Supreme Court: "Rental Costs for Accident-Damaged Cars Should Be Based on Vehicles of Equal Value"

Neither rental company rates nor insurance policy terms can be accepted as is

The Supreme Court in Seocho-gu, Seoul. Yonhap News Agency

The Supreme Court has ruled that the cost of a rental car borrowed to replace a vehicle involved in a traffic accident must be calculated based on the amount needed to rent a vehicle with the same practical use and value, taking into account factors such as vehicle type, engine displacement and model year. The ruling means that courts cannot simply accept the amount charged by a rental company or be bound by the standards set out in insurance policy terms.

According to legal sources on Nov. 9, the Supreme Court's Second Division, with Justice Park Young-jae presiding, overturned a lower court ruling in favor of rental company A in its appeal in a lawsuit seeking rental fees from KB Insurance and sent the case back to the Suwon District Court. On the same day, the Court also overturned, in whole or in part, lower court rulings in four lawsuits involving the same issue against four insurers, including DB Insurance.

While their vehicles were being repaired, the accident victims rented cars from Company A and transferred to the company their right to claim replacement-car costs from KB Insurance, the insurer of the vehicle responsible for the accidents. Company A claimed about KRW 360 million, but KB Insurance paid only about KRW 200 million. Company A then filed suit to recover the remaining approximately KRW 160 million.

The issue was how to calculate the replacement-car costs. The revised standard auto insurance policy terms, which took effect in April 2016, set the standard at the usual rental rate for the least expensive vehicle among those in the same class with a similar engine displacement and model year. KB Insurance argued that even if the damaged vehicle was an imported car, the rate for a domestically produced car with a similar engine displacement and model year should apply.

The district court ruled that Company A had discounted its claim by 30% from the rental rate for a vehicle identical to, or in the same class as, the damaged vehicle, and that the amount was reasonable in light of the rates charged by similar businesses and industry practices. It ordered KB Insurance to pay approximately KRW 160 million. The court rejected KB Insurance's argument that the rate for a domestically produced car should apply even to an imported vehicle. The appellate court upheld the district court's ruling.

The Supreme Court held that courts are not bound by the payment standards in insurance policy terms when determining the amount of damages. However, it said replacement-car costs must be based on the amount needed to rent, for a reasonable period, a vehicle with the same objective use value as the damaged vehicle, and that the victim must prove the necessity and reasonableness of the rental. In this case, most of the vehicles provided by Company A were made by different manufacturers or were different models from the damaged vehicles, and even when they were the same model, there was no evidence that their engine displacement and model year were also the same. Nevertheless, the lower court had deemed Company A's rates reasonable without examining these factors, the Supreme Court said.

The Court said, "The lower court should have determined the amount of damages after examining the cost of renting a replacement vehicle with the same objective use value in the rental market and the reasonable period for which a replacement vehicle was necessary." It added, "The lower court erred in its interpretation of the law and conducted an insufficient examination by concluding that the replacement-car rates and rental periods claimed by the plaintiff were reasonable and appropriate."

This content was produced with the assistance of AI translation services.