What is knock-for-knock agreement?

Knock-for-knock refers to an agreement between insurers that in case of an accident, each will pay for the damage to the vehicle insured with it without trying to establish blame

The two most important covers in a car insurance policy are the third-party and own damage covers. 

The third-party cover is mandatory for all plying vehicles as per the motor vehicles Act. This cover pays for the damages to a third person caused by your vehicle. In case of an accident during which bodily injury or loss of life takes place, the claim amount under third-party cover is unlimited currently. But in the case of damage to property, the maximum liability is limited to Rs7.5 lakh. 

Own damage cover on the other hand insures your vehicle against theft or damage. You buy an insurance policy on the basis of the insured declared value (IDV) of the vehicle. IDV works as the sum insured and is calculated based on the invoice of your car minus depreciation. 

So what happens when someone drives into your car causing a huge dent to your vehicle? Do you ask the person to pay for the damages by using her third-party insurance cover or do you get your vehicle repaired using your own policy? Theoretically, the person who has caused damage to your car is liable to pay and a third-party policy will take care of that compensation. But in reality it doesn’t quite work that way.

That’s because in order to claim third party, you need to take the erring person to court and this could be a lengthy and an expensive process. Insurers know this too and therefore prefer to pay for the damages through the own damage cover instead of invoking the third-party cover on the insurer whose insured customer is at fault. This is called the knock-for-knock agreement and a quick search on dictionary defines this term as an agreement between vehicle insurers that in the event of an accident, each insurance company will pay for the damage to the vehicle insured with it without attempting to establish blame for the accident. 

Why insurers have this agreement 

Knock-for-knock agreement is not a regulatory requirement, but more of an understanding among insurers. This agreement was formulated by the General Insurance Council, an industry body that represents all non-life insurance companies. So every insurer signs a knock-for-knock agreement with all other insurers and they do so in order to avoid getting into litigation and unnecessary delays by dragging the matter to the court on account of third-party policies. 

So this simply means that the owner of the insured vehicles instead of apportioning blame and dragging each other to court will get their vehicles repaired using the own damage cover of their respective policies. But this doesn’t mean that you can’t ask the erring driver to make use of his third-party policy to pay for your repairs. You can do so, but this will involve going to court and you will need to prepare yourself accordingly. If you use your policy to pay for repairs, it will mean loss of the no-claims bonus. Therefore, evaluate the decision carefully.  

First Published: Sun, Oct 29 2017. 11 58 PM IST livemint