Court of Appeal rules on compensation for bus operators facing damage by negligent drivers

The Court of Appeal recently passed judgment on how much compensation bus operators are entitled to when faced with damage caused by negligent drivers.

22 July 2013

On 18 July 2013 the Court of Appeal gave its judgment on how much compensation bus operators are entitled to recover in cases of damage by negligent drivers putting vehicles off the road (West Midlands Travel v Aviva).

Firstly, the bus operator is entitled to the costs of repair (subject to obtaining this at a sensible price and acting reasonably etc – in fact, many bus operations manage repairs in-house). The real question is how much can it get for the loss of use of the bus while it is being repaired?

According to the Court of Appeal the answer is ‘not much.’ If, as is usual, the operator maintains a fleet which is large enough to provide replacement cover to deliver the damaged bus’ services (without impacting its scheduled services elsewhere) then it will lose no income so cannot claim for lost turnover or profit. Instead it is limited to the actual costs of the particular bus being unavailable – this is a daily rate relating to capital costs (or more likely lease payments), depreciation of the bus, insurance and some marginal costs of putting on another bus to deliver the services. Importantly, it does not include a share of the overhead of maintaining a fleet at that size (even though the fleet size is kept precisely to deal with such unavailability). 

This may be painful reading for bus companies who operate on extremely tight margins in a market increasingly servicing concessionary fare arrangements calculated on a marginal use ‘no better, no worse off’ basis. It seems bus companies cannot win either way – they are under-reimbursed for overhead (outside the peak) from concessionary fares based on a (questionable) assumption that the services (and indeed routes) would be run anyway, and they cannot recover contribution to overhead when parts of the fleet are put out of action by negligent drivers. 

Keeping surplus buses or capacity in the fleet is seen as a ‘business as usual’ overhead for operators to which negligent drivers (and their insurers) are not liable to contribute, even though one of the very reasons for operators keeping such capacity may be to ensure that services continue to run when they are the victim of negligent drivers. The irony is that if there was no spare capacity in the fleet, the operator may well have been able to claim either the loss of income or the costs of hiring in another bus – it is only because the operator already had a robust fleet that it got nothing for overhead. Were it not, in most cases, a side effect of the concessionary fares regime or an operational policy to carry extra fleet capacity to deal with this type of contingency (amongst others) anyway, one might wonder for whose benefit an operator actually maintains that surplus fleet capacity.

Motor insurers, by contrast, are likely to be quite relieved that they don’t have to contribute to the maintenance of surplus in bus fleets.

Ann Metherall and Brian Wong are dispute resolution lawyers in our leading Transport group conducting bus litigation including judicial reviews of concessionary fare arrangements.

Key contact

Ann Metherall

Ann Metherall Partner

  • Head of Dispute Resolution
  • Head of Health and Safety
  • Transport

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