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31 July 2017Transport Technical Bulletin - Lose of use

Transport Technical Bulletin - Lose of use

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Loss of use governs how insurers compensate fleet operators when their vehicles are off the road following accidents deemed not the operator’s fault. The Confederation of Passenger Transport UK (CPT) developed a formula for loss of use claims called the ‘standing charge’ that divides the cost of fleet operation between all the vehicles an operator runs.

This formula has been used to settle loss of use cases for many years. However, a precedent finally set in 2014 – where Aviva challenged the loss of use claim by a bus operator after a negligent driver insured by Aviva put one of the operator’s buses off the road for 31 days – has changed the claims landscape. Aviva won the subsequent appeal making it good news for insurers… but bad news for PCV fleet operators.

In this bulletin by Arthur J. Gallagher one of the leading UK insurance brokers unpick the implications of the case and how you should approach your future loss of use claims.

The standing charge

The CPT standing charge covers the cost of having a given vehicle available and ready for use.

  • A fleet operator will typically have a spare vehicle(s) on-hand, ready to fill the gap left by any off the road for repair.
  • Loss of use compensation is designed to cover that standing charge until the damaged vehicle comes back into operation.
  • The formula covers a proportion of overheads for each vehicle with items like office expenses, business rates, utilities and canteens: it’s a daily cost calculation and naturally it varies between operators.

In such cases, the loss of use standing charge is usually quite modest when it comes to the insurance claim – typically well below the small claims court limit of £10,000. Insurers have long felt it uneconomic to challenge such amounts even though the general feeling in the insurance industry has been that the CPT formula broadly overstates the financial impact of loss of use.

Download the Transport Technical Bulletin - Lose of use

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