Motor vehicle insurance

Credit hire

The credit hire industry is a relatively modern development. It comes into play where a motor vehicle is damaged by the negligence of a third party. The owner may have first party insurance coverage that includes the costs of hiring a vehicle while it is being repaired, but if this is not the case then the owner will have to look to the negligent driver’s insurers for indemnification for the costs of hiring a replacement vehicle. Credit hire removes from the owner the risk that those costs may prove to be irrecoverable and, at the very least, the need for the owner to make an up-front payment to the car hire firm. In essence the owner is provided with a car on credit, and payment is made out of the damages recovered by the owner from the negligent driver; the package also includes an insurance element that pays off the cost of the hire in the event that damages prove to be irrecoverable. Inevitably, due to the additional benefits provided, credit hire is more expensive than ordinary hire. The issue that has arisen is whether the costs of credit hire are recoverable from the negligent driver, in that they form a part of the owner’s loss that is recoverable under tort law. In Dimond v Lovell [2002] 1 AC 384 the House of Lords, in a majority decision, dealt a serious blow to the credit hire industry by ruling that the appropriate measure of damages was restricted to the ‘spot rate’ for the hire of an equivalent car, thereby excluding credit hire charges: these were viewed as paying for a benefit that was too remote from the loss suffered by the owner. What, however, of an owner who cannot afford to hire a replacement vehicle and whose only hope is credit hire? This issue was addressed by the House of Lords in Lagden v O’Connor [ 2003] UKHL 64, [2004] Lloyd’s Rep IR 329 . By a bare majority, their Lordships ruled in favour of the impecunious owner.