter of demand. Whether you sue or defend depends on whose fault the accident was, and the amount involved. Payment by instalments can be negotiated. A release will generally be required but should be treated with caution.
Settling out of court
Many claims for damages arising from car accidents never get to court. Settling a claim before a complaint/summons is issued, or before a court hearing, reduces legal costs. Also, court hearings are unpredictable and a case can be won or lost for many reasons. For example, the outcome of a case can be due to the evidence of independent witnesses, or the credibility of each of the parties.
If you are making a total loss claim and there is an insurance company on the other side, you may find that they offer to pay you less than you are claiming. However, they will sometimes pay more than stated in their first offer. You should be prepared to produce evidence of the condition and market value of your car, to support your claim (see “Damages”).
If a driver decides to sue the other driver for damages after an accident, the first step in this process is for a letter of demand to be sent to the other driver from the car owner or insurers. This letter states that unless certain costs are paid, a complaint/summons to appear in court will be issued. Such letters should not be ignored.
If you receive such a letter of demand you can:
• deny liability (perhaps indicating why a claim against you would fail);
• threaten to counter-sue for your own damages;
• question (without accepting any responsibility) the amount of damages claimed; or
• negotiate a settlement.
If you believe that the collision was not all your fault, a settlement proposal can be made by guessing what a court’s decision would be, and calculating a settlement offer accordingly.
If you cannot afford to immediately pay all the costs outlined in the letter of demand, you can offer to pay in instalments. The other person is not obliged to accept payment by instalments. An offer to pay by instalments, indicating that is all that you can afford to pay, should be put in writing. The offer should be accompanied by documentary evidence of your financial position (e.g. a photocopy of your Centrelink statement) and a statement that if the offer is refused, a copy of the letter will be produced in court when the question of costs arises. Sometimes people (particularly insurance companies) accept less than the full amount – provided it is paid immediately in cash – rather than waiting for the full amount to be paid in instalments.
If you have difficulty repaying an amount owed to an insurance company arising from a car accident, due to financial hardship, you may ask the insurance company to assess whether you are entitled to assistance. Pursuant to the General Insurance Code of Practice (see Insurance), the insurance company will supply you with an application form for financial hardship assistance and contact details for the national financial counselling hotline (1800 007 007). It may request reasonable evidence of your financial hardship, such as:
• for Centrelink clients, your Centrelink statements;
• evidence of a serious illness that prevents you from earning an income;
• evidence of unemployment or disability, including disability caused by mental illness.
The insurance company can only request information from you that is reasonably necessary to assess your application.
If you request financial hardship assistance in relation to any amount sought from you, the insurance company is required to contact any relevant collection agent and put on hold any recovery action in relation to that amount, until it has assessed your request and notified you of its decision.
If the insurance company determines you are not entitled to financial hardship assistance, it is required to advise you of the reasons for its decision and provide information about its complaints process.
If the insurance company determines you are entitled to financial hardship assistance, it is required to work with you to consider an arrangement that could include:
• extending the due date for repayment;
• paying in instalments;
• paying a reduced lump-sum amount;
• postponing one or more instalment payments for an agreed period, or
a combination of the above options.
You may also ask for a release, discharge or waiver of the debt or obligation, however, you are not automatically entitled to this.
If you are unable to reach an agreement, the insurance company is required to provide details of its complaints process.
If the insurance company determines you are not entitled to financial hardship assistance and your circumstances change, you can make another request for assistance. While assessing your second request, it is at the insurance company’s discretion, whether it again puts any recovery action on hold.
When claims are settled out of court, it is normal for the person or insurance company paying the settlement to require the other party to sign a release. This is a document stating that the other party accepts the money in full settlement, and cannot make any further claim.
You should be careful when signing a release for a claim for property damage. Make sure that the release does not prevent you from making a claim for personal injuries suffered in the accident. It is wise to only sign the release after any reference to a claim for personal injuries is deleted. It is possible to delete and initial the alteration with the insurer’s agreement.