Did our business get the right vehicle insurance?

Finn’s business insurances had been arranged by a broker firm and included commercial vehicle insurance for his company’s fleet of vehicles.

In 2021, one of the company’s vehicles was involved in an accident. Finn lodged a claim, and the insurer accepted the vehicle was a total loss. The insurer arranged for two valuers to carry out pre-accident valuations of the current market value of the vehicle. One valued it at $21,000 and the other at $22,000. The insurer agreed to settle the claim with a payment of $21,000, being the average of the two valuations, less the $500 excess. Finn settled the claim with insurer.

However, he raised a concern with the broker, noting the market value for the vehicle was recorded on the Schedule of Vehicles in the policy document as $40,000, and that the premium had been based on this figure. The broker contacted the insurer to advise of Finn’s concern, and asked whether it was possible to get a refund on the last premium paid. The insurer was not willing to give a refund. Finn did not take the matter further at that time. 

In 2023, Finn contacted the broker to ask whether the company’s vehicles were insured under an agreed value policy or a market value policy. He was concerned about the 2021 claim. The broker advised they were insured under a market value policy. 

Finn said that he was certain the vehicles had previously been insured for agreed value. The broker offered to refund Finn $600, being half of the premium paid for 2021 year, on the basis that they may not have clearly advised him about market value when the policy was renewed for that year.

Finn did not accept the offer, and sought $19,000, being the difference between the amount of $40,000 recorded on the Schedule of Vehicles and the $21,000 paid by the insurer to settle the 2021 claim.

The broker further reviewed the case, and concluded that they had provided Finn with reasonable advice over the years, and had not caused the company a loss. 

Finn asked FSCL to investigate.

Dispute

Finn was certain that the company’s vehicles had been insured for agreed value at some point in the past, and that the broker had made changes to the policy without clearly advising him of the changes. He also said the broker had misled him into believing that any successful total loss claim would be paid out at the amount recorded in the Schedule of the Vehicles. Finn recalled that a previous total loss claim had been paid out at the value recorded on the policy’s Schedule of Vehicles.

Finn further said he had received advice that the broker should have been valuing the vehicles each time the policy was renewed over the years.

The broker said that the company’s vehicles had been insured for market value, and that this had been communicated to Finn over the years.

Review

After reviewing the broker’s file, we were satisfied the company’s vehicles had been insured for market value since 2015. All the documentation recorded that the vehicles were covered under a market value policy.

With the previous total loss claim that Finn recalled, this claim was made in 2015, and was dealt with in the same way as the 2021 claim. Two pre-accident valuations were sought, and the insurer agreed to settle for an amount of the average of the valuations, being $6,700. The Schedule of Vehicles recorded the market value of this vehicle as $8,000.

We noted that Finn believed the market values of the vehicles recorded in the Schedule of Vehicles meant that claims would be automatically paid out at these sums in the event of total loss. These were the values Finn gave to the broker when he bought the vehicles. However, the recording of these values on the Schedule of Vehicles did not amount to a representation that total loss claims would be paid at these values. The insurance documents had to be read together to work out the level of cover, and we noted the broker’s renewal insurance report to Finn stated that the policy was for market value and not agreed value. The policy defined market value as, “The price for which the insured could purchase the same or a comparable vehicle of similar pre-loss condition on the retail market.

We also noted that the broker had advised Finn when the policies came up for renewal to let them know if the market value of the vehicles needed updating. They also recommended that Finn speak to a vehicle dealer to obtain an accurate value for their vehicles.

Resolution

Finn accepted some of what we had to say, however he believed the broker should have communicated more clearly with him and taken steps to ensure he understood his policies. Finn also said another insurance broker had told him that reviews of the sum insured amount is consistent with an agreed value policy, rather than a market value policy. This was because annual renewals of the sum insured would not be necessary for market value policies because claims for total loss would be paid at the value of the vehicle’s market value just prior to the time of loss.

We understood that Finn expected more information to have been communicated to him verbally over the years. However, we did not think there was any way the broker could have known that Finn believed he had an agreed value policy and so there was nothing to prompt them to provide Finn with further information.

The general advice insurers provide for business vehicle insurance is that the sum insured on an insurance schedule does not determine the amount that will be paid if there is a total loss. The most that will be paid is the vehicle’s market value immediately before the loss, up to the maximum of the sum insured shown on the insurance schedule. Further, the insured is responsible for keeping the actual market value updated.

We further noted the broker had several times recommended to Finn that he obtain an accurate value for the company’s vehicles.

We decided that Finn should discontinue his complaint. 

Insights for consumers

It is very important for business clients to read their policy documents, and review the annual renewal documents. If something is unclear, the client should contact their broker.

For a business client with a market value vehicle insurance policy, it is prudent to review the values to ensure they are not paying more in premiums than they have to, if the vehicle’s value has dropped.

Footnote

The terms ‘market value’ and ‘agreed value’ can be confusing for consumers. The terms refer to the basis of settlement in the event a vehicle is totally written off. 

Market value

The insurer will pay the insured the market value of the car at the time of the loss. They will usually get two independent valuations to establish the pre-accident market value.

Agreed value

The insurer will pay the value that the insurer and insured have agreed when the policy is established. The value may be reviewed when the policy is renewed. Agreed value policies are less common than market value policies and may be suitable for specialist vehicles or others with particular features.