According to many insured car holders in Poland, insurers have been underestimating compensation for losses, and the majority of auto insurance cases in Poland have been settled for amounts far below the actual costs of restitution. The most frequent reason is that the value of a loss has been determined based on the prices of used spare parts rather than new ones.
A recent resolution by the Supreme Court of Poland may put an end to these activities committed by insurers and may be another indication that the courts are favoring insurance holders in recent car insurance cases.
Intervention of Polish Insurance Ombudsman
This market practice of applying used spare parts prices captured the attention of the Polish Insurance Ombudsman, who subsequently requested that the Supreme Court issue a resolution to explain the following issue:
- Is the injured, in light of the regulation of Article 363.1 in conjunction with Article 361.2 of the Polish Civil Code (PCC), who pursues claims against the insurer under the agreement on civil liability insurance of the car holders in regard to the damage of the car, entitled to demand compensation established according to prices of the new spare parts, without any deduction due to amortization?
The Supreme Court responded by adopting a resolution on April 12, 2012 (case number III CZP 80/11).
Supreme Court Findings
As a result of the Polish Insurance Ombudsman’s intervention, the Supreme Court decided that the insurer is obliged to pay an injured party substantiated damages, including the reasonable and economically grounded cost of new parts and materials used to make restitution of the damaged vehicle. This payment should be made within the framework of the insurance agreement held by the motor vehicle holder. If the insurer proves that repair costs would lead to an increase in the value of the vehicle, the damages may be reduced to maintain its value to the level before the accident occurred.
The Supreme Court approves of the standpoint of the Ombudsman, who argued that the practice of insurers was based on the wrong interpretation of Article 363.1 in conjunction with Article 361.2 of the PCC. The insurers concluded that payments should be based on the value of used spare parts because car parts are already used when they are destroyed in accidents. The insurers would adjust the compensated value of the parts based on the period of time that the parts were used.
However, as the Ombudsman indicated, insurers did not adopt any clear criterion when calculating the value of used parts. The Supreme Court emphasized that insurers’ claim that using the prices of new spare parts would unfairly enrich the injured is incorrect. The estimation of a part’s value before installation must be strictly divided from the assessment conducted after it is installed because a part cannot be considered a separate subject when it is installed as part of the whole vehicle. Therefore, establishing the value of a part individually without considering the value of the car as a whole is impossible.
The court explained that using the price of a new spare part is substantiated when an old part cannot be repaired to its condition prior to an accident. In order to apply the price of a used spare part, the part in question must restore the use of the vehicle and provide for a level of comfort and driving safety similar to before the accident. Moreover, the court noted that in most cases the value of a vehicle as a whole is not restored even when the spare parts used for repair are new. After a vehicle has been involved in an accident - even when it is repaired - its value is substantially decreased. Potential buyers of pre-owned vehicles often want to purchase vehicles that have not been in any accidents.
If an insurer claims that a car gains additional value when compared with its value before an accident, then the insurer is responsible for proving this increase in value before the payment can be reduced.
Other Trends in Auto Insurance
Determining payments based on used parts prices is not the only problematic practice implemented by insurers. For some time now, the Polish Insurance Ombudsman and the Polish Insurance Association have been engaged in discussions about the car holders’ insurance market, which have led to several noteworthy resolutions and judgments by the Supreme Court and the Court of Competition and Consumer Protection.
The cost of renting a car while an insured car is being repaired is among the most important car insurance issues in Poland. In a resolution last year, the Supreme Court determined that in a situation when a car is damaged while being used for non-business purposes, the insurer should be liable for the substantiated and economically reasonable expense of renting a substitute vehicle. The court added that it was irrelevant whether the injured person was able to use public transportation or not.1
Shortly before the resolution regarding used spare parts prices, the Supreme Court ruled that the insurer may be liable for certain costs of legal assistance that are incurred in pre-court proceedings conducted by the insurer.2
Another judgment worth mentioning is the decision last year by the Court of the Competition and Consumer Protection regarding insurance agreement provisions that invalidate insurer liability if a car did not possess a valid technical inspection document at the time of an accident. The court moved to enter these provisions into the Register of Prohibited Clauses, a collection of provisions considered illegal.3
Finally, in recent years, insured vehicle holders achieved significant victories when the Supreme Court questioned the conduct of insurers regarding a car being the subject of a transfer of ownership agreement or a leasing agreement and their practice of not including value added tax (VAT) in the estimation of due compensation.
In the first situation, the Supreme Court ruled that the holder of two vehicles involved in an accident with one another is entitled to compensation under the car holder insurance.4 In the second situation, the court decided that compensated value includes the amount of VAT to the extent that the injured may not reduce the payable tax by the amount of input tax.5
The most recent resolution of the Supreme Court, as well as several previous judgments and resolutions, indicates positive trends for insured vehicle owners in the establishment of due compensation amounts. These trends may be significant for areas other than car insurance since Supreme Court rules and decisions can be applied to other forms of insurance activity as well.
1 Case number: III CZP 5/11, 17.11.2011.
2 Case number: III CZP 75/11, 13.03.2012.
3 Case number: XVII AmC 1509/10, 7.04.2011.
4 Case number: III CZP 99/04, 22.04.2005.
5 Case number: III CZP 150/06, 17.05.2007.