A lawyer from Kennedys’ Liability Division was present when the Court of Appeal gave judgment this morning in the appeals of Copley v Lawn and Maden v Haller. The key issue in dispute was mitigation of loss in credit hire claims.
Defendants and their insurers will be disappointed to learn that the Court of Appeal has overturned the earlier decision and, on the facts of these cases, found in favour of the Claimants. However, the Court of Appeal has given guidance, as set out below, which should assist in minimising the level of claims in future. Implications
- The best scenario for defendant insurers remains avoiding a claimant obtaining a credit hire vehicle in the first place.
- Insurers should not make “cold” calls to claimants offering replacement vehicles.
- Any written information provided to claimants should be in clear and simple terms and should make absolutely clear the cost to the insurer of hiring a replacement vehicle.
- Claimants who unreasonably reject offers of replacement vehicles will still be able to recover what would have been the cost to the defendant insurer of the hire.
Copley v Lawn
On 23 November 2006 Mrs Copley’s car was extensively damaged in an accident for which Mr Lawn admitted liability. She worked as an estate agent and needed to have use of a car immediately. Her insurers referred her to Helphire and on 26 November 2006 they supplied Mrs Copley with a substitute vehicle.
Also on 26 November 2006 Mr Lawn’s insurers, KGM Motor Policies at Lloyds made a “cold” call to Mrs Copley offering her a replacement car. On the same day they wrote to her offering her a replacement vehicle whilst repairs were carried out. Her solicitors asked her to pass the letter on to them, but they did not give their advice until 5 March 2007. There was a considerable delay in the repairs being carried out, which were completed on 2 February 2007. She claimed £3,719.28, which represented 71 days hire at £39.90 a day, a fixed delivery and collection charge and VAT.
At first instance this claim was reduced to £386.93, which represented 7 days hire, the delivery and collection charge and VAT. This was on the basis that a proper offer of an alternative vehicle was made in KGM’s letter and Mrs Copley could still at that stage have cancelled the Helphire vehicle.
Maden v Haller
On 26 July 2006 Captain Maden’s car was damaged in an accident for which Mr Haller admitted liability. Captain Maden’s insurers put him in touch with Helphire. His car was still driveable and it did not go into a garage for repairs until 21 August 2006, when it was off the road for three days. He needed a substitute car for work.
On 27 July 2006 Mr Haller’s insurers, who were again KGM, wrote to Captain Maden offering a replacement vehicle. Captain Maden did not respond but forwarded the letter to his brokers.
Captain Maden claimed £611.47, made up of three days hire at £156.80, £50 delivery and collection charge and VAT. At first instance the claim was dismissed, on the basis that Captain Maden had simply ignored a very reasonable offer from KGM.
Appeal to Circuit Judge
The Circuit Judge upheld the decisions at first instance, finding as follows:
- The Claimants had failed to mitigate their loss. A claimant is not entitled to charge a defendant any greater sum than that which he reasonably needs to expend for the purpose of making good his loss.
- It was not possible for the Claimants to argue that their claim should not be extinguished but rather limited to the difference between Helphire’s charges and the amount it would have cost KGM to hire a car. If the whole of the loss could have been avoided by acceptance of the offer of a free replacement vehicle, it followed that there was no recoverable loss.
Court of Appeal
Judgment was given by Lord Justice Longmore, who stated:
- The major protection for the defendant and his insurers is that the claimant can only recover the “spot” or market rate of hire as explained in Dimond v Lovell . Arguments that a claimant should take further steps by way of mitigating his loss should be looked at with some scepticism.
- The letter from KGM offering a replacement vehicle was lengthy and had “an unpleasant threatening tone to it”. In addition, the telephone call to Mrs Copley by KGM was “inappropriate” and the practice of making calls in these circumstances should be “discontinued forthwith”.
- Any offer made by a defendant's insurer must contain all such information as will be relevant for a claimant and their agents to make a reasonable response. One piece of information missing from KGM’s letter was the cost to KGM of hiring the cars. This would be of great interest to the Claimants’ agents, since if KGM could genuinely obtain hire cars more cheaply than the Claimants could, it might be unreasonable to use the services of Helphire and a mitigation argument might get off the ground.
- In this case Mrs Copley and Captain Maden (whether by themselves or through their agents) had not acted unreasonably in failing to accept KGM’s offers or in failing to explore them further.
- On the issue of damages, had they been found to have acted unreasonably, they would have been entitled to recover at least the cost which the Defendants' insurers could show they would reasonably have incurred. They would not have forfeited their damages claim altogether.
Longmore LJ concluded:
“… the general rule that the claimant can recover the ‘spot’ or market rate of hire for his loss of use claim is upheld, unless and to the extent that a defendant can show that, on the facts of a particular case, a car could have been provided even more cheaply than that ‘spot’ or market rate. Since there is no evidence that the defendants’ insurers could, in fact, have hired replacement cars more cheaply than the claimants did or that the claimants’ hire rates were any other than market rates, I would allow these appeals.”
Whilst the outcome of this appeal is disappointing to defendants, the Court of Appeal has set out guidance which will assist insurers in reviewing their intervention procedures to maximise mitigation arguments.
Cold calls or the bump card system will not ultimately assist the insurer in arguing failure to mitigate. Offer letters will need to be simple so that the claimant understands that they should seek advice on the content. Such letters should explain in reasonable terms that there is a duty to mitigate and set out the offer in detail, including the cost to the insurer of the hire vehicle being offered.
What has been clearly established is that even if an insurer succeeds in proving that the claimant failed to mitigate, the best that the insurer will do is limit recovery to what it would have cost them to hire. The judgment again emphasises that spot hire rates continue to remain the focus of the courts’ approach. The key issue is that the insurer will have to prove that the claimant was furnished with all the information to understand that the defendants’ offer of a vehicle and the rate being applied was the best commercially available.
Insurers may ask, should they abandon offering a vehicle at all? However, they should take into account that the reason for offering a vehicle to a claimant is not just to have mitigation arguments available at a later date but also to try to avoid the claimant entering a separate more expensive credit hire agreement in the first place. Insurers will no doubt run their own statistics on the percentage of uptake to assess the commercial success of the programme.