Credit hire disputes climb sharply

The number of credit hire claims including a disputed claim relating to vehicle damage and diminution of value has increased by almost 18% over the past 12 months, according to law firm DAC Beachcroft, with the average cost of claims increasing by almost £1,000 over the same period.

DAC Beachcroft head of credit hire Emma Fuller says the limited nature of the fixed fee arrangement in the Ministry of Justice road traffic accident portal is one driver behind this uptick in claims volumes and costs.

“Whereas historically most of the time it would just have been the credit hire element of the claim being disputed [by insurers], we are also seeing other heads of losses disputed,” she says. “This could be because claims firms are trying to get claims to a higher value - especially for a credit hire claim that is near to £10,000 - as claims firms try and add other associated losses to try and get it into the fast-track.”

“The Stevens v Equity case hit credit hire hard in terms of the rate they are recovering, and a good a way as any to push up profit margins is credit repair,” she adds.

Once a claim enters the fast-track, personal injury claims are dealt with under a fixed fee arrangement, but credit hire and damage claims attract hourly rate fees, and Fuller says this is a huge incentive for claims firms, and an unscrupulous element has also made its way into the system.

“There are more claimant solicitors and claims management companies moving into these types of claims, because at the moment they are not being affected by the whiplash reforms,” she says. “This area of law is not being touched by the government, and credit hire fraud and vehicle damage fraud has increased dramatically.

“There is a lot of focus on whiplash reforms and fighting fraud in this area, but credit hire and vehicle damage claims are going under the radar a bit.”

And Fuller expects the situation to only get worse.

“Once the whiplash reforms actually come into force, the impact will be huge,” she says. “At the moment these claims are not going to be hit by the reforms, and it is the only area where claimants firms can still get these extra fees [outside of the fixed fee arrangement].”

Artificially inflated repair claims

One area where fraudulent increase has grown substantially is around the costs of repairing a vehicle following a collision, whereby fraudulent claims are lodged using artificially high labour costs and repairs being carried out unnecessarily.

“We are seeing a lot of claimant engineers putting new parts on a vehicle that aren’t needed, and even claiming for parts that are found to have never been used when we carry out a post-repair inspection, or that they have used a second-hand part when claiming for a new one,” she says. “Or it could be that they manipulate the repair methods, such as repainting an entire car, when all that needed spraying was a bumper.

“We are also seeing a lot more engineers saying there has been a loss in value of a vehicle, even for basic vehicles that have not had any structural damage to them.”

This increase in fraudulent activity means that 60% of non-injury fraud now relates to artificial inflation of the cost of repairing vehicles following a collision, something Fuller says is difficult for defendant law firms to deal with.

“One of the problems is that with vehicle damage claims, they are often just paid as presented,” she says. “It is not an area of law you are used to arguing over, and a lot of it is low value so it is easy to pay those claims.

“But we want to encourage insurers to look more into these claims and challenge them where appropriate, because if you do challenge the claims you can make huge savings.”

Court of Appeal ruling sides with insurers

But a recent ruling on credit hire rates in the Court of Appeal will bring some respite for insurers.

Judgment in the landmark cases of Clayton v EUI and McBride v UKI found that the inability to obtain Basic Hire Rate (BHR) evidence, including a nil excess, does not lead to the credit hire company recovering the credit rate in full, confirming the ruling in the previous Stevens v Equity case.

Credit hire companies had previously been able to secure full credit hire rates if they were unable to find an exact BHR comparison.

This ruling confirms that the cost of the excess is to be dealt with separately from the cost of the hire, and that if there are differences betweens the terms of the credit hire and BHR, such as in the duration of hire or excesses applicable, then these should be dealt with by way of an adjustment rather than just paying the full credit hire rate.

Max Withington, head of credit hire at Horwich Farrelly says this will be welcome news for insurers dealing with credit hire rates as part of a claim.

“It is 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,” he says. “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 credit hire companies 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 says this could ultimately save insurers millions in claims costs.

“The ruling in the case of Clayton v EUI could produce significant savings for insurers because it is likely to have an impact over every case being disputed on rates by the County Court,” he says. “We predict that this will generate tens of millions in savings for the industry compared to if the ruling had gone the other way.

“A fantastic result which we are confident will lead to a more pragmatic approach for credit hire claims.”

Credit Hire Organisation director general Martin Andrews welcomes the clarity the ruling brings to the market, but urges insurers to re-dedicate themselves to the General Terms of Agreement (GTA) for credit hire claims, a long-standing area of contention between insurers and credit hire companies.

“[This ruling] provides clarification over the basis by which credit hire companies can recover their daily rental charges and also how charges for nil excess insurance products can be recovered,” he says. “While this will impose a considerable inconvenience on our non-fault customers, the basic fact is that most consumers just do not have the financial resources to rent a replacement vehicle other than on credit hire terms.

“Looking ahead, it is our belief that the GTA, a collaborative approach for claims settlement between credit hire companies and insurers will continue. We believe this approach is supported by ministers and regulators.”