Insurer charging both parties an excess

Question

2 cars collide in a minor collision. The drivers are both insured with the same insurance company and both have comprehensive insurance.

The insurance company comes up with a determination that both parties are partly at fault and charge BOTH parties the full insurance excess. Is this legal ? (I postulate that the insurance company is acting in bad faith, because they are trying to reduce the payout). Does it matter if the parties are equally at fault or 1 party is 75% at fault and the other 25%

(Please assume for the sake of this question that there is nothing in the insurance policies which specifically talks about partial fault).

The jurisdiction here is New Zealand, but I would be interested in how this scenario is handled in other jurisdictions as well.

Answer 1

If the law is the same in NZ as Australia and car insurance policies are written the same way (which given that the insurance companies are mostly the same) then:

The excess in domestic policies is usually a "faultless" excess. If you have any fault, you are required to pay the excess. In most commercial policies, the excess is an excess: you pay it even if you are not at fault.

Insurance companies in Aus/NZ operate on a "knock-for-knock" basis: that is they agree to pay for the damage to their client's vehicles and not sue each other to establish fault. Overall this keeps the costs of insurance lower and results in lower premiums. You will find, that if you read your contract, you agree to that.

The contract will also detail the way in which the insurer will determine if you have to pay the excess or not. If you disagree with the way they have done this you have two options:

1. The commercial option - whinge a lot and express your displeasure often and loudly until the agree to waive the excess to make you go away. Threaten to take your business elsewhere and point out that they are putting at risk thousands of dollars of future payments for a few hundred dollars now. Actually take your business elsewhere.
2. The legal option - the contract will spell out how you resolve disputes.