Car accidents may cause personal injuries or damage to property and there is insurance to cover both. If an accident occurs, the damage may be handled through a court claim or paid out by insurers. Decisions need to be made by the parties about how they will manage the process.


Adrian Snodgrass

Principal Lawyer, Fitzroy Legal Service

Damages, claims and court

Last updated

1 July 2022

Settling out of court

Many claims for damages arising from vehicle accidents never get to court. Settling a claim before a complaint or summons is issued, or before a court hearing, reduces legal costs. Also, court hearings are unpredictable and a case can be won or lost for many reasons. For example, the outcome of a case can be due to the evidence of independent witnesses, or the credibility of each of the parties.

If you are making a total loss claim and there is an insurance company on the other side, you may find that they offer to pay you less than you are claiming. However, they will sometimes pay more than stated in their first offer. You should be prepared to produce evidence of the condition and market value of your vehicle to support your claim (see ‘Damages’ in ‘Liability and damages‘).

What to do if you receive a letter of demand

If a driver decides to sue another driver for damages after a vehicle accident, the driver or vehicle owner or their insurance company will send a letter of demand to the other driver. This letter states that unless certain costs are paid, a complaint or summons to appear in court will be issued. Such letters should not be ignored.

If you receive a letter of demand, you can:

  • deny liability (perhaps indicating why a claim against you would fail); or
  • threaten to counter-sue for your own damages; or
  • question (without accepting any responsibility) the amount of damages claimed; or
  • negotiate a settlement.

If you believe that the accident was not entirely your fault, a settlement proposal can be made by estimating what a court’s decision would be, and calculating a settlement offer accordingly. You should seek legal assistance to do this (see Chapter 2.4: Legal services that can help).

What to do if you cannot afford to pay

If you receive a letter of demand from another driver or from an insurance company, and you cannot afford to immediately pay all the costs outlined in the letter, you can offer to pay in instalments. The other driver or insurance company is not obliged to accept payment in instalments. An offer to pay in instalments, indicating what you can afford to pay, should be in writing. The offer should be accompanied by documentary evidence of your financial position (e.g. a copy of your Centrelink statement) and a statement that if the offer is refused, a copy of the letter will be produced in court when the question of costs arises. Sometimes people (particularly insurance companies) accept less than the full amount – provided it is paid immediately in cash – rather than waiting for the full amount to be paid in instalments.

If you are experiencing financial hardship and are having difficulty repaying an amount owed to an insurance company due to a vehicle accident, you may ask the insurance company to assess whether you are entitled to assistance. Under the General Insurance Code of Practice (see Chapter 10.4: Insurance), the insurance company must supply you with an application form for financial hardship assistance and contact details for the national financial counselling hotline (tel: 1800 007 007).

The insurance company may request reasonable evidence of your financial hardship, such as:

  • Centrelink statements (if applicable);
  • evidence of a serious illness that prevents you from earning an income;
  • evidence of unemployment or disability, including mental illness.

The insurer can only request information from you that is reasonably necessary to assess your application.

If you request financial hardship assistance in relation to any amount sought from you, the insurance company is required to contact their debt collection agent and put on hold any recovery action in relation to the amount you owe, until it has assessed your request and notified you of its decision.

If the insurance company decides that you are not entitled to financial hardship assistance, it must advise you of the reasons for its decision and provide information about its complaints process.

If the insurance company decides that you are entitled to financial hardship assistance, it must work with you to set-up an arrangement that could include:

  • extending the due date for repayment;
  • paying in instalments;
  • paying a reduced lump-sum amount;
  • postponing one or more instalment payments for an agreed period, or
  • a combination of the above options. 

You may also ask for a release, discharge or waiver of the debt or obligation; however, you are not automatically entitled to this.

If you are unable to reach an agreement, the insurance company is required to provide details of its complaints process.

If the insurance company decides that you are not entitled to financial hardship assistance and your circumstances change, you can make another request for assistance. While assessing your second request, it is at the insurance company’s discretion whether it again puts any debt recovery action on hold.

What is a release?

A release is a document signed by parties that ends legal action. The party who began the legal action agrees to drop it, often in exchange for a payment by the other party. In a release, a party accepts an amount of money as full settlement of a matter and agrees that they cannot take any further legal action about the matter. When claims are settled out of court, it is normal for the insurance company or person who is paying the settlement to require the other party to sign a release.

You should be careful when signing a release for a claim for property damage. Make sure that the release does not prevent you from making a claim for personal injuries suffered in the accident. It is wise to only sign a release after any reference to a claim for personal injuries is deleted. To delete such text, cross it out and write your initials next to the crossed-out text.

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