AFCA has released a document detailing how it will investigate and resolve disputes about whether a vehicle should be treated as a total loss.
Complaints are often lodged with AFCA where the complainant and the insurer disagree about whether a vehicle should be considered a total loss.
This document explains AFCA’s approach to resolving total loss complaints. It sets out the factors it considers and outlines how AFCA will determine a fair outcome for consumers where we find a claim should be paid.
AFCA will consider if the insurer has exercised its discretion under the policy fairly and consistent with the duty of utmost good faith.
In general, a decision to repair a vehicle (rather than declaring it a write-off) is fair if it is both safe and economical to do so.
When considering whether the insurer’s decision is fair, there are several factors AFCA will consider, including:
• Whether the vehicle is economical to repair – this is generally based on whether the market (or agreed) value is greater than the cost of repairs, plus salvage > the cost of repairs does not include the cost of rectifying poorly executed repairs
• The relevant state or territory legislation that determines when a vehicle is a total loss can also be relevant - if the legislative position is inconsistent with the policy, then the position under the legislation will generally prevail
• Whether the vehicle will be safe if it is repaired
• Whether the vehicle should be repaired or written-off. For example, if the insurer has been unable to properly repair the vehicle after multiple attempts.
If AFCA is not satisfied that the insurer has exercised its discretion fairly, then it will generally award a different outcome. For instance, AFCA may decide that:
• The vehicle should not have been written-off, but should have been repaired
• The vehicle should not have been repaired, but should have been written-off
• The insurer should pay compensation for non-financial loss.
The factors AFCA will consider
Is it economical to repair the vehicle?
Disputes can arise as to whether it is economical to repair a vehicle. This can arise in the following scenarios:
• Both parties provide different quotes for the repairs, or have different assessments about the vehicle’s salvage and pre-accident value (if relevant); or
• Repairs have been, or are being, conducted and due to additional costs, it becomes clear the vehicle was uneconomical to repair.
In the first scenario, AFCA will consider which documents reflect the fairest assessment of the repairs, salvage and the pre-accident market value (if relevant). AFCA will then assess whether the insurer’s assessment was fair.
In the second scenario, AFCA will consider whether the vehicle has been properly repaired.
Was the vehicle properly repaired?
If the vehicle has been properly repaired, then it is unlikely AFCA will consider that the vehicle is a total loss. This is because the vehicle has been restored to its pre-accident condition. This is consistent with the purpose of most comprehensive policies.
If the vehicle has not been properly repaired, AFCA will not always decide that the insurer should declare that the vehicle is a total loss. AFCA will generally assess the fairness of the insurer’s decision at the time it decided to repair the vehicle, rather than making a retrospective assessment.
If AFCA finds that it was reasonable for the insurer to have relied on its initial estimates, then it is unlikely that AFCA will agree that the vehicle can later be declared a total loss, merely because the repair costs will now exceed the initial estimates.
However, if AFCA finds that the insurer’s decision to rely on initial estimates was unreasonable, then it is likely that the insurer’s decision to repair the vehicle will be unfair.
What if the insurer has tried to repair the vehicle but there are outstanding issues? Sometimes an insurer has made multiple attempts to repair a vehicle but there are still outstanding issues.
AFCA may decide it is fair that the vehicle should be a total loss, and will consider:
• If the vehicle can be safely repaired
• How many attempts were made to repair the vehicle – the more attempts, the more likely AFCA will consider that the vehicle should be a total loss
• The likelihood that the vehicle can be properly repaired, particularly if there have been multiple unsuccessful attempts and no certainty that a proper repair outcome can be reached
• If the complainant had use of the vehicle for a significant period of time after the incident or not
• If all the rectification issues can be identified and, if so, the extent of them (e.g. if there is one minor issue outstanding, it is less likely that AFCA will consider it fair to declare the vehicle a total loss).
You can download the full AFCA approach to total vehicle loss.