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Uninsured Drivers’ Agreement 2015 – Implications for Credit Hire Claims

July, 10, 2015

Horwich Farrelly reviews what the new Uninsured Drivers’ Agreement means for credit hire claims.

Yesterday we set out details of the implications for motor insurers of the Uninsured Drivers’ Agreement 2015 which will apply to all claims arising out an incident which occurs on or after 1 August 2015.

Here we focus on some specific issues which are particularly relevant to credit hire claims.

Clause 6

As previously reported, Clause 6 of the new Agreement significantly widens the scope of the subrogated claims exclusion contained in the 1999 Agreement. It is worth setting out Clause 6:

  1. Subject to paragraph (2), MIB is not liable for any claim, or any part of a claim, in respect of which the claimant has received, or is entitled to receive or demand, payment or indemnity from any other person (including an insurer), not being the Criminal Injuries Compensation Authority or its successor.
  2. Paragraph (1) does not apply –
    1. where the claim is for sums to meet the claimant’s liability to reimburse an employer provided the employer is not insured for that loss, or;
    2. in respect of the claimant’s legal costs
  3. An entitlement to receive or demand, payment or indemnity in paragraph 1 extends to where the insurer, under a contract of insurance or any other insurance, regardless of when such insurance was incepted, does not make the payment or provide the indemnity because the claimant: 
  1. has not made or does not make a claim under that insurance;
  2. has made or does make a claim under that insurance but not within its stipulated timeframe; or 
  3. has incurred a liability to any other person where that liability could have been avoided by making a claim under and in accordance with the provisions of that insurance.

By comparison Clause 6(1)(c) of the 1999 Agreement excluded:

a claim by, or for the benefit of, a person (“the beneficiary”) other than the person suffering death, injury or other damage which is made:

(ii) pursuant to a right of subrogation or contractual or other right belonging to the beneficiary;

As can be seen, this new wider exclusion provides that in addition to claims that have in fact been subrogated, the MIB (and therefore an Article 75 insurer who acts as the MIB’s agent) will now no longer be liable for a claim, or any part of a claim, that could have been claimed by a claimant on their own policy of insurance.

One reason why non-fault claimants may choose not to claim on their motor insurance is that they do not wish to risk their no claims bonus or affect their future premiums. This may not be a significant issue unless they also use this as a justification for hiring an alternative vehicle.

Insurers will readily appreciate that credit hire charges can soon mount up (arguably entirely unnecessarily) as a result of a claimant choosing not to use their own insurance for the repair of their vehicle. If that claimant has notified their claim to the third party insurer quickly and where liability is swiftly conceded, there should be few problems as the third party insurer will no doubt ensure a speedy repair of the vehicle. However, what happens where that is not the case?

The claimant might hire a vehicle and remain in hire in anticipation that the third party insurer will, in due course, pay for the repairs or total loss. However, under the new Agreement, if that insurer is able to limit their liability in accordance with Article 75, the claimant will ultimately have to revert back to their own insurance. Before doing so though, they may have incurred hire charges which could far outweigh the cost of repair or replacement of the vehicle.

Aside from the general principle of whether or not opting to use own insurance is reasonable, a number of new issues arise under the updated Agreement.

Early Identification of the Position

A vehicle which appears to be without any insurance whatsoever (e.g. where MID shows no insurer with an interest) can be easily identified.  Claimants themselves can check the insurance status of an at-fault vehicle using the online ‘askMID’ service. In such instances  the claimant will know that they must utilise their own insurance in respect of their vehicle damage or run the real risk of going uncompensated (unless they fancy their prospects of recovering directly against the uninsured motorist).

It is rather more difficult if MID shows an insurer with an interest.  The claimant may assume that the insurer will have at least an RTA liability requiring them to meet the vehicle damage claim. The insurer may however have other ideas; they may decide to avoid their policy on the grounds of material non-disclosure and thereafter obtain a section 152 declaration.

That would reduce their status to that of Article 75 insurer enabling them to say that they have no liability for the vehicle damage (assuming the claimant has fully comprehensive cover in place rather than third party cover only). If that is the case:

  • Can the claimant justify awaiting notice of the actual declaration order before reverting to their own insurers?
  • Should they do so if notified that the insurer has avoided the policy for material non-disclosure (or indeed can avoid RTA liability on alternative grounds)?
  • What if the insurer highlights only that there are indemnity concerns and their position remains to be determined?

The answer to such questions could determine whether potentially significant credit hire charges are necessarily unreasonable.

Any insurer may well be alive to the potential problems and arguments which may be raised. They might, for instance, make a without prejudice interim payment sufficient to cover the vehicle damage but without it being in specific settlement of the vehicle damage. In that situation what does a claimant do? If they choose to utilise their own insurance, the payment may well have to be credited against other heads of loss (including hire charges).

On the other hand, if the claimant uses that interim payment to fund a replacement or repairs, they could well end up under-compensated because their own insurer avoids meeting the claim but the claimant cannot avoid the consequences of Clause 6(3).

Another problem is that where vehicle repairs are outweighed by potential credit hire charges, a claimant (in conjunction with the CHO) may simply prolong the credit hire arguing that

  1. they cannot be required in law to utilise their own insurance regardless of what the Uninsured Drivers’ Agreement says and
  2. they cannot afford the repairs themselves.

A claimant’s obligation (or otherwise) to utilise a comprehensive policy in mitigation of their loss is already something of a controversial topic in the field of credit hire litigation. Claimants habitually rely on a line of authority which establishes a general principle that a tortfeasor cannot rely on the fact that a claimant is insured to extinguish its liability to pay damages. This is certainly the position in respect of a fixed loss that happens to be insured.

However, this is not the same scenario as where a claimant has a comprehensive policy which could be utilised to halt or avoid an ongoing loss, such as hire charges. Here, it is strongly arguable that a claimant’s failure to utilise the policy when it is obvious that not doing so would lead to a vastly disproportionate claim for ongoing losses, can and should be capable of amounting to a failure to mitigate.

The Court of Appeal considered this issue to be one of general importance in the case of Zurich Insurance Plc v Umerji [2014] EWCA Civ 357, although they declined to adjudicate on it on that occasion. It seems that in the case of an Article 75 insurer who refers the claimant back to their own comprehensive insurer relying on Clause 6 of the Agreement, the argument that the Claimant must then utilise their own policy becomes even stronger. After all, save for pursuing an uninsured driver, the claimant will have no other option for payment of the vehicle damage but to utilise that policy.

Regardless of the respective strengths and weaknesses of such arguments, it must be in an insurer’s interests to make speedy decisions about their status whenever possible, and where they are unwilling to deal at least as an RTA insurer to communicate that decision to non-fault claimants promptly. Where section 152 declarations are to be obtained, they need to have in place the facility to issue proceedings swiftly, efficiently and cost-effectively.

Other Implications

In addition, insurers should be aware of the following implications of the new Agreement on claims for credit hire:

  • Exclusion of liability for insurance-backed credit hire and repair. An Article 75 Insurer (and the MIB) will no longer be liable for any credit hire claim backed with a credit protection policy, regardless of whether or not that policy is actually utilised by the claimant.  Moreover, the Clause 6 Guidance Notes make clear that the exclusion applies to credit repairs as well as credit hire. Therefore, the Article 75 insurer avoids insurance backed credit repairs even where the claimant has third party only motor insurance.
  • Replacement vehicle cover. An Article 75 Insurer (or the MIB) will arguably no longer be liable for any credit hire claim where a claimant’s comprehensive motor insurance policy includes provision for replacement vehicle cover; particularly where the policy contains hire car cover (as opposed to basic courtesy car cover). This is, perhaps, subject to possible arguments as to whether an entitlement to an insurance benefit such as hire car cover can be distinguished from an entitlement to an insurance  “payment or indemnity” for the purposes of the Agreement.

Conclusions

The arena of credit hire claims has long been seen as something of a game of ‘cat and mouse’ stretching back to Dimond v Lovell [2002] and beyond. These latest developments add further complexities and potential scope for dispute whilst also providing insurers – able to reduce their status to that of Article 75 – some greater scope for avoiding subrogated claims or claims capable of being subrogated.

Ultimately insurers must maintain that clear focus on minimising the overall indemnity spend and care must be exercised when considering the benefits which might be assumed to necessarily arise from Clause 6 of the new Agreement.

If you would like any further information or to discuss these matters further please do not hesitate to contact Gary Herring on 0844 330 0199 or by email at gary.herring@horwichfarrelly.co.uk or Andrew Baker on 0844 330 0190 or by email at andrew.baker@horwichfarrelly.co.uk.

 

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