There was a time many years ago when a company could be paid out on an insurance claim for no reason, other than for being a good and loyal client to the insurance company. Whilst it is possible that even today an insurance company could make a commercial decision when considering a claim from a very large client, many companies are at risk of having claims repudiated.
Contract hire companies nowadays see many cases where insurers have refused to pay out on claims following accidents. Naturally the larger a claim the more closely an insurance company will scrutinise it; if one of your company vehicles has a minor accident it does not make financial sense for the insurer to spend too much time on the claim. If however it is a major accident there are very sound commercial reasons why the insurance company will closely examine all aspects of the claim and the circumstances surrounding it. An Insurance company's obligation is to its shareholders, which doesn't include paying out on claims, if they can find good reason to invalidate it.
A motor insurance company's terms and conditions will normally state that a vehicle should comply with the manufacturer's specifications; if the vehicle is modified by the driver it is essential to inform the insurance company, otherwise it can invalidate the insurance. For this reason it is always advisable to fit the manufacturer's recommended tyres. It is important to advise employees that they must not make any changes to their company vehicle. It has been known for employees to do what is called "chip" the engine of their company vehicle. This increases the power of the engine and could, if they had not been notified, give an insurer a very valid reason for refusing pay out on a claim. It is worth bearing in mind that this can also invalidate the manufacturer's warranty and potentially cause a problem with the contract hire company; a vehicle without a manufacturers warranty does not have the same value as one that does.
The vehicle must also be roadworthy to comply with the insurance company's terms and conditions. Contract hire vehicles, as most company car are nowadays, are generally relatively new and regularly serviced. If however a company runs its own vehicles and keeps them for perhaps four or five years, then the condition of the cars needs to be monitored more closely, particularly if they are doing high mileage.
There are however, apart from lack of maintenance, many things that can cause a car to be un-roadworthy; if one of your company vehicles is in an accident and it is found to have the wrong tyre pressures, with the tyres under, over or unevenly inflated this could be a serious problem. It would of course depend on the circumstances of the accident; if another vehicle drove into the rear of an employee's stationary car, it could hardly be considered a factor and it is very unlikely under these circumstances that the insurer would check the car's roadworthiness; they would have no reason to do so.
If an accident happens under different circumstances, for example where an employee's car crashes on a bend or skids out of control and causes the accident, then it is quite reasonable that the insurance company will want to ensure that the vehicle was in a roadworthy condition. Incorrect tyre pressure is one of the most common causes of newer cars being un- roadworthy. Employers should advise their employees that tyre pressures need to be checked regularly. This is best done in the morning whilst the tyres are still cold. Another good reason for ensuring that tyre pressures are correct is that it can significantly reduce the company's fuel bill.
It is also important that tyre wear is regularly monitored to ensure that tyres do not go below the legal limit; with servicing intervals at 18,000 miles and more, one cannot rely on being advised during servicing, that it is necessary to consider changing tyres. Having tyres that are below the legal limit is not maintaining a car in a roadworthy condition. Sometimes only part of the tyre is worn; running the car with the incorrect tyre pressure can cause this.
A risk to the company's insurance cover that is often overlooked by companies is when employees drive their company cars whilst having exceeded the legal limit of alcohol consumption. The risk is higher outside of office hours, when employees stop for a drink on their way home, or at weekends. Whilst it may be outside office hours, it is still the company's vehicle and insurance. It was revealed in a study in 1998 that in 10% of motorcycle accidents where there was a fatality and 19% of fatal car accidents, alcohol was involved. It seems extraordinary that even today with all the increased publicity, there are drivers who believe their driving skills are enhanced following alcohol consumption.
The position is essentially the same if the employee is driving the company vehicle, whilst under the effects of drugs. Even if an employee is taking a prescription drug rather than recreational drugs, this could affect their ability to drive in a safe manner. Following new legislation, effective from April 2008, it is the company's responsibility to ensure that their employees are safe and this includes, whilst driving on company business
Negligence is another area where an insurance company will often refuse to pay out. This is quite understandable because when an insurance company agrees to take on a risk, they will not have allowed for the risk of an opportunistic thief taking advantage of a driver's negligence; where they leave their keys in the car whilst they pay for their petrol, or if they leave it parked on the road, or on their drive with the engine running. In spite of the risks, many company car drivers do this in the winter, so that the heating works as soon as they get into the car. Many have found themselves having to explain to their employer, that the car was gone when they came out of their house.
It is important to ensure that all your drivers have a current driving license and that previous convictions like drink driving, if required by the insurer, have been declared. Some employers have never seen more that a photocopy of their employees' driving licence, others take a photocopy of the original and hold it on file. This is very unsatisfactory from the company's point of view. There have been cases of it emerging after an accident that the employee was driving whilst disqualified.
If a company uses a contract hire broker to source their vehicles they could arrange for the broker to regularly check the employee's driving licences; a licence checking service is offered by the more established contract hire and leasing brokers. This is the only way that a company can be sure an employee not been convicted of offences that they are unaware of and cause their insurance to be invalidated. This will also help them to avoid being prosecuted under new legislation introduced in April 2008.
If an insurer refuses to pay out on a claim, one should not be necessarily assume that they are correct in doing so. There is the Financial Ombudsman that will deal with any complaints or disputes in this respect. In a case we are aware of, one of our clients had his vehicle carjacked, the insurance company refused to pay out the claim of 60,000, because they said that they had written to him on a number of occasions telling him that he must fit Tracker to the vehicle, which he had not done. They argued that had tracker been fitted, the vehicle might have been recovered. However when an expert was called in on behalf of the client, things changed. Our understanding is that the expert stated that whilst the insurer had indeed written to the client with regard to Tracker, they had not at any time told him he would be uninsured without it. The claim was settled.
To summarise, it is important to ensure that vehicles are properly maintained and that tyres are regularly checked for wear and the pressures should be checked ideally every two weeks. Employees should be prohibited from making any modification to their company vehicle and should heed any warning lights that come up on the screen of their vehicle. They should also be warned about driving whilst under the influence of alcohol or drugs and encouraged to speak to the company if they are on any type of medication that may affect their ability to drive safely. Vehicles should not be started and left to warm up on a cold day and keys should not be left in the car whilst in a petrol station or whilst quickly popping into the shops. Opportunistic thieves only take seconds to steal a car. Speak to a contract hire broker, about licence checking, it is vital that all companies have these checks carried out. The aforementioned will at least go some way, to avoiding a situation where an insurer refuses to pay out on a claim.
Very often when motor insurance claims are declined, the insurer claims that the driver has been negligent. Some employers, perhaps with justification, worry that company car drivers are more prone to be negligent with the company car than they would perhaps with their own vehicle. It seems that negligence is a factor in accident claims not being paid, throughout the world; following an accident in America the insurer refused to pay a claim for accident that happened when the owner of a new motorhome thought the vehicle would drive itself after he had switched to cruise control. This did not stop him taking legal action against the manufacturer of the motorhome claiming that they should have told him that cruise control didn't encompass steering, braking and knowing where to go etc. Common sense does not appear to be a factor in the American legal system; he won his case.
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For more information about contract hire, lease purchase, finance lease or vehicle hire purchase in the UK please contact Bowater Price plc 01494 536 536.
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