Coles Revisited?

The decision in Coles v Hetherton has not been without controversy. Nonetheless, until now there has appeared to be very little disagreement with its correctness from a legal standpoint. While convening working groups to agitate for change in the law might be a good conversation starter, the prospect of ‘overturning’ Coles through the courts appears to be remote to say the least.

Gary Herring analyses the hurdles facing such a challenge and explains why a more nuanced approach is required.

Rarely has the hackneyed phrase ‘if you can't beat them, join them’ been more apt than in the context of Coles v Hetherton. Much of the industry were opposed to the concept of repair uplift models at the time, having fought vociferously against the Royal & Sun Alliance (RSA) scheme in the County Courts in the years prior. But ultimately, faced with the prospect of either falling in line with the newly affirmed legal position or ceding competitive advantage, most insurers fell into line and adopted a subrogation model akin to RSA’s.

More recently though, dissenting voices appear to have been getting louder, no doubt fuelled by what some market participants view as peers ‘pushing the envelope’, with ABP guide rates being exceeded in some cases, and uplifts being opportunistically applied to items of claim beyond mere repairs.

Of course, these are all issues which are perfectly capable of being challenged in the County Courts. Nonetheless, it has been suggested that Coles itself is the problem. The argument appears to be, in essence, that the universal application of Coles principles leads to consumer detriment, which provides the launchpad for a challenge, via the courts, to the principles of the Coles decision.

The first issue to consider, then, is whether there is a material impact on the consumer.

Given that the market is effectively in a state of equilibrium, with virtually all participants adopting a similar model, it is questionable whether Coles in fact has any impact on premiums at all. Through the course of their extensive investigation, which concluded in 2014, the Competition and Markets Authority (CMA) found that Coles resulted in no meaningful consumer detriment because the motor insurance market is highly competitive; thus, any margin gained by insurers eventually flows back to consumers via lower premiums due to intense competition. The net annual cost of subrogated repair models was found to be just £30 million a year, across the entire industry, with this being far too small to justify what would be a “fundamental legal change”.

It is difficult to see what has changed since the CMA investigation. While it is obvious that there has been significant repair inflation during that period, that is largely beside the point. As the CMA appreciated, higher insurer to insurer repair costs doesn’t mean the cost of insurance is higher. In any event, the finger for much of the inflation can be pointed at unavoidable factors relating to technology-laden modern vehicles.

But leaving that aside for a minute, let’s assume that there could be shown to be a significant degree of consumer detriment.

Would that alone be sufficient to launch a challenge via the courts seeking to ‘overturn’ Coles?

The short answer is no.

The legal route for a challenge to the Coles v Hetherton judgment could not be founded merely on a public policy argument about the implications of the decision, rather there would have to be a very persuasive argument that the judgment was fundamentally wrong in law.

This may be challenging to say the least. While there may be some controversy about the judgment from a public policy perspective, the same probably cannot be said from a pure legal principle standpoint.

The judgment of the Court of Appeal, and the High Court before it, can be reasonably described as resounding. It is underpinned by well-established principles of insurance law. Similar decisions were reached on key matters of principle in Jones v Stroud District Council [1986] 1 WLR 1141, The London Corporation [1935] P 70, Clark v Ardington [2002] EWCA Civ 510, and Bee v Jenson [2007] EWCA Civ 923.

These cases together established the core principles that Coles merely affirmed: that the ‘loss’ crystallises at the moment of damage (diminution in value), and that insurance arrangements or the actual payment mechanics are irrelevant (res inter alios acta).

Moreover, Coles has been followed and cited with approval in subsequent cases, both in the senior courts of England and Wales (see Technip Saudi Arabia Ltd v Maridive & Oil Services SAE [2023] EWHC 1859 (Comm)), and in other jurisdictions (Chivers v O'Loughlin [2017] NIQB 18 – Northern Ireland High Court).

An additional problem for anyone wanting to launch such a challenge is the procedural route. The Court of Appeal is bound to follow its own decisions, except in three limited exceptional circumstances, as set out in Young v. Bristol Aeroplane Co Ltd [1944] KB 718 CA. It is very difficult to see how any of those exceptions could apply in this scenario. The only court that could ‘overturn’ Coles is therefore the Supreme Court. This would require taking a case from either the County Court or High Court all the way up the hierarchy, losing and then appealing at every stage, to finally reach an application for permission to appeal to the Supreme Court.

Once there, the next hurdle to overcome is the fact that the Supreme Court refused an application for permission to appeal in the Coles case itself in 2014. The rejection was on the basis that there was no arguable point of law. The refusal was short and unequivocal, without the caveat that often comes with a refusal, i.e. that there is not an arguable point of law of public importance which warrants consideration of the Supreme Court at that particular time. Moreover, the refusal was granted by three of the most respected commercial lawyers to grace the Supreme Court in recent years: Lords Mance, Sumption. and Hodge. The notion that a party could come back before the Supreme Court 12 years later and persuade them that there is in fact some fundamental error of law which they somehow missed seems incredible.

So, what is the answer?

If the law as it is now correctly applied leads to wider public detriment, then the obvious recourse would seem to be lobbying for change through legislation. But there did not appear to be a great deal of appetite for this sort of reform throughout the recent work of the Government motor insurance taskforce. And that would require being able to demonstrate meaningful consumer detriment, which takes us back to the point made above.

A more realistic, although perhaps less glamorous, approach would seem to be to identify and challenge the models that fall outside of what is reasonably permitted by Coles. Keoghs has an unparalleled track record of success in this area, with the ‘PEC’ credit repair uplift model being deployed by one operator having been emphatically dismantled, with nearly 50% of cases being dismissed in full and 65% overall savings across a large volume of claims, leading to them exiting the market.

 Author

Gary Herring

Partner and Head of Credit Hire