Avoiding Car Insurance Claims, From Being Declined
There was a time many years ago when a company could be paid out on an insurance claim for no reason, other than for being a good and loyal client to the insurance company. Whilst it is possible that even today an insurance company could make a commercial decision when considering a claim from a very large client, many companies are at risk of having claims repudiated.
Although it is not widely known, most contract hire companies have a form of fall back insurance for their contract hire vehicles; this can covers them if the hirer has an accident and their insurer refuses to pay out. Of course the contract hire company will then hold the hirer liable for any loss, but on occasions the hirer is a limited company that subsequently goes into liquidation. If there are no personal guarantees in place then the contract hire company has no means of recovering its money other than to claim on their own insurance. Nowadays contract hire companies are seeing an increasing number of cases where claims are being repudiated. The more serious the accident, the more closely the insurance company will investigate a claim. After all they have to look after their shareholders interests, paying claims where the insurer or driver have not complied with the terms and conditions of the insurance, is not looking after the shareholders interests.
A motor insurance company’s terms and conditions will normally state that a vehicle should comply with the manufacturer’s specifications; if the vehicle is modified by the driver it is essential to inform the insurance company, otherwise it can invalidate the insurance. For this reason it is always advisable to fit the manufacturer’s recommended tyres. It is important to advise employees that they must not make any changes to their company vehicle. It has been known for employees to do what is called “chip” the engine of their company vehicle. This increases the power of the engine and could, if they had not been notified, give an insurer a very valid reason for refusing pay out on a claim. It is worth bearing in mind that this can also invalidate the manufacturer’s warranty and potentially cause a problem with the contract hire company; a vehicle without a manufacturers warranty does not have the same value as one that does.
Also the company car must be kept in a roadworthy condition. If a company vehicle is on contract hire, then there is usually not much to worry about; it will on average be less than two years old and regularly serviced and maintained. In a case where a company buys and keeps it’s vehicles for longer than the typical contract hire term, maybe four or five years, then ensuring they are, in what an insurance company would consider is a roadworthy condition, can be more difficult. The risk of a vehicle developing a fault that could make it un-roadworthy generally increases, the higher the mileage.
There are however, apart from lack of maintenance, many things that can cause a car to be un-roadworthy; if one of your company vehicles is in an accident and it is found to have the wrong tyre pressures, with the tyres under, over or unevenly inflated this could be a serious problem. It would of course depend on the circumstances of the accident; if another vehicle drove into the rear of an employee’s stationary car, it could hardly be considered a factor and it is very unlikely under these circumstances that the insurer would check the car’s roadworthiness; they would have no reason to do so.
If it is the case that the employee’s actions have clearly caused an accident, perhaps where they have lost control on a corner or failed to brake in time, then it is quite possible that the insurance company may want to inspect the vehicle, to satisfy itself that the car is in a roadworthy condition. It is not uncommon to find that company car drivers have incorrectly inflated tyres, or just neglected to check them. It is important that employees are made aware of this danger, recommending them to check their tyre pressure, when the tyres are cold, at least every two weeks. This will also help reduce the company’s overall fuel consumption.
Tyres do need to be checked for wear; probably the most practical option is to make the employee responsible. It is after all his car and his life that is at risk if he drives the vehicle in an un- roadworthy condition. The period between servicing intervals nowadays can be very long indeed. Previously, when a typical servicing interval was 12,000 miles, companies used to rely on the dealership’s servicing department telling them if a tyre needed changing. That is no longer a practical option; indeed some would question whether it is ever a practical option, to rely on a servicing department, because they do appear to have a habit of changing tyres before they need to be changed.
Another risk to the company is employees driving whilst under the influence of alcohol or drugs, an insurance company will not generally pay out if there is an accident under these circumstances. How many of your employees stop of for a “couple” of pints on the way home? In a study carried out in 1998, alcohol was a factor in 10% of fatal motorcycle accidents and 19% of cars and other vehicles involved in fatal crashes. In spite of greater awareness nowadays there are still drivers who seriously believe that they drive better after consuming alcohol. The evidence however shows that alcohol seriously impairs psychomotor skills and affects the brains ability to process information.
Companies should also be aware that if an employee drives his company car and has an accident whilst under the influence of drugs, the company could also find itself without insurance. Unfortunately there are also prescription drugs that can affect the ability to drive safely. It is however an employer’s responsibility to ensure the safety of its employees; it may be safer for an employee to ask its employees to advise them if they are taking a medicine that may affect their driving ability, after all many drugs companies advise the user not to operate machinery, or drive whilst taking a particular medication.
Employees should also be told that they must not, however cold the weather is, go out and start the car and leave the engine running to warm the car up. However comfortable this may make the drive into work, it is highly risky; if someone got into the car and drove off, as has happened many times, the insurance company will not pay out for a vehicle stolen under these circumstances. The same applies if an employee leaves the keys in the car at a petrol station whilst they go to the cash desk.
If the company vehicles are to be insured whilst on the road, the driver must have a valid driving licence. There are many employers that believe that taking a photocopy of an employee’s driving licence is all that is necessary. Some have never seen the original and accept a photocopy provided by the employee, only to discover following an accident, that the employee had been previously disqualified.
If a company’s vehicles are sourced through a broker, the larger and well established contract hire brokers are able to offer a service where they regularly check the employee’s driving licences. They can be checked when they are first employed and then at regular intervals, to make sure there are no new convictions. Once employees are aware this system is in place they are much more likely to come forward and declare a new conviction. Apart from protecting the company as far as it’s insurance is concerned; it also affords it protection from prosecution under the new legislation.
If an insurer rejects a claim, it does not necessarily follow that they have acted correctly. There have been many such decisions by insurance companies, which have subsequently been overturned by the Financial Ombudsman, the body that deals with disputes or complaints against insurance companies. In a case that involved one of our clients, the insurance company refused to settle a claim in excess of 60,000 following a car jacking. They justified this because the vehicle did not have tracker fitted, in spite of the fact that they had told the client on many occasions that it was a requirement. The client, who disagreed with the insurer’s decision, called in an expert. The expert said that whilst the insurer had told the client he must have Tracker fitted, they had not written to the client and told him they were no longer providing cover. The expert’s views were made known to the company and the claim was settled in full, soon after.
The following may help to prevent a claim from being declined by an insurer; company cars should be maintained regularly and tyre pressures need to be measured frequently to ensure pressures are correct and wear is even. It should be made clear to employees that they must not modify their car in any way and that they should not ignore any warning lights that show up. It can help to reduce drink driving amongst employees if they understand that they are likely to loose their job as well as their driving licence, if caught. They should also be advised of the risks of driving if taking any form of drugs, including some prescription drugs. Make employees aware that if they leave the car with the engine running there is a very real risk of it being stolen. Also using a contract hire and leasing broker to check employees driving licences, will avoid the risk of employees driving with undeclared convictions, or whilst disqualified.
Negligence is a major factor when motor insurance companies refusing to pay claims. There was a reported case in the United States, apparently perfectly true, where the purchaser of a new motor home set out on a journey and after setting the vehicle to cruise control, went to the back of the vehicle to fix himself a drink. Understanding that cruise control meant the vehicle would drive itself. Not surprisingly it crashed. Of course being America he was able to sue the manufacturer for not telling him that, cruise control doesn’t work like that.
Filed under: Finance