Insurance, Property Damage

High Court provides clarification on the rental of prestige vehicles

22 December, 2021

Introduction

On 8 December 2021 the High Court delivered their decision in Arsalan v Rixon and Nguyen v Cassim.

The decisions were appealed from the New South Wales Court of Appeal, and each relate to the situation where an insured driver has caused a collision, and where the damaged vehicle owner has rented a vehicle (effectively on a credit basis from a rental vehicle provider) during the period their vehicle is being repaired and sought recovery of the credit hire from the at fault driver.

Principles

The High Court considered whether a vehicle capable of meeting the specification and functionality of the damaged vehicle would be sufficient or whether a “like for like” vehicle could be hired as a reasonable replacement.

Background

The rental of vehicles on a credit basis by third party claimants is an area of increasing concern for insurers, particularly given the growing magnitude and prevalence of literally thousands of such matters (which are predominantly determined in lower-level Court jurisdictions across Australia).

The factual issues generally involve the following scenarios:

(i) A rental hire company (with a large part of the credit rental market being dominated by Right2Drive/Onyx and CompassCorp) provides a vehicle to the not at fault driver;

(ii) The rental vehicle is usually of a similar (or often more expensive) type of vehicle;

(iii) The rental vehicle is provided on a credit basis, at no upfront cost to the owner of the damaged vehicle; and

(iv) The rental company (in their agreement with the owner of the damaged vehicle) obtains the authority to pursue the insurer of the at fault driver for the costs incurred of the rental.

With the costs of motor vehicle claims rising and putting pressure on insurance premiums the High Court was called upon to consider the entitlement of the owner of a damaged prestige vehicle to claim the costs of renting a “like for like” similar type vehicle while their vehicle was being repaired.

It is important to note that accidents involving prestige vehicles represent only a very small share of the total number of motor vehicle accidents in Australia each year and there remain many strategies to combat such claims as will be detailed below.

Decision

In what was a relatively short judgment by High Court standards (particularly given the conflicting authorities and complexity of the issues involved), the High Court considered the following issues:

(i) Whether “loss of use” of the vehicle itself is a head of damage?

(ii) In the event that “loss of use” itself of the particular vehicle is not a sufficient measure of damages, how should the Court then assess the physical inconvenience and loss of amenity of using the damaged vehicle?

(iii) Whether the damaged vehicle owner must establish a “need” for the hire vehicle in order to obtain damages?

(iv) What steps is the owner of a damaged vehicle required to take to mitigate their loss?

(v) Is the onus upon the damaged vehicle owner to establish that the damages claimed (and steps taken to mitigate the losses) are reasonable, or alternatively is the onus upon the at fault driver (through their insurer) to establish that the damages claimed (and steps taken) are unreasonable?

In addressing the key issues raised above, the High Court held in a unanimous decision:

(a) The loss of “use” of a prestige type vehicle is not a sufficient measure of damages to which the owner of such a vehicle is entitled.

(b) Rather, the ownership of such a vehicle goes beyond the “use” of the vehicle and extends to the “loss of amenity or enjoyment of the use of the vehicle”, with references to the loss of “convenience” and “pleasure” of using such a vehicle featuring prominently in the assessment of the reasonableness of damages being claimed.

(c) Importantly, the issue of “need” (for a prestige rental vehicle) was effectively abolished, with the fact that the damaged vehicle owner having suffered physical inconvenience, loss of amenity and also having incurred “significant capital or ongoing expenditure on that prestige vehicle” being sufficient to establish an entitlement to damages.

(d) With the damaged vehicle owner not having to establish a “need” for the prestige vehicle rented, the entitlement to damages will usually be assessed as the reasonable costs incurred in renting a “substitute vehicle that is broadly equivalent to their damaged vehicle”.

(e ) With the above factors satisfied, the onus is usually then upon the Defendant to show that the owner of the damaged vehicle incurred unreasonable costs in their rental of the prestige vehicle.

In summary, the High Court has affirmed the decision of the Court of Appeal of the Supreme Court of New South Wales and in direct contrast to the decision of the Supreme Court of New South Wales, held that the owner of a damaged prestige vehicle is entitled to a “like for like” vehicle, irrespective of their usage of the damaged vehicle prior to the collision.

The only requirement is that the replacement prestige rental vehicle be “broadly equivalent”, an interesting concept which will be explored further below.

The High Court also identified specific scenarios where the owner of a damaged prestige vehicle would not be entitled to rent a similar vehicle, but such scenarios were limited to situations where such a vehicle owner was:

(i) Hospitalised or abroad whilst their vehicle was being repaired; or

(ii) Able to utilise an alternative vehicle from “idle stock”.

While the above scenarios were described by the High Court as being “exceptional”, with the owner of a damaged prestige vehicle otherwise being entitled to rent a similar vehicle, it is not difficult to think of other similar scenarios. For example, individuals affected by COVID and in lockdown or quarantine, may not be entitled to a vehicle at all.

It is interesting to note that in the High Court Summary of the decision it is stated that the plaintiff was entitled to rent:

“…a replacement vehicle of broadly equivalent value to the damaged vehicle” (emphasis added)

As a result of the above summary, there has been commentary online adopting the wording used as the decision of the High Court, but it is important to note that the actual wording used in the High Court decision is:

“…a substitute vehicle that is broadly equivalent to their damaged vehicle”.

The High Court was not called upon to consider whether the cars hired by Mr Rixon and Mr Cassim were broadly equivalent to the car each of them had owned. This will remain a fertile area for dispute. The defendant will still be entitled to argue that the replacement vehicle hired, “in light of the range of vehicles that might fairly be regarded as equivalent to the damaged vehicle”, was unreasonable.

The specification, performance, age, condition, and value of the vehicle are all matters which may be considered relevant by the Court when assessing whether the replacement vehicle was “broadly equivalent”, however, we urge caution on reliance on the High Court Summary to assert that the dollar value of a car might be the key criterion to assess whether a vehicle might be of “broadly equivalent value”.

Why this case is important

Despite the High Court decision being widely regarded as a resounding victory for the credit rental industry, it is important to note that the decision related only to the issue of the “need” for a replacement prestige vehicle.

The decision did not relate to the assessment of the reasonableness of the amount claimed in respect of rental costs for a like for like prestige vehicle.

As a result, insurers are still able to apply all available pressure upon credit rental providers to ensure that the following elements of the rental claim are substantiated.

The rental period claimed must be reasonable

The High Court decision specifically referred to the “reasonable period of time for repairs”. There are various strategies available to insurers to ensure that the repair period (and accompanying rental period) are substantiated as reasonable, including the request for provision of all repair documentation and the compelling of the repairer to attend at Court at the determination of the rental claim if required.

In the absence of such supporting evidence and documentation, significant reductions can be made in the total claim payable, by limiting the rental period only to the reasonable repair period (notwithstanding that there may be no fault on the part of the damaged vehicle owner for any unreasonable delays in the repair process).

The rate of hire must be reasonable

The issue of the reasonableness of daily rates claimed for credit rental vehicles has long been a battleground for many thousands of cases determined by Courts across Australia.

Whilst the High Court decision now firmly places the onus upon insurers to establish that the daily rates charged by rental entities are unreasonable, there are many strategies that can be employed by insurers to ensure that such claims are properly substantiated as reasonable.

Insurers can rely upon daily and weekly rental rates from mainstream rental companies (such as Hertz and Thrifty) for prestige vehicles, particularly given that these companies have greatly expanded their offering of prestige vehicles in recent years.

Relevant rates from mainstream rental companies can be obtained under Subpoena if the rental claim is litigated. In addition, representatives of the respective rental companies can assist in giving evidence at hearing if required, no doubt due to their willingness to combat the rapid rise of credit rental entities which are clearly impacting their more reasonably priced business model.

It can also be submitted in combatting such claims that it is unreasonable for the owner of a damaged prestige vehicle to claim a daily rental rate for what may be an extended rental period. Mainstream rental vehicle companies offer significantly discounted rates when a prestige vehicle is rented for a weekly or monthly period, and that when lengthy repairs are required such delays are known (or should be known) to the owner of the damaged prestige vehicle.

Whilst the High Court decision has been described by many as an obstacle for insurers in defending credit rental claims for prestige vehicles, the principles emanating from the reasoning of the High Court are only applicable to a very small section of claims in the burgeoning credit rental industry.

Even in respect of the prestige vehicle rental claims to which the High Court decision does apply, as outlined above there still remain firm grounds for insurers to combat the reasonableness of these often exorbitant claims.

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Government

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