Review of the Quarter: Credit Hire AWARE 2

In the run up to the planned changes to the small claims track limit on 1 April, most compensators and defendant firms were certain there would be an increase in credit hire litigation from claimants to mitigate the impact of the reforms on their firms. It was therefore no surprise to me to then see the approx. 50% uplift in litigated volumes within my units in March and April.

It was noticeable this appeared to be a 'clearing of the decks’ exercise from many sections of the credit hire market. Claims were not limited to those between £5,000 and £10,000, but also included those claims that would have fallen within the original small track limit.

The communication between Keoghs and our clients doubtlessly put us on the front foot to handle this volume, and the spike has been managed with minimal disruption. There appear to be conflicting views in the market as to what the landscape will be over the next six months in relation to credit hire litigation. This is the question we seem to be getting asked most frequently and Mel Mooney’s article on LASPO will cover this in more detail.

Our data suggests volumes are returning to post-March levels. It is true to say we can’t predict the impact of the more sophisticated business models on the market, but we do not see the total volume of litigation materially changing. Where the volume emanates from in the future will however, be of particular interest

This quarter certain Non-GTA firms have very much come to the fore with litigation rates upwards of 80%, putting them very much under the spotlight for Keoghs and our clients. The business model employed by such firms seems to place great reliance on recovering the costs of litigation. This can be best countered by the use of a holistic strategy which is deployed consistently at both pre-litigation and litigation stages. This entails having a strong pre-litigation structure and approach that compliments and drives the service received post-litigation. We are now working with a number of companies in this regard.

Collaboration

We have also seen an increase in collaboration within sections of the GTA market. Personally, I have spent a significant amount of time with one of the largest credit hire organisations (CHOs) to build a framework which our respective handlers can work within. In addition, we have created operational escalation procedures for cases that fall outside the norm, or involve a dispute. Consequently, the CHO is starting to bill for the hire period that fits the framework; a significant improvement. As a consequence we are paying an increasing percentage of their claims within 30 days.

In our litigation teams we are developing enhanced visibility to evaluate how different GTA CHOs are litigating. Historical data would suggest a lack of science behind litigation from a number of litigators. We are now seeing some CHOs focussing on certain insurers In relation to specific litigation issues and we anticipate this trend will continue.

On the subject of differing behaviour we believe there is a growing differential of how the credit hire market deals with credit repair. This is an area we will be focussing on in the next quarter through data analysis.

Pre-litigation credit repair volume is on the rise. Why?

Probably because of the introduction of further private investment and alternative business structures (ABS) have freed up more funds to deliver credit hire, thus enabling companies to gain an increasing span of control of the supply chain to enhance their non-fault offering.

The key issue is why does the cost differ so widely where the CHO contains a similar book to another? For CHOs that have a predominantly standard vehicle mix, average credit repair costs vary from £1,300 to £1,900. When we review the split of driveable to undriveable repairs based on the notification of hire, we see an increasing percentage deemed to be the latter.

The proportion of undriveable vehicles swings from around 50% to 70% depending on the CHO. Our provisional analysis suggests these companies have similar vehicles on hire, with the age of the hirer’s own vehicle being in a similar bracket. The reason for such a difference is therefore unclear, and one we hope to understand in greater detail from our analysis. Our data also shows that repairers are charging differing labour figures with the CHO being the only differing factor. As an example of this, an established UK repairer charged one CHO £33 an hour to repair a vehicle in the P6 category, but two weeks later another CHO £43 an hour for an S5. This practice isn’t unique.

Where the CHO is not in control of the process we have again seen material differences in the management of periods.

In the case of long hire periods, the question will often arise as to whether the claimant, instead of waiting indefinitely for a payment from the defendant’s insurer, should have utilised his own comprehensive policy of insurance to deal with the repairs or to make a payment for the PAV.

It is usually sensible for defendant insurers to make a general ‘without prejudice’ interim payment for vehicle damage where there are ongoing losses, even in the case of a liability dispute. However, there may be cases in which this cannot be, or has not been, done – for instance if there are indemnity issues or fraud concerns. Whether the claimant is obliged to use his own insurance in these circumstances is a subject of some debate.

Claimants will invariably attempt to hide behind the established principle that a defendant cannot rely on the fact that a claimant is insured to escape a liability to pay damages (Parry v Cleaver, Rose v The Co-operative). However, this is not the same scenario as where a claimant has a comprehensive policy which could be utilised to halt an ongoing loss, such as hire charges. Here, a claimant’s failure to avail themselves of the indemnity afforded to them under the policy, when it is obvious that not doing so would lead to a vastly disproportionate claim for ongoing losses, can and is being taken into account by the courts.

For this argument to be at its strongest, the following should be noted:

• It must be confirmed beyond doubt that the claimant did indeed have a comprehensive policy.
• There was/is a genuine liability dispute or other valid reason for not making the payment (such as suspected fraud or indemnity issues).
• The claimant (and/or their representatives) should have been put on written notice that a payment would not be made, and advised to go to their own insurer.
• The claimant (and/or their representatives) are reminded of the cost of ongoing hire, and the genuine dispute at appropriate points.
• The argument might be weakened in the event that there is obvious culpability for delays on the part of the defendant or defendant insurer.

In accordance with Crowther v Direct Line, it can be argued that the date the claimant was put on written notice that a payment would not be made is the ‘cut off point’ for when the clock starts ticking. A reasonable time should be allowed after this date for the claimant to take matters into their own hands and go through their own insurer and arrange to come out of hire. In our experience, the court is fairly well disposed to an argument that a reasonable time is around six weeks. Such an approach requires defendants to continue to be proactive in their approach, and understand that an element of engagement in the credit hire process is necessary.

The focus of compensators should continue to move to the implementation of holistic strategies in which average claims spend is key, rather than focusing on individual transactional spend.