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Total loss or partial loss – how is compensation determined?

Author Mateusz Dominiak

 In the event of damage resulting from a motor vehicle collision for which the driver of another vehicle is at fault, the injured party may choose to seek compensation from the perpetrator’s insurance company under its compulsory third-party liability insurance, or to use its own CI insurance (if it has any). It should be borne in mind, however, that compensation from CI insurance is generally subject to different conditions than compensation from the accident-driver’s compulsory third-party liability insurance.

 

Choice of insurance (third-party liability – OC or automobile insurance – AC) and compensation

In the article entitled. Total loss or partial loss – which insurance should we use to settle the claim?”, we explained how the choice of insurance from which we settle a claim caused by another driver affects the classification of the claim. In some cases, the decision to claim compensation from the accident-driver’s compulsory third-party liability insurance or from our own AC policy will result in a different recognition of the loss as partial or total damage. In this article, we would like to highlight how the choice of insurance can affect the amount of compensation established.

 

Partial damage – differences between OC and AC claims settlement

In the event of partial damage, the insurance company compensates by paying an amount corresponding to the cost of repairing the vehicle. However, in the event of settlement of damage under the AC insurance contract, the costs of this repair will be determined differently than under the perpetrator’s compulsory OC insurance.

When settling claims under compulsory OC insurance, repair costs must be reasonable and economically justifiable, i.e. they must restore the vehicle to its pre-collision condition.  They must also be based on the prices and rates prevailing on the local market of repair shops of interest to the injured party.

The situation is different with AC insurance, where the rules for determining repair costs are specified in the insurance contract (and are generally described in detail in the insurance policy and general insurance conditions). In practice, several options can be considered, for example:

  • labor costs – these may be determined by reference to local market rates for repair shops, but may also be predetermined by the adoption of a specific wage rate for an hour’s work; the general conditions may also specify whether rates will be set for authorized repair shops (known as ASOs) or non-authorized repair shops;
  • spare parts prices – these are generally determined on the basis of price information contained in the databases of the expert programs used to estimate repair costs. However, it should be noted if the insurance contract provides for repair costs to be estimated on the basis of the prices of original parts or spare parts from manufacturers other than the vehicle manufacturer;
  • depreciation and deductibles – an AC insurance contract may provide for the compulsory application of a depreciation reducing the cost of spare parts due to the age of the vehicle; it may also provide for the obligation of the victim to bear the deductible.

Daria Milewska

Attorney

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    Total loss – differences between compulsory liability and comprehensive insurance claims settlement

    Compensation for total loss – under both compulsory third-party liability and comprehensive insurance – is determined by the difference between the value of the vehicle before the loss and the value of the damaged vehicle (wreck value).

    However, the rules for determining these values differ according to the insurance company with which we settle the claim.

    To determine compensation under compulsory third-party liability insurance, the value of the vehicle before the damage and the value of the damaged vehicle must correspond to market values. In most cases, this will be based on the prices of similar vehicles, or on expert systems for estimating vehicle values.

    In the case of AC insurance, the methods used to estimate the value of the vehicle are generally specified in the insurance contract. The value of the vehicle declared when the insurance contract was taken out may also be taken into account.

    Comparison

      compulsory third-party liability insurance AC insurance
    Partial loss
    Qualification Repair costs less than 100% of the vehicle’s pre-collision value. Cost of repairs less than 70% of the vehicle’s pre-collision value.
    Compensation Intentional and economically reasonable repair costs, determined on the basis of market prices. Repair costs determined on the basis of the rules laid down in the insurance contract (which do not always correspond to reasonable market costs).
     

    Total loss

    Qualification Repair costs in excess of 100% of the vehicle’s pre-collision value. Repair costs in excess of 70% of the vehicle’s pre-collision value.
    Compensation Difference between the market value of the vehicle before the collision and the market value of the remainder (wreck value). The difference between the value of the vehicle before the collision and the value of the remains (wreck value) – these values may differ from market values, and the rules for determining them may derive from the insurance contract.

     

    Summary

    As a general rule, the compensation paid by an insurance company under an insurance contract is intended to repair damage caused to the victim’s property. However, this is not always the case. As the comparison presented above shows, depending on the type of insurance, the compensation will not always fully cover the actual damage suffered by the injured person. In the case of compensation under compulsory civil liability insurance, the compensation must fully compensate the victim’s loss by

    • covering the costs of repairing the vehicle to the extent necessary to restore it to normal. condition it was in before the collision (partial damage)
    • payment of an amount equal to the difference between the market value of the vehicle before the collision and the market value of the wreckage that remained of the vehicle after the collision (total loss ).

    In the event of liquidation of damage under AC insurance, the amount obtained may be lower, because both for partial damage and for total damage, the rules for calculating compensation do not necessarily have to be based on the market indices, but can be modified depending on the content of the insurance contract. You should therefore always pay attention to the insurance cover you have and what is included in the wording of the insurance policy and the general insurance conditions.

     

    Although the compensation from AC insurance in a specific case may be lower than that from the obligatory liability insurance of the offender, it may be more advantageous to use it. For example, in cases where none of the participants in a collision feel responsible for it and the problem must be resolved by the police or in court, AC insurance will allow you to obtain funds more quickly. This can be very important when you need money quickly to buy a new car or to make repairs that will allow you to continue using your vehicle. Secondly, in the event that the damage is qualified as total by AC insurance and partial by civil liability insurance, the injured person can choose the form of settlement that suits them best. This is particularly important in the case of a leasing contract. Indeed, this choice will determine whether the vehicle will be repaired and the leasing contract continued, or if, after accepting total damage, the damaged vehicle will be sold and the leasing contract terminated.

     

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