Motor insurance

Keys left in cars

Insurers have sought to rely on a variety of wordings to avoid liability where the theft of a motor car results from keys being left in or on the vehicle. Such losses may occur in a wide range of circumstances – for example where a motorist leaves the car to pay for petrol, or to open a garage door.

The simplest wording obliges a policyholder to take reasonable care to avoid any loss of or damage to the insured property. Sofi v Prudential Assurance Company Limited (1993) established that a policyholder will not be in breach of such a condition unless he has been reckless (Ombudsman News 1). In other words, to succeed in repudiating liability, the insurer will need to prove that the policyholder recognised there was a risk and took no steps – or steps that he or she knew were inadequate – to avert that risk. The FOS suggests in Ombudsman News 37 that this is no easy task:

Most people who leave their keys in the car simply fail to recognise the risk and/or take no precautions whatsoever. It is very difficult in these circumstances for firms to show that the policyholders were reckless.

However, the FOS has presented one case study where the insurer was successful in such an argument. A policyholder who had been using a jet wash to clean his car noticed a man loitering near the vehicle. Nevertheless, he went to wash his hands, leaving the keys on the front seat. The car was stolen by the man who had been loitering. The FOS decided that the policyholder had breached a reasonable care condition: he had recognised there was a risk and yet had taken no steps to avert it (Ombudsman News 1).

A motor policy may contain a more specific exclusion for losses when keys are left in or on the vehicle, often coupled with an exclusion for losses if the vehicle is left unlocked and unattended. In Ombudsman News 37 the FOS points out that the test for whether the keys are “left” is similar to that for whether the vehicle is “unattended”. Accordingly, in most cases the FOS is left to decide whether the unlocked vehicle (with or without its ignition keys) was unattended. In such cases the FOS considers the following issues:

  • Was the exclusion brought to the attention of the policyholder when the policy was arranged? The FOS points out in Ombudsman News 4 that otherwise the operation of these conditions may surprise a policyholder. After all, policyholders are accustomed to being covered for the effects of causing a car accident. Why, then, should they expect a loss caused by carelessness in leaving the car unattended to be excluded? If an exclusion was not brought to the policyholder's attention, it is clear from Ombudsman News 38 that the insurer may not be allowed to rely on it:

    • ... although practically all motor insurance policies include a clause excluding claims in these circumstances, insurers still need to draw the attention of policyholders to this clause, as it constitutes a major restriction on the scope of cover. Where insurers fail to do this, we may uphold a complaint, even though the circumstances of the theft fall within the scope of the exclusion clause.

  • The more onerous the exclusion, the greater the degree of highlighting that the FOS will expect it to receive. For example, the FOS points out in Ombudsman News 1 that some insurers have taken an extreme view – using such exclusions to deny liability where the car has been stolen in a car-jacking). Quite apart from the doubt as to whether such circumstances fall within the test of “unattended”, the FOS states that the restriction is unusual and onerous and has not usually been drawn “sufficiently” to the policyholder's attention.
  • If the exclusion was brought to the attention of the policyholder, was the vehicle unattended? In Ombudsman News 4, the FOS indicated that some of the factors to be considered in deciding this point were:
    • Was the person responsible for the vehicle in reasonable proximity to the vehicle? Location will be important – the responsible person will need to be closer to a car in a busy street than one in an empty field.
    • Was the responsible person able to keep the vehicle under observation? It is clear from the case studies provided by the FOS that this is just one factor, and that a lack of constant observation will not necessarily be fatal to a claim.
    • Did the responsible person have a reasonable prospect of intervening? The intervention does not need to be effective in preventing loss.

Programmable keys

In Ombudsman News 72 the FOS considers two cases where cars fitted with an “intelligent”  key system were the subject of theft claims. In both cases the insurer rejected the claim on the basis that short of using a tow-truck or transporter the car could not have been stolen without the use of a programmed key.

The FOS decides such complaints on a balance of probabilities - taking into account both the particular circumstances of the case and the “possible alternative explanations” of the loss.

In the first case the disappearance of the car was reported to the policyholder, Mrs D, by her teenage son. Initially Mrs D was unable to produce one of the two keys she held. The FOS stressed that it did not doubt Mrs D’s honesty, but nevertheless rejected her complaint.

In the second case the policyholder, Mr F was also unable to produce one of his two keys. However the FOS accepted that this had been missing for some time. Mr F provided strong evidence that he had not left his house on the night his car had been taken. His programmed key – which could be duplicated – had been in the possession of several garages in the area when servicing and other work on the car had been carried out. The FOS upheld Mr F’s complaint and instructed the insurer to meet his claim.

Valuations

When a motor vehicle is a total loss, most policies provide for the policyholder to be paid the pre-loss market value. In Ombudsman News 66 the FOS states that “the policyholder is entitled to receive an amount equal to the vehicle’s market value immediately before it was damaged”. The FOS suggests in Ombudsman News 22 that the market value is “the likely cost to the customer of buying a car as near as possibly identical to the one that has been stolen or damaged beyond economic repair”.

The FOS will expect insurers to consult the normal trade guides and allow for any difference from the norm in the car's mileage and condition. In most cases the appropriate market value will be the “guide retail price” – that is, the price a member of the public might reasonably expect to pay at a dealership. However, if the car is not in “guide retail condition”, or if there is evidence that the policyholder intended to buy a replacement in a private sale, the “guide trade value” (the price a motor trader might pay) may be more appropriate (Ombudsman News 22).

It is clear that the FOS does not approve of insurers starting with a low offer: it considers that the appropriate figure should be offered straight away (Ombudsman News 66). Insurers who fail to do so may face penalties. In a case featured in Ombudsman News 66 the insurer offered £700, then £1,040 in respect of a written-off car. The FOS stated that it could see no reasonable basis for these figures. In addition to requiring the insurer to settle the claim at a higher amount based on the trade guides, the FOS awarded the policyholder £150 for the distress and inconvenience which he had been caused.

Salvage

Vehicles which have been damaged are assessed by insurers in accordance with the Code of Practice for the Disposal of Motor Vehicle Salvage. The code was drawn up by the ABI and other interested bodies. It places vehicles into one of four categories, A to D, based on their condition. It provides how insurers should deal with cars in each category. For example, vehicles in categories A and B “must never reappear on the road”. The aim of the code is “to detect and deter criminal activities and make vehicle histories much more transparent”.

In Ombudsman News 66 the FOS considered a case where the vehicle was in category C – this meant that it was repairable, though the cost of such repairs would exceed the vehicle’s pre-accident value. Although the policyholder had specifically asked to retain the salvage, the insurer sold it for scrap. Furthermore it appears that the settlement offer made by the insurer undervalued the vehicle. The FOS pointed out that at the time the insurer sold the scrap it was still the policyholder’s property. To reflect these factors the FOS made a distress and inconvenience award of £400 in addition to requiring the insurer to increase its offer.

Cloned cars

Cloned vehicles are a growing problem in the second-hand car market. Having stolen a car, thieves will give it the number plates for a legitimate vehicle of the same make, model and colour. They may take other steps to support this “cloned” identity – for example, changing the engine number.

What happens when the cloned vehicle is sold on to an innocent purchaser? Since the thieves do not own the car, they cannot pass full title to the purchaser. Instead the purchaser has merely a defeasible title (a title capable of being rendered void); the car may be reclaimed by its true owner at any time. The purchaser may, of course, have insured the cloned car in ignorance of the true position. Can a claim be made if the vehicle is stolen?

The FOS has indicated that in such circumstances it will ask insurers to meet claims from policyholders who “reasonably believed their purchase was legitimate" (Ombudsman News 55). In deciding whether such a belief was reasonable the FOS will consider a variety of factors:

  • Was an ”HPI” check (which looks into a vehicle’s history) carried out?
  • Was the purchase price comparable to that of other vehicles of a similar make, model and age?
  • Did the purchaser receive a purchase receipt showing the seller’s contact details?
  • Did the purchaser obtain a vehicle registration form?

What is being tested here is whether the purchaser acted in good faith. The very fact that certain steps were taken by the purchaser may be evidence of honesty – regardless of whether or not the problem with title would have been revealed. For example, an HPI check may not show that a car has been cloned, and a purchase receipt may prove to contain false contact details.

Deductions from the claims settlement may be made in two situations:

  • A policyholder acts in good faith but fails to take reasonable steps that would probably have brought to light the problem with title.
  • The lack of a history for the vehicle warrants a lower valuation.

Although this approach has been developed in connection with cloned cars there seems no reason in principle why it should not be extended to other types of stolen goods which have been insured by innocent purchasers acting in good faith.