In Coles & Ors v Hetherton & Ors [2012] EWHC 1599, Mr Justice Cooke handed down judgment on two preliminary questions related to claims under policies of motor insurance. Cooke J held that: (1) where a vehicle has been damaged, the correct measure of damages is the diminution in value, which is taken to be reasonable cost of repairs; and (2) a tortfeasor cannot rely on any arrangements made by a claimant’s insurer in relation to the car’s repairs, and thus cannot argue that it is the actual cost to the insurer that is to be taken as the measure of loss.

The claimants in the matter held policies of insurance with Royal Sun Alliance Insurance Plc (RSAI), which contained an option of reinstatement. In event of damage to the insured’s vehicle, the insured could choose a repairer or use RSAI’s system of repair, in which RSAI engaged MRNM, an RSAI group company, to undertake the repairs. MRNM conducted a small proportion of the repair work themselves and sub-contracted the rest to independent garages. MRNM benefited from a discounted rate and so on such occasions, the sums payable to MRNM from RSA exceeded the sums payable by MRNM to the independent garages, which MRNM kept as profit. The defendant insurers challenged this system on the basis that it inflated the claims for repairs which were due to be paid by the tortfeasor’s insurer.

Cooke J was asked to consider two questions: (1) the measure of loss – where a vehicle is negligently damaged and reasonably repaired, was the measure of the claimant’s loss taken as the reasonable cost of repair? and (2) the test of “reasonable repair charge” – if a claimant’s insurer arranged repair, was the reasonableness of the repair charge to be judged by reference to (a) what a person in the claimant’s position could obtain on the open market, or (b) what the claimant’s insurer could obtain on the open market?

As to the first issue, Cooke J found in favour of the claimants and held that the reasonable cost of repair was not necessarily the cost actually incurred but was rather the reasonable cost of repairs which could be assessed by reference to expert evidence.

As to the second issue, it was held that it was not permissible to “look behind the curtain” at arrangements made between the claimants and their insurer or between claimant’s insurers and third parties. The actual cost of the repairs was therefore not relevant.

This case provides useful guidance to insurers as to the quantification of a claimant’s reasonable loss in the context of motor policies.