Without a lot of fanfare, this Victorian Supreme Court class action case (2011) VSC 586 has turned upside down some of the long standing principles held dear by Insurers and Loss Adjusters for centuries. Not all Adjusters or Insurers may be across the decision and its potentially very serious implications in liability claims.
Not all Adjusters or Insurers may be across the decision and its potentially very serious implications in liability claims.
The case involved a class action against Powercor for negligence arising from the Horsham bushfire some years ago and one of the issues considered by Justice Forrest was what level of damages should be awarded for any goods which had been totally destroyed.
Historically, damages for destroyed goods would be calculated based on market value of the goods at the time of their destruction less any salvage/scrap value i.e indemnity value.
It is important to note that under this long standing principal, there would be no and never has been, any entitlement to a new for old replacement of the car in a liability claim unless there were truly exceptional circumstances existing e.g purchase of a new one immediately rather than risk further losses by trying to find a 2nd hand replacement, would be cost positive by eliminating or significantly reducing other more substantial losses arising. This is hardly likely to arise in most situations but there may be some cases, particularly involving commercial losses, where it is the only option.
For example, a 1978 VB Commodore sedan would have a market value of $X less salvage/scrap value (if any) at the time of the loss and compensation would be awarded accordingly.
It was however argued by the plaintiffs in the Powercor case that a different measure of damages should apply if it could be shown that the only way of replacing a destroyed item was by purchasing a new one. It was also argued that it was unreasonable to expect the various plaintiffs in Powercor to attempt to source all of their destroyed items (e.g home contents) on the second hand market. Presumably this means by trawling through the Trading Post, EBAY, auction rooms and so on. It was also suggested that a ‘new for old’ replacement may in some cases still provide a cheaper alternative. Part of the Powercor consideration also was a recovery by a Home & Contents insurer who was seeking full reimbursement for the contents of a garden shed destroyed and paid out by that insurer on a “new for old” basis.
In Powercor, Justice Forrest accepted these propositions and ordered that in the case of all items where it could not be demonstrated by the defendant that there was (a) an actual market for a reasonable substitute and (b) the cost of such a substitute could be obtained for less than replacement cost, then the plaintiffs were entitled to an award based on the ‘new for old’ replacement cost. To avoid having to pay ‘new for old’ costs which in some cases could be very substantial, this clearly throws the onus onto the defendant in all such cases to prove (presumably on the balance of probabilities) that:
The defence in Powercor was unable to produce this evidence and presumably was ‘caught short’ when the argument was put by the plaintiffs. In the absence of these two key points being demonstrated to the satisfaction of the court, the Powercor case now means any claim for such items needs to be assessed on a ‘new for old’ replacement cost basis, not on indemnity value. The work of Loss Adjusters in assessing quantum on liability claims has expanded and now should also include specific consideration of the issues arising from Powercor.
Obviously if there is a second hand market for the items and the cost is less than a new replacement, the plaintiff is still only entitled to an indemnity settlement, however we can see the potential for argument about what is or is not reasonable in terms of how far a plaintiff should be required to go in order to replace the item i.e whether the fact one is available from China via EBAY is enough to pass the test of a second hand market or not; in this case such an item may be considered ‘readily available’ in the view of some but not by others.
The work of Loss Adjusters in assessing quantum on liability claims has expanded and now should also include specific consideration of the issues arising from Powercor.