Fleets could be unwittingly caught up in a legal battle if they do not check that payments made to intermediary companies involved in insurance claims are ring fenced to cover all liabilities.
Fleet operators that use intermediaries such as accident management and credit hire companies have been urged to ensure that all payments made by them are treated as ‘in trust’.
The warning comes from Tony Lowe, of the RMI’s National Association of Bodyshops (NAB), in the wake of the collapse of accident management company Drive Assist.
Without guarantees that money being set aside to pay bodyshops for repairs is held in a designated account, fleets might be left open to a claim if the accident management company is unable to pay its debts and goes into administration.
The NAB calculates that about 100 bodyshops used by Drive Assist have been left out of pocket to the collective sum of £7 million with one bodyshop exposed to a possible £500,000 loss.
“There are a lot of fleets that use intermediary companies and it is sensible when handing funds over that they ensure they are treated as ‘in trust’ to pay liabilities,” said Lowe.
“Fleet operators should obtain a letter from the intermediary to that effect.”
In accordance with Financial Services Authority (FSA) regulations, payments made by insurance companies to Drive Assist for vehicle repairs and related services carried out should go into a designated bank account. The money should then be used to pay bodyshops for the work.
Zolfo Cooper, the administrator for Drive Assist, told the NAB that “there was no trust in favour of the repairers” and that while Drive Assist set up a designated account it was not used to hold payments.
This could leave fleets using the services of Drive Assist facing claims from third parties for repairs undertaken. However, the administrator would not confirm whether any fleets were involved in this case.
A creditors’ report compiled by Zolfo Cooper and published earlier this month said: “Drive Assist had entered into an agreement with all repairers which indicated that monies received in respect of unpaid repair invoices would be paid into a separate FSA regulated account.
“While a designated account appears to have originally been set up, the account was never utilised by Drive Assist. The joint administrators are investigating these matters further.”
Although the NAB has an ongoing dialogue with Zolfo Cooper, it will shortly appoint a QC and anticipates that the battle could end up in court.
Lowe, the owner of Impact Repair Centre, which has four branches in the West Midlands but is not involved in the claim against Drive Assist, said: “We feel we have a very good case.
“The repair network has contracted to provide accident repairs to customers of Drive Assist on the agreement that when insurers paid for the services provided, the consequential payments would be kept safely in an FSA-regulated account.
“The repair community has been left with more than £7m in outstanding payments and it appears the only winners will be the corporate funders, bankers and the administrator. We find this totally unacceptable and intend to right this wrong.”
The collapse of Drive Assist comes as the Competition Commission is holding a major investigation into the UK’s private motor insurance market. It is required to produce its final report by September 27, 2014. Lowe is representing the NAB at the enquiry.
He said: “The NAB will continue to press for any intermediary companies involved in the motor insurance claims process to have any funds relating to accident repairs fully ring fenced through the ongoing enquiry.”