East Sussex County Council paid £598,112 to drivers between 2022 and 2024, the second highest amount of any local authority in England and Wales.
The figures are part of research by Go.Compare car insurance, which submitted Freedom of Information requests to 171 councils across England and Wales.
East Sussex County Council was only surpassed by Staffordshire County Council, which dished out £1 million in compensation over the same period.
The total amount paid out across England and Wales during this time was at least £10.2 million.
Derbyshire County Council came third, having paid out £526,089.62 in compensation claims.
Go.Compare car insurance’s motoring expert, Tom Banks, commented: “It’s no secret that the nation is facing a pothole crisis.
“Clearing the backlog of pothole repairs will cost the country a fortune, and in the meantime, our data shows that councils are having to pay out millions to drivers due to the damages they’ve caused to their vehicles, too.”
An East Sussex Highways spokesperson said: “Compensation payments do not necessarily relate to claims made in the same year, so looking at two years’ worth of payments will not give an accurate reflection.
“Go.Compare fails to mention that the compensation paid out in the years either side of the period they chose to highlight were considerably lower – both around £69,000.
“It is also unhelpful to compare councils as the size of the local authority-maintained road network and the number of major routes maintained by National Highways varies greatly from council to council. In East Sussex, we manage more than 2,000 miles of road with very few major routes.
“Like highways authorities up and down the country, we have seen an increase in potholes in recent years due to the more severe weather we have experienced.
“Every compensation claim is carefully assessed with a large number rejected because we have carried out our duty to inspect and repair potholes within the timeframes set out in the council’s policies and the Highways Act 1980.
“Last year alone we repaired more than 20,000 potholes and carried out a significant amount of planned maintenance to prevent potholes forming in the first place including patching, surface dressing and resurfacing of roads.”
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