Court of Appeal backs previous decision that RSA’s subrogated repair model is legal

Allianz and Covéa have lost their appeal against RSA in a subrogation costs case dating back to 2012.

Last year, the two insurers had challenged the legality of RSA’s use of repair arrangements to charge for add-ons for not-at-fault customers, but the challenge was dismissed in court by the Honourable Mr Justice Cooke.

They claim that the RSA model, in which the insurer uses its own subsidiary to carry out motor repairs on its policyholders’ vehicles and consequently bills the insurer of the at-fault driver, results in inflated costs.

However, Judge Cooke ruled that RSA’s practices were legal and that any appeal against his judgment was likely to fail, as has been the case.

RSA claims director UK & Western Europe David Pitt said: “We are pleased that the court found in our favour on all points. We have always believed that our repair model is legally robust and this decision vindicates our view,” he said. “Given the clarity of the judgment, we will now move forward to ensure the efficient and complete recovery of all amounts owed to us.”

“We remain open to talks with other insurers on the possibility of bilateral agreements to increase efficiency and to avoid any further disputes,” he added.

Covéa claims director Adrian Furness said he was disappointed that the decision had been made, especially considering the efforts being made by industry to reduce the costs inherent to motor insurance.

“At a time when our industry is campaigning for measures that will curb those behaviours which lead to inflated claims costs, we are particularly disappointed with the judgement, though the outcome is not entirely unexpected,” he said. “The ruling is bad news both for motorists and our industry and has considerable implications for the county courts.

“Judges, who have consistently ruled against this model, will now be faced with the challenge of trying to ascertain reasonable costs without the benefit of using the original invoice to reach their judgment.”

Furness was, however, hopeful that the Competition Commission’s proposed remedies for private motor insurance may remove such procedures from the market in the future.

“Defending the matter has helped in highlighting the issues faced by the industry and it is clear that this type of behaviour is of concern to the Competition Commission, who have [this week] highlighted the detrimental impact of the separation in cost control and cost liability,” Furness said. “We hope that the Competition Commission’s review will provide the mechanism to finally eradicate such behaviours, though this will require careful thought and investigation.”

Allianz divisional claims manager (technical) Martin Saunders was also surprised that the Court of Appeal had come up with a different decision to that of the Competition Commission.

“We are surprised to have a seen a week in which two very different views have been expressed in relation to the ‘mark up’ of repair costs,” Saunders said. “The Competition Commission, which protects the interest of the consumer, reported on 17 December that the practices aimed at ‘earning a rent’ from claims, which includes the mark up of repair costs, contributes to a detriment to consumers estimated at £150–£200m per year. We were extremely pleased to see that the Competition Commission plans to introduce a remedy that aims to ‘prevent subrogated claims for repair costs being marked up’. They intend to achieve this through an enforcement order.

“Quite then how this decision from the Court of Appeal serves the consumer interest we do not know. It leaves many questions unanswered. Allianz will consider the full text of the judgment over the festive season, with an Appeal to the Supreme Court more than likely.”

However, this morning the Court of Appeal also rejected an approach for the appeal to be taken to the Supreme Court.