Credit hire: insurers successful in the Court of Appeal
(1) McBride v UK Insurance Ltd; (2) Clayton v EUI Ltd  EWCA Civ 144
On 15 March 2017, the Court of Appeal handed down judgment in the latest round of the long running battle between credit hire providers and insurers. (1) McBride v UK Insurance Ltd; (2) Clayton v EUI Ltd  were conjoined appeals which dealt with the disputed issue of credit hire rates. The court of appeal’s decision is expected to significantly reduce credit hire claims and encourage more claims to settle before reaching litigation. It will also have a significant impact on the day-to-day determination of such claims in the county courts.
In each case, the claimants had hired prestige replacement vehicles from credit hire organisations which were comparable with their own vehicles that had been damaged following collisions involving each defendant. It was accepted that each defendant had been negligent and neither claimant was impecunious and as such the rate recoverable against each insurer must be assessed with reference to the basic hire rate (BHR). In each case, the vehicles were hired by the credit hire company with a nil insurance excess, yet the comparable BHR evidence before the court was such that excesses were payable (albeit in Clayton the defendant had also sought to adduce a quote for standalone excess elimination insurance). It was recognised that the evidence before the court was imperfect, but it was required to determine:
Whether it was appropriate to assess a BHR or to allow the full credit hire rates as claimed and;
If it was appropriate to assess the BHR, what was the appropriate basis of that assessment?
The court of appeal upheld the approach advocated in Stevens v Equity . The BHR is to be calculated by reference to the lowest reasonable rate. If a defendant can show that a BHR at the top end of the range exceeds the lowest reasonable rate within the range charged by a mainstream supplier, the claimant cannot recover more than that lowest reasonable rate. The court went on to say that in today’s modern climate, where comparable prices of the cost of hiring vehicles can be obtained via the internet, a reasonable person would not want to pay more than the lowest reasonable rate charged by a mainstream or reputable local supplier.
The court of appeal also found that it would be inappropriate for a credit hire company to recover the full credit hire rate merely because the comparable BHR did not include a nil excess. The correct approach is to treat the nil excess separately from the comparison exercise as to the BHR, with the relevant question being how much additional cost should be recoverable as the cost of purchasing a nil excess. The judgment also endorsed the use of freestanding products offered by entities such as insurance4carhire.com, which are often relied upon by defendants where BHR evidence is obtained.
The court also upheld the judicial "tinkering" with BHR evidence to allow a 28 day rate provided by a defendant to be uplifted (by 15%) to reflect the disparity between 7 day and 28 day rates where a 7 day rate was more appropriate.
This is an extremely welcome ruling for those who defend credit hire claims and finally provides some certainty in this contentious area of law.
The judgment clarifies that Stevens was correctly decided and remains a binding authority. Accordingly, where claimants are not impecunious, the BHR will be obtained by identifying the lowest reasonable rate quoted by a mainstream or local reputable supplier.
Moreover, the potential knockout blow for a claimant where the BHR evidence comes with an excess (particularly a significant one) appears to have been nullified by this landmark decision. Courts must now assess the BHR (at the lowest reasonable rate) and then potentially apply an uplift based on the cost of a collision damage waiver from the credit hire company. Naturally, if the BHR evidence already quotes for a nil excess, no uplift should be applied to the recoverable rate.
So what next for credit hire companies? They may seek to increase the cost of the collision damage waiver in order to counteract the likely reduction in the BHR. In response, insurance claims handlers should obtain and utilise internet based rate evidence in negotiations pre-litigation and this evidence should include the cost of excess waiver products. The claimant should also be made aware of such products (with use of a “Copley intervention letter”) at the earliest opportunity. Credit hire organisations will also place greater emphasis on proving impecuniosity to avoid the lowest reasonable rate being applied and insurers should counter this by making early requests for pre-action disclosure of financial documentation, followed up by an application if necessary.