Damage Claims
About ten years ago, a woman I knew who worked at a debt collection agency was involved in a car accident. She and her boyfriend were innocently driving their ancient Fiat along the road when a poodle ran out in front of the car. In swerving to avoid the dog, they wrote off the car. Unfortunately they weren’t insured. They took advice from the manager of the agency and demanded payment from the owner of the poodle for the damage which her dog had caused. Not surprisingly, the dog-owner was also uninsured for this type of event. When she refused to pay, they sued.
Some areas of the law of credit only have application in particular industries. Damage claims is one such area, applying most to insurers and utility companies. Damage claims come under the law of tort rather than the law of contract which credit managers are more familiar with. Torts are "wrongs". The law of torts is concerned with situations where the conduct of one person causes harm to someone else. The conduct can either be intentionally or negligently committed.
In New Zealand, of course, our system of no-fault accident compensation for personal injuries means that we don’t sue for personal injury, only for damage to property. Aside from uninsured Fiat-owners, those who need to understand damage claims are collection staff in insurance companies (recovering off uninsured drivers who have negligently damaged the cars of insured drivers) or in organisations that are, for some reason, uninsured.
Councils, power companies, and telephone companies are common examples of the latter. Large businesses sometimes decide to cover their own losses rather than insuring. The local council, for instance, probably doesn’t bother insuring its lampposts. It knows that drivers will knock them over regularly and the premiums they would pay to an insurance company for insuring them would cost more than the cost of simply replacing them.
Of course, many drivers are insured themselves, and in these cases creditor has few problems. The insurance company will probably quibble at the replacement cost of the lamppost but it will generally pay. But if the driver is uninsured, they have a problem. Uninsured drivers tend to be impecunious anyway, and the accident has probably just destroyed their major asset.
Ideally the "guilty" party admits that he is in the wrong and pays up with good grace. But how do you recover from uninsured liability debtors who don't take this reasonable attitude? These are tough debts to recover. People feel happier about paying the power bill, or the HP for their car, than paying a damage claim.
If I agree to buy a car from Christchurch City Council for $5,000, then fail to pay, I owe the council a debt of $5,000. The sum agreed in the contract is called a "liquidated" amount. On the other hand, if I destroy a traffic light in my car and it costs the council $5,000 to repair it, they have a claim against me for $5,000. There was no contract for $5,000 for me to knock over the traffic light. The sum of $5,000 is an "unliquidated" amount. Until either I accept in writing that I owe the money or a court decides that I owe the money then there is no debt due, but only a claim. So the first step for the aggrieved party is to convert the claim into a debt. This can be done in a number of ways:
By convincing me to put in writing some form of acknowledgement of liability
By going through the Disputes Tribunal. Normally, there isn’t considered to be a dispute if the debtor says "I can’t pay" or "I won’t pay". Damage claims are the exception. Even though there may appear to be no dispute the matter can go to the Tribunal (or another court) because it is only a claim, not a debt.
By applying to either the District Court (if the claim doesn’t exceed $200,000) or High Court (if it does). Matters which are commenced in the District Court but which could be handled by the Disputes Tribunal (disputes or damage claims which are less than $7,500) will normally be transferred their automatically.
The second step, once you have your judgment, is to enforce it using the usual enforcement actions appropriate for debts - attachments on wages, bankruptcy, etc.
For debts such as these, good haggling skills are required. Many will be paid off at $10 a week over a very long period. The difference between a good collector and an average collector may be that one negotiates payments that are, on average, $5 a week higher than the other.
It’s also an area where managers should delegate the authority to make discounted settlements. A debtor who insists that he can only afford to pay off his $3000 debt at $5 a month may well manage to come up with $2000 in full and final settlement next week. He perceives this as a bargain. (Just don’t ask where he got the money.)
Even if the person who caused the harm is not worth pursuing, another person with deeper pockets may be held liable. The simplest example is that an employer may be held liable for the actions of their employees. The legal term for this is vicarious liability. Vicarious liability imposes on one person liability for the torts committed by a second person, even though the person held liable is not at fault. It doesn’t mean that the party who caused the damage is not liable but it is usually evoked when that person is not worth suing.
So what happened in the Fiat/poodle case? In those days the case would have gone through the District Court and cost a considerable amount of time and money. The size of claims that can be taken to the Disputes Tribunal has now increased to $7,500 as of right and to $12,000 with the consent of the other party. This means that it would be possible to take the debt straight to the quicker, cheaper Tribunal.
It would have been necessary to prove that the dog running onto the road was due to the negligence of the owner, and this wouldn’t be the easiest task. The dog owner might well have claimed that they had contributed to the problem - that the owner of a hotted-up Fiat was probably exceeding the speed limit. Unfortunately, I never heard whether they were paid or not, but the good news is that the poodle survived.
Mercantile Gazette