If your property is damaged in a motor vehicle accident you must decide whether to claim on insurance, to sue for damages or to "forget about it" and pay your own costs.
It is necessary to consider all the alternatives in order to decide which course of action will give you most financial advantage. There are different considerations depending on whether you have comprehensive insurance, third party insurance or if you are uninsured.
In deciding what to do you must consider:
- How much is your excess?
- How much is your no-claim discount?
- Is the other person insured or have they got any money?
- How much will legal costs be?
- Whose fault was the accident?
- How much are your damages?
- How much are the other person's damages?
The excess is the term used by insurance companies for the first amount of the claim which you must pay, for example if your excess is $450 and the cost of your repairs is $600, then you must pay the first $450 and your insurance company will pay only the remaining $150. Figures vary from company to company but the normal excess is about $450. If you are under 25 there will probably be an additional "age excess" (e.g. $400). Often, if you have had a claim, the excess or premium will increase when your policy is due for renewal – ask your insurance company about this before making a claim. It is possible to pay extra insurance premiums to remove all or some part of the excess.
Before claiming on your insurance, compare the amount of the claim with the amount of your excess.
When you first take out comprehensive insurance you start by paying a basic rate of insurance premium. The following is an example of premiums payable:
| Rating | Premium |
|---|---|
| 1 | $400 |
| 2 | $480 |
| 3 | $590 |
| 4 | $740 (basic rate) |
| 5 | $920 |
| 6 | $980 |
If you have no claim for a year then in the following year you receive a discount, in that you move to a lower rating and therefore pay a lower premium for the same insurance. If you have a claim, then in the following year you go to a higher rating and pay even more for the same insurance. The no-claim discount is often called a no-claim bonus.
Some insurance companies (check whether yours is one) will still give you a no-claim discount even though you have made a claim, if the accident was in no way your fault and the insurance company is able to recover the damages from the other person. Also some insurance companies, if they do recover damages, will refund you part or all of your excess. Some companies allow you to pay an additional premium when you take out your policy, to protect your no-claim bonus in the event you have an accident that is your fault.
Each insurance company has different premiums and different systems of ratings. Before making a claim you must ask your own company what the difference will be in the cost of next year's insurance if you do make a claim.
If the other person has no insurance, it is necessary to see whether they could pay any order for damages if you sued successfully. If you could claim on insurance, it is pointless to spend money on legal costs only to discover that the defendant has disappeared or just cannot afford to pay. The old saying is: "you can't get blood from a stone".
Legal costs are relevant if you decide to sue for damages. The costs vary according to how much the claim is – they increase substantially as the amount of the claim increases.
Claims under $10,000 are regarded as small claims. They are dealt with by an informal procedure known as arbitration, where there is a limit on the legal costs that the losing party can be obliged to pay. If you employ a lawyer, you will be responsible for legal costs that exceed the amount ordered to be paid by the other party. Also be aware that if you lose you will be responsible for not only your own property damage and legal costs but also those of the other party! It may be useful to seek some free legal advice from a community legal centre before issuing legal proceedings (see: Chapter 2*4 Advice Directory, for contact details). In particular, Monash-Oakleigh Legal Service offers a free "Motor Vehicle Accidents" pamphlet.
In some cases, e.g. your car was hit when parked, it is easy to say that you were entirely blameless, but in most other cases both or all parties are partly to blame. A court can decide to apportion blame, e.g. each party 50% to blame, or one 70% and the other 30%, etc. Intersection collisions are very common and on most occasions lead to a sharing of the blame. In deciding whether to sue or whether to settle out of court you have to make some estimation of how the court might apportion blame. Of course, this involves guesswork and to that extent it is uncertain.
Example: Two cars collide and need repairs costing $3,000 each. You sue the other driver for $3,000 and the other driver counter-claims against you for the same amount. Assuming the case goes to court, your recoverable legal costs would be about $1,200.
- If you win 100% you will be awarded $3,000 damages and $1,200 costs. Assuming your solicitor charges you $1,500 you will be left with a net amount of $2,700.
- If you are found to be 20% at fault and the other driver 80% at fault, you recover 80% of your claim ($2,400) and costs ($1,200), giving a total of $3,600. The other driver will recover 20% of their claim ($600) and costs ($1,200), giving a total of $1,800. When the amount the other driver has recovered is set off against the amount that you recover, less your own solicitor's costs, you are left with only $300, and you still have to pay for the repairs to your own car.
It has been seen above that the size of your damages must be weighed against the amount of excess and the extra insurance premiums you must pay before you decide whether or not to claim on insurance. You must also weigh the amount of your damages against legal costs before you decide whether or not to sue for damages without claiming on insurance.
If the repair costs of the other vehicle are substantially more than your own, it may not be cost effective to seek to recover those costs from the other driver. This is because, if you are found even slightly to blame for the accident, your share of the other driver's repair costs may exceed the amount the other driver is ordered to pay you.
Example: The repair costs to your vehicle are $800 and the other person's are $3,000. The other person is 80% to blame for the crash and you are 20% to blame. The result would be as follows:
| 80% of your claim: | ... | $640 |
|---|---|---|
| Your legal costs: | ... | $1,200 |
| Total: | ... | $1,840 |
| 20% of other driver's claim: | ... | $600 |
| Other driver's legal costs: | ... | $1,200 |
| Total: | ... | $1,800 |
| Net payment to you: | ... | $40 |
In these circumstances, it may be more prudent and cost effective to claim on your own insurance.
If you have third party property insurance, you must consider all of the points you would consider had you had comprehensive insurance, except no-claim discounts (which do not generally apply to third party property insurance – you may wish to check this with your insurance company). Assuming that the other person's damages (which is all your insurance covers) are greater than your excess, it is much easier to decide to claim on your insurance.
The main difference from comprehensive insurance is that you are partly insured and therefore you can both claim on your insurance and sue for your own damages. The legal costs of suing and the question of who was to blame for the accident are still very important, but quite different considerations arise regarding apportionment of liability and the cancelling of your claim by the other person's claim, especially where the other person's damage is much greater. The difference is that under the terms of the policy you will always be covered for the amount awarded against you by way of damages. Therefore, any amount that you recover will not be reduced by any amount the other driver recovers from you.
If you have third party property insurance, the main factor to consider before suing is whether the amount of your damages less any likely reduction for your own negligence will outweigh the legal costs.
You must be wary, however, because often an insurance company will not be responsible for your legal costs if they regard your case as hopeless. That is, they will agree to pay for the damage to the other car, but if you then wish to sue for the damage to your own car it will be at your own risk. If you are unsuccessful not only will you not recover the damage to your own vehicle, but you will also be left to pay your own and the other party's legal costs. In all such cases, be sure to notify your insurer in writing and find out their attitude before commencing proceedings.
Quite often if there is a large claim against you, your own insurance company will encourage you to claim your damages against the other driver as it helps the insurance company in the presentation of their case. This is good for you because in such cases you can "piggyback" on the insurance company claim and any money recovered in your counter-claim will be awarded to you.
Questions of excess and no-claim bonus are irrelevant if you are uninsured. Since you only have the choice of suing (including settling out of court, see: "Settling out of court", below) or paying your own damages, your decision will depend on the other person's financial position, legal costs, whose fault the accident was, the amount of your damages, and the amount of the other person's damages. All of these issues have been discussed above.
If after considering these matters you wish to sue, it is advisable to take action as soon as possible.
People with third party property insurance may find that their policies give them a "comprehensive" benefit in limited situations. This benefit entitles you to be paid for a limited amount of repairs under your own policy, provided that the other driver or vehicle was at fault, can be identified and was uninsured. It is known as the Uninsured Motorist Extension (UME).
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WHAT TO DO ABOUT DAMAGES :: Last updated: Thu Jul 1st 2010