Claiming for "Loss of Profits"
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Assessing an Insurance Claim in Respect of a Vehicle Put Out of Commission After an Accident Involves More than Simply Budgeting for Reclaiming Net Revenues
IHAVE been asked by a reader to go into detail about claiming for damages arising from accidents. There is a good deal of misunderstanding about this problem caused by the use of the term "loss of profits." Although insurance companies include it in their policies, a haulier should not claim for loss of profits alone, but for much more.
If the operator will forget about loss of profits and think about loss of earnings, he will go a long way towards understanding how to assess his claim. All that is necessary is to ascertain the figure for total earnings during the period for which the vehicle is laid up, and deduct from it the expenditure which would have been incurred had the vehicle been running. The balance is the loss of earnings.
Here is an example. An operator had a serious accident with a 6-ton oiler, which was earning a weekly avcrap of £50 under normal conditions. Weekly mileage was 720. This haulier was engaged upon regular work involving two daily journeys of 30 miles.
First Essential
It was easy for him to prove that his average taking'i were about £50 a week. That was the first essential in making a claim. Actual figures had to be produced, together with some proof that they would apply to thz period during which the vehicle was idle. Thus his claim for loss of earnings was £50 a week less the amounts he was able to save because the vehicle was inoperative.
Savings would include the expenditure on fuel, oil, tyres and maintenance, and possibly driver's wages if the man were temporarily suspended (not, I admit, a fair thing to do) or if it were arranged for him to work for someone else for the time that the vehicle was off the road. For our purpose here, let us assume that the employer found other work for the driver to do about the premises.
From the haulier's records, I was able to ascertain that the vehicle averaged 16 m.p.g. Fuel cost 4s. a gallon, so that the expenditure per mile was 3d. He paid 6s. a gallon for lubricating oil, and the cost per mile worked out to 0.12d. Tyres lasted about 22,000 miles, and the price per 'set was £204, giving 2.2d. per mile. Over a similar mileage period the maintenance cost worked out to 1.8(1 per mile.
Driver's Wage
These items represent the only economies resulting from the vehicle's period of idleness. They add up to 7.12d. a mile, and over a 720-mile week total £21 7s. approximately. If, as we have assumed, the employer was unable to find work elsewhere for the driver, to retain his services he must pay him at least the standard wage for 44 hours plus insurances. This is about .E8 4s.
While the man is actually at work he puts in 60 hours and his wage is £13 a week, so that the operator saves £4 16s. His total saving is thus £26 3s., and his claim for loss of earnings £50 less that amount—namely, £23 17s. a week.
Notice the .difference between this sum and the bare loss of profits. Actually I had to go into this question because the haulier's solicitor had to be persuaded that there was a difference between a claim for loss of profits and another for loss of earnings. The lawyer questioned whether the method I have just described was legitimate and justifiable.
c30 Suppose you had a fire in your office," I said, "serious enough to put it out of commission for a week or so, but not causing you much material loss. Your earnings might drop, for a fortnight, from £50 to £20 a week, chiefly because your papers and the necessary data required for conducting your cases were inaccessible. Would you claim only that difference in profit?"
"I expect so," he replied. "Why do you ask?"
"You probably have a clerk, a typist and an office boy," continued. "You will probably continue to pay rent for your offices, notwithstanding that you were unable to use them. Would you agree to ignore the fact that you had to continue these expenses all the time although your earnings dropped by £30 a week?"
Great Difference " I never thought of that," he admitted.
Thus I was able to convince him that I was right _claiming for loss of earnings, and that there was a great difference between this and one for loss of profits.
I found that the operating costs of the vehicle were as follows: tax, I4s. a week; wages, instirances, etc., £13 for a 60-hour week; garage rent, 10s.; vehicle insurance, £1 5s.; interest (the vehicle cost £1,700), £1 5s.; and establishment charges, £3. The total was £19 14s.
Running costs comprised the four items. already enumerated but, in addition, we have to consider depreciation. From the initial cost of £1,700 I deduct £204 as the value of the tyres, leaving £1,496. Assuming that the vehicle would have a residual value of £196 when it had covered 240,000 miles, it can be calculated that the depreciation cost per mile is 1.3d.
Total running costs therefore come to 8,42d. a mile, about £25 5s. a week. Add the fixed expenses and the aggregate figure for operating expense comes to nearly £45. If that is subtracted from the earnings of £50, the net profit is seen to be £5. Compare this with a claim for £23 17s, loss of earnings.
Totally Inadequate
Incidentally, the net profit of £5 on an expenditure of £45 is totally inadequate: it should be at least £9. While on this question of loss of earnings I would like to deal with a kindred topic, that of charging for demurrage, that is recouping money for undue detention of a vehicle at a terminal because of reasons beyond the operator's control and in cases in which the cost can be fairly debited against the customer.
Actually, it is probably advisable to point out to customers that demurrage is chargeable to them before carrying out any of their work. They may resent being presented with an unanticipated bill, whereas if they were forewarned they might take steps to ensure that they would not be involved in extra transport costs, particularly as there is, for a customer, no tangible return for a demurrage payment.
If we use the figures above for earnings, we can easily calculate what the charge should be. it is simply £50 less £23 17s., which is £26 3s., divided by 60. This gives an amount of about 8s. 9d. an hour. However, a delay of I+ hours on one of the two daily journeys, as provided in the normal schedules, would probably upset the programme to such an extent that the operator would lose a complet.! journey in a week.
This is common experience. Schedules are frequently dislocated because of unexpected and often unreasonable delays at the loading or unloading ends of journeys. If a whole journey is Lost, the haulier loses a twelfth of £50, which is about £46s. 8d., less 60 times 7.12d. for the running costs saved (El I5s 6d, to the nearest penny). The loss of earnings is thus £2 us, 2d. I imagine, however, that the customer who is the cause of such losses would strongly demur if asked to pay £2 I Is. 2d. for delaying the vehicle for lf hours longer than necessary, In the course of years, therefore, the haulier will average those losses and provide for them in his statement of charges which should, of course, form the basis of his rates structure.' At the same time, if he were to take what I regard as a sensible view of the assessment of demurrage, he would
recoup times the 8s. 9d an hour calculated above. That
would be something towards making good the loss of £2 1 ls. 2d. in earnings. An empirical way of reckoning a charge for demurrage— and a minimum charge at that—is to take the figures for charges per week from ' The Commercial Motor' Tables of Operating Costs " and divide by 44 hours. Thus, assuming that the weekly mileage is 600, and taking a 6-tormer,• the earnings should be not less than £47, which is Is. 6d. an hour. Similarly, with a 7-8-tonner, the earnings represent £53 15s. and this is equivalent to £1 43. 6d. an hour. Hourly charge for a 10-tonner is about £1 6s., a 12-tonner it 8s. and a 15-tonner £1 10s. These are minimum charges and should be increased in respect of large vehicles on trunk journeys when drivers' subsistence and overnight garaging expenses
are involved. S.T.R.