Court of Appeal credit hire ruling hailed as victory for insurers

Horwich Farrelly has achieved a significant ruling over the issue of credit hire rates after the Court of Appeal handed down judgment in the landmark cases of Clayton v EUI and McBride v UKI.

The firm has said that the court’s ruling reinforces an earlier decision in Stevens v Equity ­– that the recoverable rate in credit hire cases is assessed by reference to the lowest reasonable basic hire rate – and widens the number of cases to which the Stevens ‘lowest Basic Hire Rate (BHR)’ rule applies.

As a result, Horwich Farrelly expects the decision to significantly reduce credit hire claim spend on litigated cases and to encourage more claims to settle before reaching litigation.

Despite the previous Stevens ruling there was still some ambiguity about aspects of the application of BHR, which manifested itself in the two cases. Horwich Farrelly challenged the recoverable credit hire charges made by Accident Exchange Limited (AEL) on behalf of Admiral Insurance in Clayton v EUI, resulting in the Court of Appeal upholding that the inability to obtain BHR evidence including a nil excess does not lead to the credit hire company recovering the credit rate in full.

Instead, the cost of the excess is to be dealt with separately from the cost of the hire, and a defendant succeeds in demonstrating a difference between the credit rate and the BHR solely by comparing the daily rates of hire, irrespective of the excess position.

In the case of McBride v UKI, The Court of Appeal rejected AEL’s arguments that the Stevens decision was inconsistent with earlier authority.

Max Withington, head of credit hire at Horwich Farrelly, said: “The judgment, in our view, places insurers in the best position on rates in credit hire cases since the decision in Dimond v Lovell (2002). Ever since that decision, credit hire organisations (CHOs) have systematically attempted – arguably with some success – to confine its effects to those cases in which it is possible to exactly replicate the BHR evidence to the terms of the credit hire.

“It is therefore extremely welcome to see that the Court of Appeal has advocated in such clear terms Horwich Farrelly’s ‘reasonable adjustment’ approach where an exact comparison is not possible. In doing so, it has firmly reiterated that the assessment of the BHR is, by nature, an imprecise exercise in approximation of the part of the charge which relates to the basic costs of hire, against the costs that relate to irrecoverable credit hire benefits and services.

“We would now expect to see CHOs and those acting for claimants immediately cease the practice of insisting on a forensic analysis of the minutiae of the terms of any given BHR quote.  And this should hopefully lead to a more pragmatic and sensible approach to pre-litigation settlement going forward.

Withington said that the firm had worked on the case for the best part of five years and gave credit to associate Gary Herring for running the successful appeal.

Mark Dugdale