A California court case involving Allstate Insurance Company could affect the way in which insurers handle auto damage claims. The court ruled that the insurer satisfies its contractual obligation when it elects to repair, even if the insured refuses to authorize repairs and may prefer a cash payout. However, the court also ruled that insurers could be liable for bad faith if they then pursue subrogation action against insureds who refuse to authorize repairs.
The Second Appellate District ruling in Hibbs v. Allstate Insurance Company ruled that any obligation under an auto insurance policy allowing the insurer to compensate the insured by paying for damages or repairing those damages is satisfied when the insurer chooses to repair, even if the vehicle owner refuses to authorize the repairs and would rather have a cash payout.
"In most cases, an insurer should have no objection to paying its insured the cost of repair. But nothing in Allstate’s policy gives the insured such a right," the court decision stated. "Where, as here, Allstate chooses the option to repair, the [owner’s] prevention of Allstate’s performance [by refusing to allow the repair] excuses Allstate’s obligation under the policy."
According to court records, Harry and Jessica Hibbs’ 1995 Toyota Previa van, insured by Allstate, sustained substantial front-end damage in a wreck in April 2004. The van was taken to a body shop, where Jessica Hibbs signed an authorization to repair the van. The shop later estimated that it would cost $6,500 to repair the van. Jessica Hibbs contacted Allstate, saying she believed the van was a total loss and that she refused to authorize the repairs.
Later that month, the shop told Allstate that Jessica Hibbs had authorized the repairs and that the repairs were substantially complete. On May 3, 2004, after the van had been repaired, it was driven into another car by a repair man and again suffered front-end damage. The Hibbs refused to authorize repairs and refused to pick up the van. Allstate paid the repair shop the cost to repair the van less the Hibbs’ deductible. Allstate eventually recovered the cost to repair plus the Hibbs’ deductible from the original at-fault driver’s insurer in a subrogation action and sent the deductible to Hibbs, which they never cashed.
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