at Backhouse Jones
Ian Jones from Backhouse Jones discusses a recent attempt from Aviva Insurance to change the criteria used to calculate loss of use
It’s my birthday next month and I have asked my colleagues at Backhouse Jones to help save the planet by buying me a Patek Philipe watch as a present. I calculate that by hour of pleasure delivered over its useful life, a luxury watch has a carbon footprint many times smaller than a carton of orange juice.
There is often a whiff of fallacy when challenging long held assumptions through the application of economic logic. This was never more apparent when Aviva Insurance recently tried to defeat the long standing CPT formula used to calculate damages for loss of use when a PCV is off the road due to the negligence of a third party driver.
Last week Manchester High Court rejected Aviva’s endeavours to curb this recovery and approved a claim by West Midlands Travel for loss of use of £3317 following a road accident in 2006.
The basis for the CPT’s formula has been lost in the mists of time but has been consistently approved by the courts since a claim brought by Birmingham Corporation in 1969.
The CPT standing charge is claimed as an efficient economical and largely mathematical basis for arriving at loss of use without the need to undertake individual calculations for each vehicle damaged. It dispenses with the need to consider loss of profit – a process that can be fraught with difficulty.
Aviva argued the standing charge was excessively generous to operators because it excluded commercial overheads which they chose to incur to run their businesses.
The court asked itself whether the claim was for the value of the loss of use of the damaged bus or for the loss of use of a bus. After a thorough review which included consideration of early 19th century shipping cases, HHJ Armitage determined the answer to this question was that the loss of a bus = the bus.
The judge rejected the notion that there was no loss and fully accepted it was reasonable to take the average unit cost of the undifferentiated fleet. Hiring an alternative bus was not a practical or economical option and it was accepted to be more economical to consider the fleet as a whole than to calculate the particular costs of a particular vehicle involved in an accident.
Aviva suggested the appropriate daily rate should be between £23 and £28 per day rather than the claim by West Midlands for £106 per day. The judge asked whether intuitively it felt right to have a bus ready at short notice for £23 per day and he decided it did not.
So business as usual and we may thank the West Midlands for organising reimbursement for the industry 40 years ago and ensuring its continued application today.
I have applied my own intuition to my starting position and shall be expected a family size carton of Tropicana from my dear colleagues here at Backhouse Jones.
