Road traffic accidents: the concept and problem of actual damage

Author: Dragan Medić, attorney-at-law.

A personal view

The Serbian Law on Obligations regulates liability and the extent of compensation that a person who causes damage in a road traffic accident owes to the injured party.

If we assume that liability has been established beyond doubt, the question remains: what amount should the person responsible, or their insurer, pay to the injured party?

This article considers expert examination as evidence of the amount of pecuniary damage to the claimant’s vehicle, and as a way of correcting the insurance company’s calculation where there is no invoice confirming payment for repairs.

Article 190 of the Law on Obligations establishes the rule of full compensation: taking account also of circumstances arising after the damage was caused, the court awards the compensation needed to put the injured party in the financial position they would have been in without the harmful act or omission.

In practice, views differ on what constitutes full compensation or actual damage. When does compensation for actual damage fulfil the principle of full compensation, and when does it unjustly enrich the injured party?

The problem arises when an insurer considers actual damage to be the amount the injured party spent restoring the vehicle to a functional condition. That amount may be less than the actual damage as understood in the view I put forward here.

My personal view is that actual damage should be assessed using the calculation of an expert witness: the extent of the vehicle’s damage, whether a particular part needs replacement or repair, the price of the part at an authorised service centre, the hours needed for the repair and the hourly labour rate.

Insurers also use this method when initially assessing compensation. A dispute may arise if not all damage is included or a disputed depreciation percentage is applied. This raises the question of whether the calculation reflects the actual damage.

The difficulty with treating the repair cost alone as decisive is that it overlooks the different circumstances of an individual case. What if the injured party cannot afford a full repair at that point and merely makes the vehicle usable? Are they entitled to claim more than the repair cost they paid? If they sell the vehicle without repairing it, can they claim more compensation than the insurer paid?

A further question is the significance of the repair invoice when recalculating compensation. In my view, the invoice should not be the only decisive evidence, precisely because of these circumstances.

Consider a vehicle part damaged to the point that it needs replacement, where the injured party chose a cheaper repair because they lacked funds. Is compensation full if it covers only that repair cost, although an expert has found that the part needed replacement?

My view is that, in that situation, the calculation should reflect replacement of the part, in accordance with the principles of full compensation and actual damage. Repair instead of replacement does not necessarily remedy the damage in full. There is also the question of how such a repair affects depreciation and the vehicle’s value.

My reasoning is that what the injured party does with the vehicle after the accident should not, in itself, determine the amount of compensation. Under Article 186 of the Law on Obligations, the obligation to compensate is deemed to fall due when the damage occurs. On this view, compensation should reflect the damage caused, whether the vehicle is repaired, sold or left unrepaired.

In court proceedings, expert examination can correct the insurer’s calculation. In my view, it is important evidence of the amount of damage even without a repair invoice. The assessment of evidence and the outcome depend on the circumstances of the particular case.

There are other questions concerning actual damage and unjust enrichment, including value added tax and depreciation. This article does not consider them in detail.