Insurers 'could save £25m a year' from bus accident ruling

A Court of Appeal decision on the way bus companies are compensated when their vehicles are taken off the road by accidents which are not their fault could save insurers £25m a year, Greenwoods Solicitors has said.

Richard Tovell, consultant at Greenwoods, which acted in the case for Aviva, said the figure was based on 84,000 buses and coaches on the roads having an accident every three years and, in half of these cases, it not being the fault of bus driver.

The court heard that following the accident, caused by a driver insured by Aviva, the bus, owned by West Midlands Travel, was off the road for a month.

The bus company had enough spare capacity to cover the loss, so was not entitled to claim for loss of profits, but instead claimed for loss of use, according to the traditional 'standing charge' approach.

Lord Justice Moore-Bick said this approach, which used a formula devised by the Confederation of Passenger Transport UK, was calculated by reference to overheads incurred across the whole of the company's fleet.

"It included, for example, the cost of corporate services, the provision of canteen and medical facilities, fire prevention expenses, rent, rates and the cost of electricity and thus reflected the average unit cost per bus incurred by the company in running its business."

Moore-Bick LJ said Aviva admitted liability for the accident and paid for the cost of repairs, but disputed the company's claim for general damages, arguing that damages should not be assessed by reference to the standing charge, but to interest on capital with an allowance for depreciation and other fixed charges.

This would reduce the bus company's claim from £3,300 to "something in the order of £1,000".

Delivering the leading judgment in West Midlands Travel v Aviva Insurance UK [2013] EWCA Civ 887, Moore-Bick LJ concluded: "Since no loss of revenue can be attributed to the unavailability of the damaged vehicle, the operator's loss can in my view best be assessed by reference to the capital tied up in it, wasted expenses and depreciation.

"Although the individual items going into the calculation will not be entirely the same in the case of a bus as in the case of a ship (since, for example, a bus does not require a crew while being repaired), the exercise is essentially the same as that which has been adopted in the Admiralty cases."

Moore-Bick LJ allowed Aviva's appeal and remitted the case to the High Court to assess damages in accordance with the principles he set out in the ruling. Lord justices Rimer and Underhill agreed.

Richard Tovell, consultant at Greenwoods, part of Parabis Law, said: "This is a crucial victory for motorists and the broader insurance industry. Insurers will no longer have to bear the brunt of bus operators' overheads, which would have been incurred in any event.

"Our client admitted liability and quickly settled the cost of repairs. The new judgment should allow future claims to be settled quickly without litigation."