Key resolution by Supreme Court of Poland on third-party liability insurance for motor vehicle owners
On 11 September 2024, a panel of seven judges of the Supreme Court of Poland issued a resolution in case no. III CZP 65/23 regarding the settlement of claims within the motor insurance market. The ruling involves the possibility of using cost estimates to determine insurance claims when it is no longer possible to actually repair the vehicle. In December 2024, the Supreme Court published the justification for the resolution and the motives for its ruling.
What was the issue?
For several years, discrepancies had arisen in the case law of the Supreme Court and the lower courts as to whether an injured party can demand compensation from the provider of third-party liability insurance of motor vehicle owners calculated using the costing method, if, before obtaining compensation, it has become impossible for the injured party to repair the vehicle, for example because the vehicle has been sold or already repaired.
The costing method assumes that the value of the compensation due can be determined from the hypothetical repair costs needed to restore the vehicle to its condition prior to the accident. Contrary to the prevailing line of earlier case law allowing the use of this method in such cases, another line of rulings developed holding that due to the dynamic nature of the damage, if the possibility of repairing the vehicle no longer exists, the injured party can only claim the compensation calculated pursuant to the differential method, i.e. by comparing the state of the asset before the harmful event with the state of the asset existing at the time of the ruling.
In recent years, this problem was increasingly noticeable, in particular as a result of the activities of compensation firms, which bought up claims en masse via contracts and “cashless repairs,” and then pursued their monetary claims amicably or through the courts (efforts which insurance companies most often opposed, asserting that the repair costs were overestimated). Therefore, in December 2023, the Financial Ombudsman asked the Supreme Court to adopt a resolution clarifying these discrepancies.
Holding and justification
The result is the resolution by a seven-judge panel of the Supreme Court (Civil Chamber) of 11 September 2024 (case no. III CZP 65/23), which is extremely important for third-party liability insurance for motor vehicle owners. The court rejected the position presented by the Financial Ombudsman, who had requested the possibility of using the aforementioned costing method. The court held: “If repair of the vehicle by the injured party has become impossible, in particular in the case of sale or repair of the vehicle, it is not warranted to determine the amount of compensation under the third-party liability insurance of motor vehicle owners as the equivalent of the hypothetical cost of repair.”
The court departed from the prevailing line of jurisprudence, finding that it was “not justified under the current state of the law and in the principles of civil liability set out in the Civil Code.” According to the Supreme Court, “If the costing method were used in these cases, the injured party would be enriched by the excess of the sum awarded by the costing method over the compensation calculated by the differential method, and this would be contrary to the principle of not enriching the injured party.”
This means that injured parties who decide to sell their vehicle or repair the damage on their own before obtaining compensation can only expect to obtain compensation from the insurer calculated according to the amount of actual costs, which they must prove that they incurred, and not an estimate showing a hypothetical range of required repairs.
Impact of the resolution on motor vehicle insurers
This resolution represents a significant change from the prevailing line of jurisprudence and the practice of settling this type of compensation over the years. This is undoubtedly a positive development for motor insurers.
The Financial Ombudsman had asserted that an interpretation favourable to insurers (as ultimately adopted by the Supreme Court) could worsen the situation of persons whose vehicle was damaged in an accident. However, the prevailing view also benefited repair shops and compensation firms. This was noted to some extent by the Supreme Court, which ultimately found that the ability to rely on an estimate after sale or repair of the vehicle could lead to enrichment of the claimant. This scenario does not occur with the differential method, the court reasoned, as it “does not lead to such enrichment, and the compensation calculated as the difference between the specified values complies with principles for determining the amount of damages under Art. 363 in conjunction with Art. 822 of the Civil Code.”
In short, this resolution by the Polish Supreme Court may reduce claims under third-party liability insurance for motor vehicle owners, making the motor insurance market more attractive to insurers.
Mateusz Kosiorowski, adwokat, Anna Szczęsna, Insurance practice, Wardyński & Partners
