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Calculating Consequential Loss
Page 96
Page 99
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The cost of repair or replacement of a vehicle following an accident, fire or theft is not necessarily the only loss thereby incurred by an operator BECAUSE the two fundamental elements of vehicle operation are time and mileage it is convenient to have a corresponding segregation of the total expenditure incurred in such operation into standing costs and running costs. Far from being of academic interest, it is imperative that all operators should appreciate the fujl significance of this division of costs if the services they provide are to prove economic or profitable.
Quoting at random from the current edition of " The Commercial Motor Tables of Operating Costs," the total operating costs per mile for a 5-ton goods vehicle fitted with oil-engine. is 26.08d, when averaging 200 miles per week. But the cost is less than half that amount-12.22d. per mile—when the average weekly mileage is raised to 800.
This example emphasizes the benefits to be derived from the maximum utilization of a vehicle. The basic reason for this is that, whereas the five items of running costs—fuel, lubricants, tyres, maintenance and depreciation—vary, with limited exception, directly in relation to the mileage run, the expenditure incurred in standing costs has to be met whether the vehicle is operated or not. Consequently, as the average weekly mileage increases the relative proportion of standing costs contained in the total operating cost diminishes. Therefore, although the total cost of operating a vehicle 800 miles must obviously be more than when averaging 200 miles the amounts are not proportional to the mileage run. Thus, corresponding to the operating costs per mile just given for the 54onner, the total operating cost for 200 miles is shown in "The Tables" as E21 I5s., and only £40 14s., or less than double, at 800 miles per week.
Conversely,, the true cost of standing time—for whatever reason—is seen in its proper perspective. Whilst it is unrealistic to claim that all standing time in connection with the operation of a commercial vehicle is non-productive, since loading and unloading can be said to provide the purpose for a journey, terminal tirries must nevertheless be reduced to a minimum. Unfortunately, however, there are many conditions outside the operator's control, such as inadequate loading and unloading facilities at customers' premises and increasing traffic congestion on the road.
CONDITIONS within the operator's control, however, include the efficient scheduling of journeys and co-ordination of loads--the crux of economic transport operation—and the arrangement of servicing and Maintenance so as to provide maximum vehicle availability. Any maintenance scheme must necessitate vehicles being off the: road for some period of time, however limited and however ingeniously arranged to coincide with off-peak periods. But a properly organized maintenance scheme does at least provide the advantage that the operator is aware beforehand of when such scheduled periods are to take place.
However well organized the transport organization may be there must inevitably, sooner or later, be unscheduled periods when a vehicle is not available for service, irrespective of whether or not traffic is available to be moved. An increasing reason for such occurrences is the rise in the number of accidents—partly due to the greater number of vehicles now on the road.
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Assuming the operator has taken out comprehensive insurance cover for his vehicle, the cost of repairing damage caused by an accident will be met in accordance with the terms of his' policy. In this context the oft-repeated advice that insurers should read their policies is pertinent. When dealing with any matter in connection with insurance, particular care must be taken by both parties that statements are accurate and that the utmost good faith is shown on both sides. This applies both to the completing of a proposal form by an operator and the issue by the insurance company of both the temporary cover note and subsequent policy.
HAVING taken trouble to achieve this standard of accuracy, it naturally follows that the insured person should have taken the trouble to read his policy carefully. Unfortunately, the conditions of an insurance policy are seldom easily read or comprehended. But nevertheless it is particularly important that the transport operator, of all insurers, should have taken the trouble to do so because, should an accident occur, he will almost certainly be required to make immediate on-the-spot decisions which, if made in error, could have disastrous effects on the subsequent claim he expects to make.
The immediate decision which will have to be made by the operator after any injured person has received attention and the police have been notified where necessary, will concern the removal of the damaged vehicle. Whilst it is common practice for comprehensive motor policies to state that all reasonable costs involved in removing a damaged vehicle to a convenient and competent repairer will be met, it would obviously be reassuring to an operator if he had already acquainted himself as to what steps he was in fact authorized to take.
According to the extent of the damage and the relationship existing between the operator and the insurance company, anthorization For the actual repairs would normally be made by verbal agreement or, following more seriouS accidents, by a decision of an independent assessor.
Although in the majority of cases transport operators have their own maintenance garages to which they would presumably prefer to bring a damaged vehicle, occasions may arise where this would not be possible, either because of the distance involved or the extent of the damage incurred. In such circumstances, whilst the appropriate insurance pplicy may include a condition specifically dealing with the costs involved in removing a damaged vehicle from the scene of the accident to the repairer, corresponding conditions are not always included concerning payment for similar additional journeys. These could include, for example, an intermediate journey from chassis repairer to body repairer, and the subsequent return from that repairer to the operator. Although in the latter case the expense of a towing vehicle would not be involved, it would by no means follow that the expense would be negligible. At least it could involve the cost of a long journey by public transport by the driver detailed to collect the repaired vehicle, the driver's time and the vehicle's running costs for the single journey. It would obviously be in the operator's interest to have reached agreement with his insurance company beforehand as to responsibility for such expenditure.
But even when agreement has been reached on all points regarding payment for the initial removal of the vehicle, completion of repairs and subsequent delivery to the operator, there still remains a further factor for which the operator requires compensation if he is not to suffer ultimate loss because of an accident. This results from the actual loss of use of the vehicle, bearing in mind that, as a commercial vehicle, it will have been purchased to provide either an economic service for the ancillary user or a profit for the professional operator. Obviously, whilst a vehicle is off the road following an accident neither is provided.
Unfortunately, assessment of any financial loss so incurred is confused by the variety of terms used to describe it, namely loss of use,-loss of earnings, loss of profits or consequential loss. In certain circumstances the first three terms could be misleading and "consequential loss" is probably the most appropriate term.
Whilst "loss of profit" has been the term more commonly used in the past, its use could have the effect of concentrating consideration of the problem too much towards net profit, whereas regard should also be given to the five items of standing costs and other expenditure. This may well amount to more than the net profit which would otherwise have been earned but for the accident. For that reason consideration of all aspects of consequential loss, in addition to profit, is essential even when a transport organization may be passing through a period of trading loss. Should an accident occur during such a period it would be both contradictory and confusing to formulate a claim for "loss of profit," although there would nevertheless have been a financial loss incurred by. the operator during the period the vehicle was off the road, in addition to the actual cost of repairs.
AS an example of the continuing expenditure which a haulier would have to meet whilst one of his vehicles was off the road as a result of an accident, the following items of operating costs relative to an oil-engined 5-tonner averaging 400 miles per week are given. Assuming the unladen weight is around 2 tons 17 cwt., the annual licence duty incurred would be £42. Based on a 50-week year to allow two weeks per annum when the vehicle may be off the road for major repairs or driver's holiday, the equivalent standing cost per week in respect of licences would be 16s. 10d. per week. The total cost to the employer or driver's wages is reckoned as £10 Os. 6d. This is based on the standard rate for a 42-hour week for the driver of this size of vehicle operating in a Grade I area as designated in the Road Haulage Wages Regulations R.H.(72). Rent and rates are nominally assessed at I Is. 10d. per week in respect of garaging the vehicle, whilst comprehensive insurance cover is reckoned to cost £101 8s. per annum, or the equivalent of 12 Os. 5d. per week. Interest on the initial outlay of £1,200 is estimated to add the equivalent of £1 8s. 10d. per week, calculated at an interest rate of six per cent. This gives a total for these five items of standing costs of £14 18s. 5d.
Consideration will now be given to the ultimate effect of an accident on these items of cost. Except in large transport organizations, the non-availability of vehicles as the result of accidents would be a comparatively rare occurrence. For that same reason an accurate assessment of the period of time which a damaged vehicle was likely to be off the road would in many cases be difficult if not impossible. Moreover, until dismantling had been completed, the full extent of the damage may not be completely revealed. Additionally, the supply position of the required spare parts may prove to be unexpectedly difficult.
Because of the combination of these adverse factors, action which may seem logical in theory, or in retrospect, is not so in practice. For example, in the case of the first item of standing costs, licences, it would seem reasonable that application for a refund could be made for the period whilst the vehicle was under repair. The council which issued the licence can make a refund of the fee originally paid on the basis of one-twelfth of the annual licence duty for each complete month unexpired on a yearly or part-yearly licence. Assuming that if such action was taken it was the intention of the operator to take out a new licence on completion of the repair to expire at the same date as the original licence, it should be borne in mind when assessing any savings derived from de-licensing, that in the majority of cases there would be the proportionate loss of licence fee relative to any part of a month for which a refund could not be obtained. Additionally, if the original licence was for the full year, then the subsequent re-licensing would probably be for a shorter period at a relatively higher rate of duty.
IT therefore follows that it would not be a practical proposition to consider de-licensing following an accident unless it was definitely known beforehand that the time required for repair would be in the region of a month or more.
The situation regarding payment of the driver's wages following an accident will vary according to individual circumstances and the period the vehicle is likely to be under repair. Unless favourable conditions exist regarding suitable replacement vehicles being immediately available for hire, an operator may not be able to hire for a relatively short period of a few days or so. Consequently, although the driver would no longer be required whilst his own vehicle was being repaired, under present-day conditions the operator would find it necessary to continue to pay his wage. Although he might be found some nominal job in the garage to keep him occupied, wages so paid could be fairly reckoned as consequential loss.
Where garage accommodation had been provided the cost of its provision would continue irrespective of whether the vehicle was repaired in those premises or elsewhere. So will the cost
of the insurance premium, which in all probability will have been paid annually in advance, whilst interest charges on the initial outlay would also continue.
As running costs are incurred only when the vehicle is in operation it follows that expenditure will not be incurred in
respect of any of these items, namely fuel, lubricants, tyres, maintenance and depreciation, whilst a vehicle is off the road due to an accident. Regarding depreciation, the period during which a vehicle might be under repair following an accident, would, in the majority of cases, be too short, relative to the estimated vehicle life of several years, to justify a valid claim for loss on that account.
Consideration of the loss in which an operator is involved following an accident to one of his vehicles will he continued next week. S.B.