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Insurers' duties to consumers

Examples from the case law on automobile insurance

The scope of insurers’ obligations in connection with automobile-related losses has raised doubts in Poland for many years. Exploiting their stronger positions and defending themselves against abuses by customers, insurance companies sought to limit their exposure to claims. Insureds, meanwhile, increasingly well-informed, demanded protection of their rights. The Supreme Court of Poland has tried in its rulings to establish a golden mean.

Reimbursement of the cost of renting a replacement vehicle while the damaged vehicle is being repaired

The issue of reimbursement of the costs of renting a replacement vehicle was clear with respect to vehicles used in connection with the operation of a business. The practice of insurers, as well as the case law, recognised that the costs of renting a replacement vehicle when the insured could not use the insured vehicle for business purposes should be reimbursed. Under the case law, reimbursement should cover the period from occurrence of the damage until the original vehicle is repaired or the insured could obtain a comparable vehicle, but no later than through the date of payment of compensation.

However, there were doubts concerning whether persons who used the damaged vehicle for non-business purposes must be reimbursed for such costs. In its resolution of 17 November 2011 (Case No. III CZP 5/11), the Supreme Court held that an insurer should reimburse expenditures on rental of a replacement vehicle, but only insofar as the insured demonstrates that the expenditures are reasonable and economically justified.

The court indicated that renting a vehicle for use while the damaged vehicle is being repaired would not be reasonable or economically justified if the insured rarely used his or her vehicle, or had another vehicle available for use during the period of repair. In such cases, the insured will not be entitled to reimbursement for the cost of renting a replacement vehicle.

As a rule, reimbursement cannot be denied on the grounds that the insured could use public transportation during the period of repair. As the court found, one’s own car is qualitatively different from public transit, which is not a substitute for the ability to drive wherever one wishes.

In certain instances, as the Supreme Court has indicated, the availability of mass transit may nonetheless be regarded as a sufficient substitute for use of one’s own vehicle, releasing the insurer from the obligation to reimburse the insured for the costs of renting a replacement vehicle. This would be the case only where the insured rarely uses his or her own car, and only in areas served by an extensive network of public transit.

Spare parts for vehicle repairs

The insurance company has an obligation to pay the insured an amount of money, agreed in the policy, to make up for property loss. In the case of damage to a vehicle, the insured should receive an amount that compensates for the loss in value of the car or enables repair of the vehicle to its condition prior to the accident. As the Supreme Court has held, e.g. in the judgment of 11 June 2003 (Case No. V CKN 308/01), there are situations in which restoring the vehicle to its prior condition would increase the value of the vehicle. This could happen, for example, if the repairs included replacement of non-original parts with parts from the original manufacturer. In such case, the insurer is liable for the cost of the repairs, minus the increased value of the vehicle.

Under the established line of precedent, the insured has the right to elect to repair the damage by using parts from the original manufacturer or parts from alternative sources. This does not necessarily mean that the amount of the compensation will be calculated on the basis of the price of original parts. The price of non-original parts may be used to calculate the amount of compensation when the parts being replaced are themselves non-original, or if the insured consents to use of the price of alternative parts as the basis for calculating the compensation.

VAT on claims?

Under the Polish legal principle of full compensation, damages should not only cover the value of lost benefits, but should also be awarded in an amount sufficient to repair the loss, even though the injured party is not required to repair the loss.

The courts have stressed on numerous occasions, e.g. in the often-cited Supreme Court resolution of 15 November 2001 (Case No. III CZP 68/01), that compensation payable to an injured party who is not a VAT payer must include VAT.

Thus in the case of repairs made under a first-party property insurance policy (referred to in Poland as “autocasco”), the compensation payable to the insured should be determined on the basis of the price of the replacement parts and labour, including VAT, but only if the insured is unable to deduct the VAT. Compensation payable to the injured party under the civil liability policy of the driver responsible for the accident should be calculated in the same way, if the injured party is unable to deduct the VAT.

Apparently, it is also permissible to issue an insurance policy providing for payment of compensation net of VAT. The value of the vehicle and the amount of the policy are then calculated without VAT, and the premiums paid by the insured should be correspondingly less. The question arises, however, in light of the principles discussed above, whether issuance of an insurance policy and payment of compensation net of VAT could be regarded as an abusive clause, infringing the interests of consumers. This would prevent auto repairs at a net price with VAT added as an extra cost. On the other hand, under the principle of freedom of contract the consumer could choose to pay a lower premium in exchange for lower compensation, which might not be enough to cover the entire loss, or pay a higher premium in exchange for the right to obtain full compensation. It appears that such a clause should be permissible, so long as the consumer has a true choice between net and gross coverage.

Equally important, payment of compensation cannot be conditioned on the injured party presenting bills or other documents confirming that the repairs have been made. This is because compensation under the policy consists of payment of a sum of money that should make up for the property loss resulting from the collision. As stated in the case law, the obligation to pay compensation arises upon occurrence of the loss and does not depend on whether the insured intends to repair the loss or not, and the insured is not under an obligation to do so.

The rulings by the Supreme Court, often issued at the initiative of the advocate for insureds or as a result of actions by the Office of Competition and Consumer Protection, have significantly clarified the issues surrounding payment of claims under vehicle insurance. Nonetheless, some situations or claims by insureds will continue to require consideration on a case-by-case basis. For example, the rules for reimbursement of the costs of renting a replacement vehicle seem reasonable: the customer should be able to get where he or she wants to go, but the insurer is not required to cover excessive expenditures. Unfortunately, the issue of what expenditures are reasonable and economically justified may often be disputable. The question of whether it is permissible to issue policies to consumers with coverage only for the net loss, excluding VAT, requires a similarly clear answer.

The case law and the commentaries strive to balance the interests of consumers and insurers. While some issues have been resolved unequivocally, other rights and obligations of insurers and consumers are governed by a certain degree of arbitrariness. Insurers should thus pay particular attention to drafting their policies in order to provide due protection of their own economic interests without violating the rights of consumers. Apparently, it can be done.

Urszula Rodak, Wardyński & Partners