March 17, 2017

Insurers successful in credit hire appeals

The Appellate Court has found the issue of nil excess is a separate question to the assessment of the basic hire rate. Claimants will not be able to argue that because a basic hire rate includes an excess the credit hire rate (with nil excess) must apply.

The Court of Appeal has also clarified how the case of Stevens is to apply; namely that it is extremely unlikely anything other than the lowest reasonable basic hire rate will apply.

The decision by the Court of Appeal provides further clarity and is another victory for insurers in the credit hire arena. The case is a continuation of the courts taking a common sense approach which reflects the reality of hiring a replacement vehicle in the internet age. Although the decision is not binding in Scotland, it will be considered persuasive, and previous decisions indicate it is likely on balance that the reasoning will be followed.

The decision could lead to a significant reduction in credit hire claims and claimants are likely to be encouraged to settle claims before reaching litigation. However, this may not be the end of the matter as permission to appeal to the Supreme Court may be sought; albeit this is a high test to meet and on balance it is unlikely it will be granted.

In their written judgment, the Court of Appeal provided the following guidance:

Stevens v Equity Syndicate Management

The Court held the first instance decision was not inconsistent with previous authority and is binding. It is extremely unlikely anything other than the lowest reasonable rate quoted by a mainstream supplier for the hire of a vehicle of the kind actually hired by the claimant will be a reasonable approximation of the basic hire rate.

Separate assessment where a nil excess is not available for basic hire rate

The correct approach is to treat the nil excess issue separately from the comparison between the credit hire rate and the basic hire rate. The absence of nil excess in the basic hire rate should not lead to credit hire organisations recovering the credit hire rate in full.

It will almost invariably be reasonable for a claimant to seek nil excess, however the court will have regard to whether a lower rate than the one sought by the claimant is available. In McBride the Claimant purchased nil excess at a rate of £10 per day plus VAT. The Defendant adduced evidence to show a lower rate could have been obtained at £3.99 a day inclusive of VAT.

Based on the particular circumstances of McBride, the Court of Appeal did not think the Defendant would be able to establish that the product offered at £3.99 a day inclusive of VAT would have been an appropriate alternative for the Claimant as it did not cover the hire vehicle in question. Accordingly, the court held it was not unreasonable for the Claimant to purchase nil excess at a rate of £10 per day. Going forward hire rates evidence will need to include the costs of these nil excess insurance products.

Adjusting the credit hire rate by 15% and the basic hire rate by 10% was justifiable

Although the Defendant bore the burden of establishing that the credit hire rate exceeded the basic hire rate, it would be unjust to take an exacting approach to rates evidence. The judge had experience of credit hire cases and was aware that a seven day hire is charged at a higher rate than a long term hire, therefore he was entitled to add 15% to arrive at a seven-day rate.

The Claimant in Clayton had paid £17.50 a day for nil excess. The Court of Appeal held that the judge had undertaken two separate assessments to determine the reasonableness of taking out nil excess and concluded a purchase price of £17.50 a day was reasonable. The District Judge's 10% adjustment to the basic hire rate was justifiable as it was equivalent to approximately £17 a day and therefore closely parallel to the rate provided by Accident Exchange.