The Australian Financial Complaints Authority (AFCA) has published a guide explaining its approach to disputes about whether a vehicle should be treated as a total loss, setting out the factors its ombudsmen consider. 

The document outlines four case studies – two determined in favour of the insurer and two against – and details how AFCA will determine if an insurer’s decision is fair, the factors it will consider and what information is needed. 

Where both parties provide different quotes for repairs, or have different assessments about the vehicle’s salvage and pre-accident value, AFCA says it will consider which documents reflect the fairest assessment, and then assess whether the insurer’s assessment was fair. 

Where repairs have been undertaken and due to additional costs it becomes clear the vehicle was uneconomical to repair, AFCA will consider whether the vehicle has been properly repaired, and if so says it is unlikely to consider that the vehicle is a total loss because the vehicle has been restored to its pre-accident condition – consistent with most insurance policies. 

However, if the vehicle has not been properly repaired, AFCA will not always decide that the insurer should declare that the vehicle is a total loss.  

“AFCA will generally assess the fairness of the insurer’s decision at the time it decided to repair the vehicle, rather than making a retrospective assessment. If AFCA finds that it was reasonable for the insurer to have relied on its initial estimates, then it is unlikely that AFCA will agree that the vehicle can later be declared a total loss, merely because the repair costs will now exceed the initial estimates,” the report said. 

"However, if AFCA finds that the insurer’s decision to rely on initial estimates was unreasonable, then it is likely that the insurer’s decision to repair the vehicle will be unfair. In those situations, AFCA will likely consider that the vehicle should be a total loss.” 

AFCA says in general, a decision to repair a vehicle (rather than declaring it a write-off) is fair if it is both safe and economical to do so.  

In making its determinations, it usually considers whether the vehicle is economical to repair based on whether the market (or agreed) value is greater than the cost of repairs, plus salvage, and whether the vehicle will be safe if it is repaired.  

Relevant state or territory legislation that determines when a vehicle is a total loss can also be relevant – if the legislative position is inconsistent with the policy, then the position under the legislation will generally prevail, AFCA says.  

If the insurer has been unable to properly repair the vehicle after multiple attempts, and AFCA is not satisfied that the insurer has exercised its discretion fairly, the ombudsman "will generally award a different outcome”.  

See the approach document here.