If your property (e.g. your vehicle) is damaged in a motor vehicle accident, you must decide whether to:
- make a claim through your insurer; or
- sue the other person involved in the accident for damages; or
- pay your own costs.
In order to decide which course of action will cost the least amount of money, it is necessary to consider all the alternatives. There are different considerations depending on whether you have comprehensive insurance, third-party insurance, or if you are uninsured.
What to do when you have comprehensive insurance
In deciding what to do about damage to your vehicle if you have comprehensive insurance, consider the following factors (explored in more detail below):
- How much is your excess?
- How much is your no-claim discount?
- Can the other person pay?
- How much will legal costs be?
- Whose fault was the accident?
- How much will it cost to repair your vehicle?
- How much will it cost to repair the other person’s vehicle?
How much is your excess?
In an insurance policy, the ‘excess’ is the amount you (the insured) must pay when you make a claim and before an insurer will pay for any expenses.
The insurer pays the difference between the excess and the amount of the expenses (e.g. if your excess is $500 and it will cost $750 to repair your vehicle, your insurance company will pay $250).
Figures vary between insurers, but the normal excess is $500. It is possible to reduce the excess, or to remove it altogether, by paying a higher insurance premium. For example, you could pay a premium of $1100 and have no excess, or pay a premium of $800 and have an excess of $600. If you are under 25, your insurance policy will probably also include an additional ‘age excess’.
Often, making a claim can result in your excess or premium increasing when your policy is due for renewal – make sure you ask your insurance company about this before making a claim.
Before making a claim with your insurance company, compare the amount of your excess with the amount of the expenses relating to the accident (e.g. the repairs). It may be cheaper to not make a claim with your insurer.
How much is your no-claim discount?
When you first take out comprehensive insurance, you pay a basic rate premium. If you don’t make a claim for a year, then in the following year you receive a discount, in that you move to a lower rating and therefore pay less for the same insurance. If you have made a claim, then in the following year you move to a higher rating and pay more for the same insurance. The no-claim discount is often called a ‘no-claim bonus’.
Insurance companies have different premiums and different ratings systems. The following table gives an example of how ratings affect premiums.
Some insurance companies will still give you a no-claim discount even if you have made a claim – if the accident was not your fault and if your insurance company can recover the cost of repairing your vehicle from the other person involved in the accident. Also, some insurance companies, if they do receive money from the other driver, will refund part or all of your excess. You may also be able to pay a higher premium to protect your no-claim bonus in case you have an accident that is your fault.
Can the other person pay?
If the other driver has no insurance, find out whether they can pay if you successfully sue them. It is pointless to pay legal costs, only to discover that the other person does not have money to pay you.
How much will legal costs be?
Legal costs are relevant if you decide to sue the other driver for damages. The costs vary according to how much you are claiming the other driver owes you – the higher the claim, the higher the legal costs.
Claims under $10 000 are classified as small claims. They are dealt with by an informal process known as arbitration, where there is a limit on the legal costs the losing party can be ordered to pay. If you employ a lawyer and you win, you will be responsible for your legal costs that exceed the amount ordered to be paid by the other party. Also, be aware that if you lose, you will be responsible for paying your legal costs and the legal costs of the other party, and the cost of fixing the damaged vehicle. Before starting proceedings to sue another driver, seek free legal advice from a community legal centre (see Chapter 2.4: Legal services that can help).
Whose fault was the accident?
In some cases (e.g. if your vehicle was hit when parked), it is easy to show that you are entirely blameless. However, in many cases, both parties are to blame for an accident occurring. A court can decide to apportion blame (e.g. each party is 50 per cent to blame). In deciding whether to sue the other driver or whether to settle out of court, you should estimate how the court might apportion blame.
Effect of sharing the blame
For example, imagine that you and another driver collide; both vehicles need repairs costing $3000 each. You sue the other driver for $3000 and the other driver counter-sues you for the same amount. The case goes to court; your recoverable legal costs are $1200. If you win, and the court finds you are not to blame at all, you will be awarded $3000 damages and $1200 costs. Your solicitor charges you $1500, so you will receive $2700. If the magistrate finds that you are 20 per cent at fault and the other driver 80 per cent at fault, you will receive 80 per cent of your claim ($2400), plus legal costs ($1200) – so you will receive $3600. The other driver will receive 20 per cent of their claim ($600), plus legal costs ($1200) – so they will receive $1800. When the amount the other driver receives is set off against the amount that you receive, less your own lawyer’s costs, you are left with only $300, and you still have to pay for your vehicle to be repaired.
How much will it cost to repair your vehicle?
Before you decide whether or not to make a claim through your insurance company, you should compare the cost of repairing your vehicle to the amount of your excess, plus the higher premium that you are likely to pay the following year.
Also, before you decide to sue the other driver (without making a claim through your insurer), you should compare the cost of repairing your vehicle to the cost of taking the other driver to court.
How much will it cost to repair the other person’s vehicle?
If the cost to repair the other driver’s vehicle is substantially more than the cost of repairing your vehicle, it is not cost effective to seek to recover your repair cost from the other driver. This is because, if you are found even slightly to blame for the accident, your share of the other driver’s repair costs may exceed the amount that the other driver is ordered to pay you.
For example, the cost of repairing your vehicle is $800 and the cost of repairing the other person’s vehicle is $3000. If a magistrate finds that the other person is 80 per cent to blame for the crash and you are 20 per cent to blame, the result is:
|80% of your claim||$640|
|Your legal costs||$1200|
|20% of other driver’s claim||$600|
|Other driver’s legal costs||$1200|
|Net payment to you||$40|
Therefore, in these circumstances, it is more cost effective to make a claim through your insurance company.
What to do when you have third-party property insurance
If you have third-party property insurance and you are wondering what to do about your damaged vehicle, you should consider the seven bullet points listed above (under ‘What to do when you have comprehensive insurance’), except for ‘How much is your no-claim discount?’ as this kind of discount does not generally apply to third-party property insurance, although you can check this with your insurance company.
The main difference between third-party property insurance and comprehensive insurance is that you are only partly insured with third-party property insurance. Therefore, you can make a claim through your insurance company and also sue the other driver to recover the cost of repairing your vehicle.
Another difference is that, if the matter goes to court, third-party property insurance covers you for the amount that a magistrate awards against you (e.g. if a magistrate decides that you need to pay $800 to the other driver, your insurer will pay this cost). Therefore, any amount that you receive from the other driver will not be reduced by the amount that you are ordered to pay them. For example, if the other driver is ordered to pay you $500 and you are ordered to pay them $200, you receive the full $500, as your insurance company pays the $200 owing to the other driver.
However, you must be wary of suing another driver, because often an insurance company will not pay legal costs if they think a case is hopeless. That is, they will pay for the damage to the other driver’s vehicle to be repaired, but if you sue the other driver to recover the cost of repairing your vehicle, the insurance company will not pay your legal costs and this legal action will be at your own risk.
If you are unsuccessful in court, not only will you not recover the cost of the repairs to your vehicle, but you will also be left to pay your own and the other driver’s legal costs. In all such cases, before commencing legal proceedings, first notify your insurer in writing and find out what they think of you suing the other driver.
Often, if there is a large claim against you, your insurance company will encourage you to claim your damages against the other driver. This is good for you, because you can ‘piggyback’ on the insurance company’s claim and any money recovered in your counter-claim will be awarded to you.
What to do if you are uninsured
If you are uninsured, you have two choices:
- You can sue the other driver (including settling out of court, see ‘Settling out of court’ in ‘Damages, claims and court‘); or
- You can pay the cost of repairing your vehicle yourself.
In deciding what to do, you should consider the other driver’s financial position, legal costs, whose fault the accident was, and the amount of damage to each vehicle (all these issues have been discussed above).
If, after considering these matters, you wish to sue the other driver, it is advisable to take action as soon as possible. Note that you must sue the other driver for property damage within six years from the date of the accident.
What to do if the other driver is uninsured
In certain situations, third-party property insurance provides the same cover as comprehensive insurance. For example, provided that the other driver was at fault, can be identified and was uninsured, third-party property insurance will cover the cost of the repairs to the insured person’s vehicle, although only to a capped amount.