Whether you deal with motor insurance on a day-to-day basis, or feel you want to keep up to date with important changes, the Memorandum of Understanding is something that you should study.
The purpose of this memorandum is the avoidance of disputes between insurers about the quantification of claims. Following the demise of the "knock-for-knock" agreement, insurers found themselves disputing both liability and quantum with each other.
Issues of liability remain but the memorandum ensures that all insurers are operating on a level playing field in terms of quantum. Honesty and transparency are required when subscribing insurers subrogate against each other.
Five rules
It should be noted that the agreement is not legally binding, but there are five "rules" that apply to subscribing insurers:
Insurers will bear the cost of proper control of accidental damage (own damage) claims Both fault and non-fault claims will be dealt with in the same way. Claims costs for own damage claims must be the same, irrespective of whether the insurer is subrogating or not. Where insurers use outside agencies (such as legal expenses insurers or accident management companies) for their accidental damage claims, they should make sure that these organisations follow the principles of the agreement All discounts given to the insurers by the repairer (whether directly or retrospectively) must be passed on in the subrogated claim The accidental damage insurer will disclose any documentation or other evidence, reasonably requested by the third party insurer, that is considered relevant to the subrogated claim. The third party insurer will pay promptly and only ask for additional information when it is reasonable to do so If litigation is necessary, the accidental damage insurer will give reasonable notice to the third party insurer before proceedings are issued.There are nine guidance notes which are not part of the memorandum, but are intended to assist with its practical application:
Evidence of quantum for repaired vehicles. Insurers must volunteer to provide any documentation to support their subrogated claim. In practice, this is usually just the estimate and repair account. To a great extent, it is now superseded by the reduction in paper exchange (Ripe) agreement for those insurers that subscribe to both initiatives Total loss valuations and salvage disposal. Information must be supplied as to the make and model of the vehicle, its value, details of any recovery and storage charges incurred and the amount recovered for salvage. Again, this has largely been superseded by the Ripe agreement Insurer owned repairers must adhere to the same tests of reasonableness on repair costs as any other repairer Subrogated claims must not include miscellaneous charges such as engineers' fees and police report charges. Claims management fees should be regarded as operating expenses and not form part of a subrogated claim. When fees are payable by the repairer to an accident management company, guidance is provided as to the criteria to be met in order that they can be recovered. Essentially the accidental damage insurer must not receive any fees or payments or claims handling charges. Courtesy cars. Subrogating insurers are asked to inform third party insurers if a courtesy car was supplied and repairers should indicate likewise on their invoice. This is intended to avoid the third party insurer incurring unnecessary or duplicate car hire charges Time scale for paying the accidental damage insurer when liability is agreed and documents exchanged (if required). Settlement should be processed no later than 21 days Legal costs to be avoided wherever possible. It is recommended that insurers seek to resolve disputes by local dispute resolutions Solicitors' charges and litigation. Liability decisions should be made promptly and in line with the Civil Procedure Rules. Subrog-ating insurers and their policyholders' legal expense providers are required to give the third party insurer 14 days to respond to a letter of claim and a further seven days after a reminder before commencing litigation. In practice, the subrogating insurer's policyholder will commence litigation using their legal expenses cover and the claimant and defendant's insurers will "agree the memorandum of understanding". That is, they leave their respective outlays out of the litigation. However, this is not within the memorandum of understanding and appears to be a market practice that has grown up of its own accord.
The Court of Appeal has endorsed the practice of motor insurers "agreeing the memorandum of understanding" to abide by a court's decision on liability.
Claim reinstated
In Khiaban v Board [2003] the district judge struck out a claim which was limited to uninsured losses only, insurers having "agreed the memorandum of understanding". The judge expressed a concern as to whether higher court fees should be paid to reflect the true value of the claim and felt that there might be a gap in the Civil Procedure Rules.
The Court of Appeal reinstated the claim and found:
There was nothing in the Civil Procedure Rules that obliged a claimant to include in his pleaded case all claims he could arguably advance against a defendant The amount claimed by the claimant was limited to what was in the claim form The court did not have the power to increase the value of the claim or include items of claim which the claimant had chosen not to include There was no reason to distinguish between subrogated and non-subrogated claims There was nothing objectionable in what the parties had done in this case. It was not the role of the judicial function to force a claimant to claim more than he desired to maximise court fees If the issue of liability was complex and not suitable for the small claims track, then it would be open to the court to allocate it to a different track. Roy Jordan is motor claims controller with Allianz Cornhill.He has recently written the Practical Claims Handling (Motor) learning manual for the Society of Claims Technicians. This will be published at the beginning of MayUsing this CPD page
For the vast majority of practitioners and indeed support and supervisory staff in our industry, CPD is about regular learning and study that is planned, recorded, timed and evaluated.
If you are a member of a professional body with a CPD requirement then there will be certain rules regarding the quality and nature of study material, and the way in which it is recorded.
For staff of GISC members this means recording on your individual training file what the learning was, who provided it and when.
It might be structured, such as a course, a learning programme or exam study. But it can be unstructured. This form of study encompasses reading the trade press, technical material or taking part in activities to support your professional body.
Some CPD requirements are points related (a little antiquated) and others require a time value to be allocated.
For example, it might take one hour to read Insurance Times each week. Most of that could be put as a time value but, in reality, perhaps only an half hour was devoted to learning something. The rule is to be honest with yourself and record the time that is relevant.
Always take time to make a note of what you felt you gained from the activity. This is useful information for anyone else considering the same activity.
In response to the popularity of our CPD programme each week's CPD page can now be downloaded from our website. We will be preparing a binder for you to keep these in alongside the results of the exercises.
To download a PDF of this article as it appears in the magazine click here
Whether you deal with motor insurance on a day-to-day basis, or feel you want to keep up to date with important changes, the Memorandum of Understanding is something that you should study.
The purpose of this memorandum is the avoidance of disputes between insurers about the quantification of claims. Following the demise of the "knock-for-knock" agreement, insurers found themselves disputing both liability and quantum with each other.
Issues of liability remain but the memorandum ensures that all insurers are operating on a level playing field in terms of quantum. Honesty and transparency are required when subscribing insurers subrogate against each other.
Five rules
It should be noted that the agreement is not legally binding, but there are five "rules" that apply to subscribing insurers:
Insurers will bear the cost of proper control of accidental damage (own damage) claims Both fault and non-fault claims will be dealt with in the same way. Claims costs for own damage claims must be the same, irrespective of whether the insurer is subrogating or not. Where insurers use outside agencies (such as legal expenses insurers or accident management companies) for their accidental damage claims, they should make sure that these organisations follow the principles of the agreement All discounts given to the insurers by the repairer (whether directly or retrospectively) must be passed on in the subrogated claim The accidental damage insurer will disclose any documentation or other evidence, reasonably requested by the third party insurer, that is considered relevant to the subrogated claim. The third party insurer will pay promptly and only ask for additional information when it is reasonable to do so If litigation is necessary, the accidental damage insurer will give reasonable notice to the third party insurer before proceedings are issued.There are nine guidance notes which are not part of the memorandum, but are intended to assist with its practical application:
Evidence of quantum for repaired vehicles. Insurers must volunteer to provide any documentation to support their subrogated claim. In practice, this is usually just the estimate and repair account. To a great extent, it is now superseded by the reduction in paper exchange (Ripe) agreement for those insurers that subscribe to both initiatives Total loss valuations and salvage disposal. Information must be supplied as to the make and model of the vehicle, its value, details of any recovery and storage charges incurred and the amount recovered for salvage. Again, this has largely been superseded by the Ripe agreement Insurer owned repairers must adhere to the same tests of reasonableness on repair costs as any other repairer Subrogated claims must not include miscellaneous charges such as engineers' fees and police report charges. Claims management fees should be regarded as operating expenses and not form part of a subrogated claim. When fees are payable by the repairer to an accident management company, guidance is provided as to the criteria to be met in order that they can be recovered. Essentially the accidental damage insurer must not receive any fees or payments or claims handling charges. Courtesy cars. Subrogating insurers are asked to inform third party insurers if a courtesy car was supplied and repairers should indicate likewise on their invoice. This is intended to avoid the third party insurer incurring unnecessary or duplicate car hire charges Time scale for paying the accidental damage insurer when liability is agreed and documents exchanged (if required). Settlement should be processed no later than 21 days Legal costs to be avoided wherever possible. It is recommended that insurers seek to resolve disputes by local dispute resolutions Solicitors' charges and litigation. Liability decisions should be made promptly and in line with the Civil Procedure Rules. Subrog-ating insurers and their policyholders' legal expense providers are required to give the third party insurer 14 days to respond to a letter of claim and a further seven days after a reminder before commencing litigation. In practice, the subrogating insurer's policyholder will commence litigation using their legal expenses cover and the claimant and defendant's insurers will "agree the memorandum of understanding". That is, they leave their respective outlays out of the litigation. However, this is not within the memorandum of understanding and appears to be a market practice that has grown up of its own accord.
The Court of Appeal has endorsed the practice of motor insurers "agreeing the memorandum of understanding" to abide by a court's decision on liability.
Claim reinstated
In Khiaban v Board [2003] the district judge struck out a claim which was limited to uninsured losses only, insurers having "agreed the memorandum of understanding". The judge expressed a concern as to whether higher court fees should be paid to reflect the true value of the claim and felt that there might be a gap in the Civil Procedure Rules.
The Court of Appeal reinstated the claim and found:
There was nothing in the Civil Procedure Rules that obliged a claimant to include in his pleaded case all claims he could arguably advance against a defendant The amount claimed by the claimant was limited to what was in the claim form The court did not have the power to increase the value of the claim or include items of claim which the claimant had chosen not to include There was no reason to distinguish between subrogated and non-subrogated claims There was nothing objectionable in what the parties had done in this case. It was not the role of the judicial function to force a claimant to claim more than he desired to maximise court fees If the issue of liability was complex and not suitable for the small claims track, then it would be open to the court to allocate it to a different track. Roy Jordan is motor claims controller with Allianz Cornhill.He has recently written the Practical Claims Handling (Motor) learning manual for the Society of Claims Technicians. This will be published at the beginning of MayUsing this CPD page
For the vast majority of practitioners and indeed support and supervisory staff in our industry, CPD is about regular learning and study that is planned, recorded, timed and evaluated.
If you are a member of a professional body with a CPD requirement then there will be certain rules regarding the quality and nature of study material, and the way in which it is recorded.
For staff of GISC members this means recording on your individual training file what the learning was, who provided it and when.
It might be structured, such as a course, a learning programme or exam study. But it can be unstructured. This form of study encompasses reading the trade press, technical material or taking part in activities to support your professional body.
Some CPD requirements are points related (a little antiquated) and others require a time value to be allocated.
For example, it might take one hour to read Insurance Times each week. Most of that could be put as a time value but, in reality, perhaps only an half hour was devoted to learning something. The rule is to be honest with yourself and record the time that is relevant.
Always take time to make a note of what you felt you gained from the activity. This is useful information for anyone else considering the same activity.
In response to the popularity of our CPD programme each week's CPD page can now be downloaded from our website. We will be preparing a binder for you to keep these in alongside the results of the exercises.
To download a PDF of this article as it appears in the magazine click here
