(1) McBride v UK Insurance Ltd (2) Clayton v EUI Ltd  EWCA Civ 144
This decision from the Court of Appeal, handed down last week, considers the effect of a nil insurance excess supplied by a credit hire company and how courts should assess the basic hire rate (BHR) that is recoverable by them where the non-credit hire market, which provides evidence to challenge credit hire rates, requires an excess to be accepted by customers.
This decision also determines whether the Court of Appeal’s earlier decision in Stevens v Equity Syndicate Management  EWCA 93, was wrongly decided. That decision helpfully clarified that “the BHR may be obtained by identifying the lowest reasonable rate quoted by a mainstream supplier or, if there is no mainstream supplier, by a local reputable supplier.” Previously, the credit hire company in these conjoined appeals alleged that the full credit hire rate could actually be recovered where it fell within the range of BHRs (even towards the top of the range).
The facts of each case
The facts can be briefly summarised as follows, albeit more detail is available here:
In each case, claimants had hired replacement vehicles from credit hire companies, which were comparable with their own vehicles that had been damaged following collisions involving each defendant’s insured. It was accepted that each defendant’s insured had been negligent and that neither claimant was impecunious, such that the rate recoverable against each insurer must be assessed by reference to the BHR.
In each case, the prestige vehicles were hired by the credit hire company with a nil insurance excess, yet the comparable evidence available before the courts in support of the BHR was such that excesses were payable, albeit in Clayton the defendant had also sought to adduce a quote for stand-alone excess elimination insurance. The courts, recognising that there was imperfect evidence before them, were required to determine (a) whether it was appropriate to assess a BHR or to allow the full credit hire rates as claimed, and (b) if it was indeed appropriate to assess the BHR, what was the appropriate basis of assessment.
The decision of the Court of Appeal
Across both cases, the two most significant issues were the compatibility of Stevens with previous case law, and the issue of how courts should treat BHR assessments where the rates relied upon did not include a nil excess.
The court determined that Stevens was correctly decided and that, in any event, it was binding on the Court of Appeal and the courts below.
It found that if a defendant can show that a BHR at the top end of the range (per Burdis v Livsey  EWCA Civ 510) exceeds the lowest reasonable rate within the range charged by a mainstream supplier or reputable local supplier, then the claimant will not recover more than that lowest reasonable rate. It 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.
Whilst the court accepted that a nil excess was a perfectly reasonable arrangement for a claimant to enter into, it also recognised that there was generally a problem securing a nil excess from non-credit hire companies, especially with prestige cars.
However, it rejected the credit hire company’s submission that, where there was no evidence of a nil excess, the defendant should be treated as having failed to prove the BHR and should be required to settle the full credit hire rate as claimed.
Instead, it was found that where a nil excess is not available from hire companies, the correct approach is that the charge for a nil-excess (collision damage waiver (CDW)) should be treated separately from the initial “stripping out” exercise (by comparing the credit hire rate and the BHR with excess) and thereafter the courts should consider what uplift or charge should be applied to the recoverable rate to reflect the CDW from the credit hire company.
Finally, the Court of Appeal found that where there is evidence of stand-alone excess elimination insurance before a court, they should accept such evidence as proof of the reasonable cost of obtaining a nil excess (provided of course that the quote obtained from such a provider is on comparable terms). The court also found that the admission of evidence concerning the cost of these stand-alone products should become the norm, and it was simply not relevant that the individual parties (or indeed the courts) may or may not have been aware that such stand-alone policies existed.
What this means for you: impact and practical consequences
This judgment from the Court of Appeal helpfully clarifies that, on the first issue, Stevens v Equity Syndicate Management  EWCA 93 was correctly decided and remains binding on the Court of Appeal and the courts below. Accordingly, where claimants are pecunious, the BHR should be obtained by identifying the lowest reasonable rate quoted by a mainstream supplier or, if there is no mainstream supplier, by a local reputable supplier. Whilst there is speculation that the hire company will seek permission to appeal to the Supreme Court, this Court of Appeal judgment remains binding, pending any successful application for permission and judgment from the Supreme Court.
On the second issue, where there is imperfect evidence before a court because a credit hire company has hired a vehicle with a nil excess, but the non-credit hire market requires an excess to be accepted by customers, it remains appropriate ─ again only where claimants are pecunious ─ for courts to assess the BHR and then to apply a premium or uplift based upon the cost of the CDW 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 and this exercise is moot.
In all likelihood, the uplift for CDW may either represent the charge actually made by the credit hire company for the nil excess or alternatively the cost of stand-alone excess elimination insurance, but only where that stand-alone product is available on comparable terms, e.g. with reference to the value and class of vehicle actually hired and indeed period. Helpfully, the judgment notes that given the availability of stand-alone insurance products for a relatively modest daily rate, courts may decide that it was not reasonable to purchase the nil excess offered by credit hire companies where at a much higher rate than a standalone product.
Undoubtedly, the Court of Appeal’s intention is to ensure that procuring evidence of BHR becomes more straightforward, such that supplementing existing BHR evidence with evidence of stand-alone excess elimination insurance may prove the reasonable cost of obtaining a nil excess. Customers would, therefore, be advised to ensure that any evidence they adduce to support the cost of stand-alone insurance is quoted on comparable terms with that provided by the credit hire companies in each particular case to avoid any challenge relating to the quality of evidence before the court to reduce the damages recoverable.
Whilst the lower end of the credit hire market may become less litigious following this decision, customers should not be surprised if the prestige end of the market continues to behave somewhat more robustly.
Finally, with one eye on the ABI’s General Terms of Agreement, one might expect any rate reviews to involve somewhat challenging negotiations.