The courts are making it increasingly difficult for insurers to defend (or reduce) claims for the hire of a replacement vehicle following a road traffic accident. While the amount of money involved in individual cases may be relatively small, the cumulative effect of these judicial decisions is having a significant impact on insurers and the approach taken when settling such cases.

Key questions

There are several questions that the courts have had to tackle. The first relates to how you quantify the hire claim. In a straightforward case, an innocent claimant will recover the costs of repairing their vehicle, plus damages to compensate them for not being able to use their vehicle while it is off the road. Here, damages are generally quantified by looking at the reasonable costs of providing the claimant with a suitable replacement.

Things become more complicated, however, once credit hire companies become involved. The courts have dealt with many of the issues in the cases of Dimond v Lovell [2002] 1 AR 384, Burdis v Livsey [2003] QB 36 and Lagden v O’Connor [2004] 1 AC 1067.

These decisions have ended the arguments advanced by defendant insurers with regard to credit hire rates being higher than spot rates and the enforceability of [credit hire] contracts under the Consumer Credit Act 1974. The general conclusion is that if a claimant is impecunious and cannot afford the costs of hiring a replacement vehicle upfront, they are entitled to use a credit hire company, even though higher rates will be charged.

What is recoverable?

Recent discussions have focused particularly on what is actually recoverable by the claimant. Insurers have tried to argue that a claimant should only be entitled to recover what has actually been paid out. Most hire claims are now subrogated claims, brought by a claimant on behalf of their insurer or the hire company. The claimant will not have paid the charges out of their own pocket. So there is a question about the appropriate level of damages.

This was considered in Lagden v O’Connor and, more recently, in Bee v Jenson [2007] EWCA Civ 923. The hire claim can be looked on as either a claim for general damages – in which case “a fair approach to quantum would be to award a sum based upon the spot hire charge for a comparable vehicle” – or, alternatively, as one for special damages, based on the actual cost of hire.

It seems therefore that the only line of attack open to defendant insurers relates to mitigation of loss and the extent to which delays in repairs and the subsequent increase in hire period can be said to be the claimant’s responsibility. Again, the law is heavily weighted in favour of the claimant. Mattocks v Mann [1993] RTR 13 and Burdis v Livsey both ruled that the defendant must show a specific failure by the claimant to mitigate their loss, as opposed to any delays caused by (for instance) the claimant’s insurers.

Recent decisions

Such principles continue to be applied in the county courts and it is only a matter of time before they are considered by the higher courts. Recently, in Brain v Yorkshire Rider Ltd (Leeds County Court), the critical issue was the type of vehicle that the claimant was entitled to hire. The judge said that there was “no principle which requires a claimant to put up with a car that is of a different and less expensive type”. It was up to the defendant to show that the claimant had not mitigated their loss.

By contrast, in Evans v TNT Logistics Ltd (Pontypridd County Court), the court considered the position when a claimant is offered a hire vehicle by a defendant insurer, but decides to proceed with their own hire vehicle though a third party company. The correct test was whether the claimant had acted reasonably. On appeal, it was decided that the fact that the hire car from the third party cost far more than the hire vehicle offered by the defendant insurer did not mean that the claimant could not recover any damages. The claimant was entitled to make the choice that he had made, but the defendant was only liable for the costs that they would have incurred if the claimant had accepted their original (and reasonable) offer.

The cumulative effect of all of these decisions is to limit severely the options open to insurers when it comes to reducing or limiting the hire claims made against them.