Guideline 14.1 Interpretation on Damage Settlement and Repair Cost Calculations

In connection with the guideline regarding the settlement of motor insurance claims No. 14.1 in the wording: "The insurance company should, on its own initiative, pass on to the entitled person the calculation of the vehicle repair costs, on the basis of which it determined the value of the benefit," the following situations require consideration:

a) The client approaches the insurance company (TU) with a specific monetary claim regarding the repair costs of the damaged vehicle, e.g., estimated based on an offer obtained from a repair shop. The insurer performs a calculation of the repair costs, which differs from the claimed amount, but on the basis of "claim recognition," pays an amount higher or lower than its own calculations (repair cost calculations);

b) The insurer performs a calculation of the repair costs and simultaneously enters into negotiations with the client regarding the amount of compensation. The final agreements differ (higher or lower) from the value resulting from the repair cost calculation, but the client accepts the proposed compensation amount;

c) The insurer performs the first calculation of the repair costs and simultaneously enters into negotiations with the client regarding the amount of compensation. The final agreements differ (higher or lower) from the value resulting from the first repair cost calculation, but the client accepts the proposed compensation amount. The insurance company performs a subsequent calculation of the repair costs (introducing appropriate corrections, e.g., changes in the qualification of spare parts from replacement to repair), the amount of which corresponds to the final agreement with the client, and records it in the claims system.

In cases a, b, and c above, can it be accepted that the repair cost calculation does not constitute the basis for determining the amount of the benefit, and consequently, can it be considered that settling the claim on the basis of claim recognition by agreement in cases a, b, and c without issuing the calculation does not violate the fulfillment of Guideline 14.1?

Taking the above into account, the Financial Supervision Authority (KNF) explains:

Guideline 14.1 states that the insurance company should, on its own initiative, pass on to the entitled person the calculation of the vehicle repair costs, on the basis of which it determined the value of the benefit. Guideline 14.1 establishes a general rule, which is the transmission to the entitled person of the vehicle repair cost calculation.

According to the provisions of the Act on Insurance Business and the Act on Compulsory Insurance, the insurance company pays compensation, inter alia, on the basis of claim recognition or an agreement with the entitled person, after conducting proceedings comprising three elements: establishing the factual state of the event, establishing the validity of the submitted claims, and establishing the amount of the benefit. The above means that the insurance company has performed a calculation of costs (even preliminary, estimated) of vehicle repair.

In connection with the above, in accordance with Guideline 14.1, the insurance company should, on its own initiative, pass this calculation on to the entitled person. At the same time, it should be pointed out that it cannot be excluded that during the settlement proceedings, the insurance company will pass on additional (updated) calculations to the injured party, which serve as the basis for the insurance company to determine the value of the benefit.

The situation should also be considered consistent with Guideline 14.1 when the injured party, on their own initiative, submits a claim for a specific monetary amount to the insurance company, which the insurance company accepts and, guided by economic reasoning, does not perform any, even estimated, calculation and therefore does not pass it on to the injured party. Such action by the insurance company is permissible only in cases where the cost of settling the claim would be higher than the amount of the submitted claim.