The Difference and Interaction Between Credit Hire, Insured Hire & Subrogation

Credit hire, insured hire and subrogation are three areas that have manifested in the field of hire generally. There can be considerable confusion between the three and it is not surprising why, as whilst they are separate concepts, the reality is that they can often be interrelated in a case. The confusion is further increased by courts (including higher courts) often not defining each concept.

The aim of this article is to provide clarity as to what these separate concepts are and how they can be interrelated.

I will deal with the issues in the following way:

(1) what is credit hire?
(2) what is insured hire?
(3) what is subrogation? 
(4) examples of credit hire, insured hire and subrogation in cases

What is credit hire?

The Consumer Credit Act 1974 in section 9 provides as follows: “(1) In this Act ‘credit’ includes a cash loan, and any form of financial accommodation”.

I do not for reasons of clarity want to discuss a “regulated” consumer credit agreement for the purposes of section 8 of the Consumer Credit Act 1974. I assume for the purposes of this article, that the agreement is regulated by the Consumer Credit Act, which is the typical scenario in vehicle credit hire. For the purposes of vehicle credit hire, there must be a form of “financial accommodation”. There was mention in the well-known case of Dimond v Lovell ([2000] 2 All ER 897) of the definition of credit by Professor Goode as follows: “credit [is] extended whenever the contract provides for the debtor to pay, or gives him an option to pay, later than the time at which payment would otherwise have been earned under the express or implied terms of the contract”. In the context of vehicle credit hire, the scenario of “credit” will be familiar to many: a vehicle is hired upfront and payment is deferred to beyond the hire period, usually for 12 months from the date of the agreement. 

This is the typical situation of a “credit hire” case.

What is insured hire?

There is no statute that defines insured hire. From my experience, the situation of insured hire in simple terms is as follows: Following an accident, the claimant’s insurance company arranges for the supply of a hire car from a hire company. The claimant then signs a hire agreement, which does not have stated on the agreement the liability of the claimant to pay the hire charges.  It will have terms such as the claimant must keep the vehicle in a satisfactory condition and will be liable for the costs if this is not the case. There is however nothing in the written agreement about the claimant being liable for the hire charges. This is because the insurance company has a separate written agreement with the hire company for the payment of these hire charges.

The Court of Appeal in Bee v Jenson [2007] EWCA Civ 923 wrestled with the question as to whether the claimant would be liable to pay the hire charges in insured hire under the agreement and declined to answer as it was not required for their decision. Lord Justice Longmore in paragraph 14 stated “I would for my part decline to engage in what is at best a technical (and not entirely easy) analysis of the question whether Mr Bee was himself liable for the hire charges under the agreement he has signed with Helphire. Such an argument might well depend on the significance of clause 10 of the hire agreement signed by Mr Bee committing him to make various specific payments (not including the hire charges) and the fact that the relevant box relating to charges caters for extras which are to be payable by Mr Bee without making clear whether Mr Bee is to be liable for the hire charges themselves. Such an argument is only going to be important in the real world in the unlikely event of DAS becoming insolvent, in which case Mr Bee would, no doubt, be somewhat surprised to be told that he must pay the hire charges although he had paid a premium to secure the benefit of a hire car. It would be much better for any such argument to be resolved in a case where it really mattered especially since the relevant authorities are not easily reconcilable...”.

The Court of Appeal suggested that the issue of whether a claimant could be liable for the hire charges is only relevant if the insurance company becomes insolvent. The issue of liability of the hire charges would then presumably fall within the sphere of implied terms.

The point however is this: there is nothing in a hire agreement in an insured hire situation which provides the claimant with any agreed credit. Section 8 (1) of the Consumer Credit Act 1974 states “A [consumer] credit agreement is an agreement between an individual (‘the debtor’) and any other person (‘the creditor’) by which the creditor provides the debtor with credit of any amount” - italics are my emphasis. Regardless of whether a claimant would ultimately become liable to the hire company if the insurance company becomes insolvent, there is no agreement to provide the claimant with credit. So, whilst the Court of Appeal did not spell it out as such, this is what I presume they meant when they said in paragraph 7 of the judgment in Bee v Jenson: “The way in which the problems of the 1974 Act have been avoided in the present case is for the claimants’ insurance policy to have a term that a second insurance company would cover legal expenses and arrange the hire of a replacement vehicle (all as a provision of the original insurance to which the 1974 Act would not apply)”. So, whilst payment for hire charges may need to be made by the claimant in the event of the insurance company becoming insolvent, there is no agreement to provide credit to the claimant.

So, in simple terms, insured hire involves the situation whereby the insurance company facilitates the hire under the policy of insurance through a hire company, however whilst the claimant signs a hire agreement there is nothing that provides an agreement for credit to her/him. The reason for that is that there is a separate agreement between the insurance company and the hire company for payment of those hire charges. The claimant may become liable for the hire charges to the hire company if his/her insurance company becomes insolvent, under implied terms. There is however no issue of credit even here, as the agreement does not provide for credit. A hire company simply waiting for a long time to insist on payment does not amount to an agreement to provide credit. 

In the early days of my practice, I recall that it used to be argued that the insured written “hire agreement” (which had no payment terms as to the hire charges itself) was a regulated consumer credit agreement and therefore the agreement was unenforceable. This argument found success in some cases, even before Circuit Judges. Fortunately, this argument is not pursued anymore, as it was so obviously flawed. The obvious flaw being that there is no agreement to provide credit to the consumer by the hire company in the hire agreement.

What is subrogation?

“The law has long recognised the principle that where A indemnifies B, under some form of agreement between them to that effect, for loss caused by C to B, on providing a full indemnity A is entitled to exercise B’s rights against C. Of all the contexts in which subrogation may arise insurance is undoubtedly the most common, and it is apparent that the insurer’s right of subrogation has been operating in England since at least the middle of the eighteenth century” - Colinvaux’s Law of Insurance 12th edition, Chapter 12-001. 

In Bee v Jenson the Court of Appeal in paragraph 9 stated: “...I have referred to Mr Bee and his insurers interchangeably as if they were both making the claim for the recovery of the hire charges. In fact this is inaccurate. In English law the claim is only made and can only be made by Mr Bee, see MacGillivray, Insurance Law 10th Edition paras. 22-44 to 22-47. His insurance arrangements would normally be said to be irrelevant to the tortfeasor’s liability. They are as is sometimes said “behind the curtain”. The reality is nevertheless that the claim for the hire charges is a subrogated claim brought by Mr Bee for the benefit of his insurers. The insured himself, although the actual claimant, has not himself paid the repair bill for his car nor has he paid the hire charges; nor indeed has he paid the cost of litigating against Mr Jenson but it is no defence for Mr Jenson (or his insurers) to say that Mr Bee, because he has been compensated by his insurers, has himself suffered no loss. Ever since Bradburn v Great Western Railway (1874) LR 10 Ex. 1 defendants have had to accept that a claimant’s insurance arrangements are irrelevant and cannot be prayed in aid to reduce their liabilities. A corollary of the rule that only the insured can sue in respect of the loss is that a defendant can only discharge his liability by paying the insured. If, however, the insured has already been indemnified by his insurers, he will hold his recovery on trust for his insurers” - italics are my emphasis.

So, in the practical context what this means is that if the insurance company has paid on behalf of the claimant the hire charges, then the claimant can still bring the action even though he is not liable to the hire company. It cannot be argued there is “no loss” as this is an exception to the double recovery rule – in other words it cannot be argued that this represents a windfall to the claimant. This is because the claimant holds the hire charge on “trust” for the insurance company - in other words she/he is obliged to pay the monies to the insurance company. There is no risk of double recovery. As mentioned in the case of W v Veolia [2011] EWHC 2010 QB, it could be argued that subrogation is not a true exception to the double recovery rule at all.

Examples of credit hire, insured hire and subrogation in cases

There can be number of different situations, including: (a) a “standalone consumer credit agreement” as in Dimond v Lovell; (b) “insured hire and subrogation” as in Bee v Jenson – the claimant is provided with a hire vehicle by a hire company, though this is facilitated by the insurance company under the insurance policy. There is a separate written agreement, whereby the insurance company is liable for the hire to the hire company and (c) a “hybrid situation” of a consumer credit agreement and subrogation as in W v Veolia - this involves a situation whereby there is a consumer credit agreement between the claimant and the hire company; however, the insurance company has paid for the hire. There is no insured hire in this situation.

Conclusion

Credit hire, insured hire and subrogation are different concepts. It is firstly important to understand them separately. They can however interact in any given case.  It is only when the differences are clearly understood that it can be understood how they can interact on a case.

It is hoped that this article will enable the reader to better understand the differences and interactions between credit hire, insured hire and subrogation.

Please note this article does not constitute legal advice for any specific case or cases.

© Mohammed Azeem Ali - January 2023