Insurance companies in the drivers’ seat: Insurance companies limit risk

Background

Olivia went on a holiday to Melbourne and took out travel insurance with BETA Insurance (“BETA”). She organised to hire a rental car for her time in Melbourne through Blackstripe Rental Group (“Blackstripe”). A few days into her holiday Olivia was involved in a car accident which caused damage to the rental car’s rear bar and tail light.

Under Olivia’s contract with Blackstripe she was liable for all costs associated with repairing the car. Blackstripe debited Olivia’s credit card $2083.78 AUD to cover the costs from the accident.  This amount was made up of car repairs ($1,133.86 AUD), loss of use charges as the car could not be rented out while being repaired ($696.00 AUD), an administration fee ($220.00 AUD) and a credit card fee ($33.92).

 

The claim

Olivia filed an insurance claim with BETA for $2083.78 AUD. BETA paid Olivia $1,270.41 which accounted for the car repair costs, administration fee and credit card fee converted to NZD less the $100 excess. BETA declined to pay for the loss of use charge of $696.00 AUD.

Olivia disputed BETA’s decision not to pay for the loss of use charge and she sought a review from FSCL.

 

BETA’s view

BETA’s position was that Olivia’s insurance policy (“the policy”) limited cover to the direct and immediate costs of repairing the car. BETA considered that the loss of use charge was not a direct or immediate cost but rather a consequential loss that was incurred as a result of the car being repaired. The policy contained a general exclusion clause that excluded cover for any consequential loss.

 

Olivia’s view

Olivia’s position was that the loss of use charge was a direct cost of repairing the car and BETA should reimburse her for this cost. She argued that the loss of use charge was an unavoidable cost of the car being repaired and, therefore, is a cost directly associated with repairing the car.

 

FSCL’s view

We agreed with BETA’s decision to decline Olivia’s claim for the loss of use charge. We found that Olivia had suffered a loss due to her contractual obligations to Blackstripe that required her to pay for all costs associated with the repair of the rental car. We also agreed with BETA’s classification of the loss of use charge as a consequential rather than a direct or immediate cost of repairing the car.

In effect, the scope of Olivia’s contractual obligations to Blackstripe were wider than the scope of her insurance cover with BETA. BETA limited cover under the policy to only the direct and immediate costs of repairing the car and specifically excluded any consequential loss. However, Olivia’s contract with Blackstripe included liability for all direct and consequential costs of repairing a damaged car.

 

Lesson to be learnt

Blackstripe had offered Olivia loss or damage liability reduction insurance. If Olivia had taken out this insurance she would not have been liable for any of the repair costs including the loss of use charge. However, Olivia considered the cover offered by Blackstripe to be the same as the cover under BETA’s policy. Unfortunately for Olivia this was not the case. An insurer is entitled to limit the level of risk and loss it is prepared to cover. It is important for consumers to carefully read policies to ensure that they are aware of the scope of their cover. Likewise, it is important when signing a contract to be aware of the scope of your liability.