Negligent Drivers and Rental Cars
Liability for rental car costs
The law determining when a negligent party is liable to meet an innocent party’s cost of hiring a rental car in New Zealand is reasonably clear. Where the innocent party needs to hire a rental car while his or her car is being repaired, (i.e. the innocent party is not in hospital or otherwise indisposed at the time), the negligent driver is liable for the hire cost as long as the rental car is broadly comparable and the cost is reasonable.
Now let’s add another factor to this scenario. Let’s say a wealthy friend of the innocent party offers to hire his spare car to that party at the current hire rate for rental cars. The wealthy friend requires the innocent party to sign a contract to this effect. The contract also appoints the friend as the innocent party’s agent allowing the friend to use his best endeavours to recover the hire cost from the negligent party. If the innocent party does recover the cost, he or she must pay the money over to the friend. If the innocent party does not recover the cost, then the innocent party must pay the hire cost to the wealthy friend.
In addition to this, the wealthy friend tells the innocent party that despite what the contract says, he, the innocent party, will never actually pay the hire cost; the friend will always waive it. In other words, the rental car will always be free to the innocent party.
Subsequently, the wealthy friend takes legal action in the innocent party’s name against the negligent driver for the hire cost. The negligent party becomes aware of the arrangement between the innocent party and his wealthy friend, including the verbal assurance that the rental car will always be free. The negligent party defends the legal action brought by the innocent party.
As the innocent party will never ultimately be out of pocket by the amount of the hire cost, the innocent party cannot recover that cost from the negligent party – right. Wrong.
If you substitute Right2Drive (New Zealand) Limited for the wealthy friend, Mr Blumberg for the innocent party and Vero for the negligent driver’s liability insurer, you have the real parties (along with others) behind a similar fact scenario in the recent Court of Appeal decision of Frucor Beverages Limited and others v Ilan Blumberg and others  NZCA 547.
Right2Drive has been operating in New Zealand since 2016. It is a so-called credit hire company. It is one of several credit hire companies providing rental cars to uninsured victims of negligent drivers in New Zealand. Businesses in England and Australia have used this model for many years and both jurisdictions have case law addressing similar issues to those argued in this case.
Most motor vehicle insurers in New Zealand have been refusing to pay their insureds’ alleged liability to the credit hire companies for some time. The issue came to a head in this court case, which proceeded as a leading case. Right2Drive advised the Court that negligent parties’ insurers owed it $4.9 million to date.
The insurers’ main argument was that unless the innocent parties were under a legal obligation to pay Right2Drive the hire cost, the innocent parties were no worse off by hiring the rental cars.
The insurers noted Right2Drive’s assurances to innocent parties that they would never have to meet the hire cost, despite what the rental agreements said to the contrary. Therefore, as the innocent parties were never worse off, they had nothing to recover from the negligent drivers.
While the insurers’ argument will sound familiar to people in the insurance industry who are used to the principle of indemnity that applies to insurance law, there is clear Australian and English law to the contrary when it comes to the tort law applying to this scenario.
In an example of the adage that ‘hard cases make bad law’, the High Court of Australia unanimously found in 1977 that a plaintiff injured by the negligent act of another, can recover damages for nursing and other services provided to him gratuitously by his financé and members of his family. One of the Judges relied on this passage from the earlier House of Lords case of Parry v Cleaver  AC 1:
It would be revolting to the ordinary man’s sense of justice, and therefore contrary to public policy, that the sufferer should have his damages reduced so that he would gain nothing from the benevolence of his friends or relations or of the public at large, and that the only gainer would be the wrongdoer.
More recently, the NSW Court of Appeal adopted the same position in Anthanasopoulous v Moseley  NZWCA 266. It found that it made no difference to the recoverability of hire costs from negligent parties that the insurers of the innocent parties had met those costs voluntarily (they were not covered under their motor policies).
English case law has firmly established that a plaintiff can recover the cost of hiring a car to replace one damaged through the defendant’s negligence, notwithstanding that the plaintiff will not or may not have to pay the car hire costs. The leading House of Lords authority dates back to 1994.
The Court of Appeal followed the Australian and English cases to find that the negligent drivers were liable to the innocent parties for their hire costs, despite the fact that they would never meet the hire costs themselves.
Remembering that the negligent drivers are claiming under the liability sections of their motor vehicle policies, this liability they have under tort law will trigger cover under the policy, subject to its terms.
The decision will be unwelcome to many motor vehicle insurers.
Perhaps in anticipation of this, the Court of Appeal judgment concludes with these remarks:
 All of this does not reflect well on the motor vehicle insurers who are the real appellants. These insurers are certainly entitled to hold R2D to hiring a vehicle broadly similar to that damaged, and at a reasonable market rate. But instead of being seemingly intent on knocking R2D out of business, it is hoped that New Zealand’s motor vehicle insurers will now accept that R2D is providing a service that should be available to not-at-fault drivers because it minimises inconvenience to them. The judgments of the House of Lords in Dimond v Lovell, particularly but not only that of Lord Nicholls, should be mandatory reading for these insurers.
We quote extracts from Lord Nicholls’ judgment in that case:
These proceedings arise out of an everyday occurrence. Momentary inattention by a driver results in his car running into and damaging another vehicle. The damaged car needs repair and is off the road for some days while being repaired. The owner of the damaged car requires a replacement vehicle. Many car insurance policies make no provision for a replacement if the insured car is damaged in an accident. So the victim of a no fault accident has to make his own arrangements to tide himself over the days he is without his car.
Under an ordinary car hiring arrangement, the hirer has to produce the hire charge up front. Usually the amount of money involved is not large, but for many people it is still a considerable sum to have to find. Further, there is no certainty the money will ever be recovered from the insurers of the car whose driver was at fault. The innocent motorist has no clout when it comes to seeking payment from someone else’s insurers. And no one would wish to become involved in court proceedings to recover the money from the insurers. So there are many cases where innocent motorists make do as best they can. They manage somehow without a car, or borrow one from a relation, or get lifts from friends. Either that, or they hire a car and write off the hire charge as just one of those things.
So it comes about that accident car hire companies are fulfilling a real need. They provide replacement cars and additional services as well. The hirer does not have to produce any money, either at the time of the hiring or at all. The hire company pursues the allegedly negligent driver’s insurers. The hire company is not deterred by having to bring court proceedings should this become necessary. If the claim is unsuccessful, in practice the hire company does not pursue the hirer.
These are valuable additional services. At first sight there seems to be no reason why the negligent driver’s insurers should have to pay for these additional services. If a car owner wishes to have these services he should pay for them himself. I consider this would be to take too narrow a view of the position in which the no-fault driver finds himself. The position in law is that the negligent driver, backed by his insurers, is liable to pay reasonable charges incurred in hiring a replacement car if this is reasonably necessary. For many motorists the existence of this liability of the other motorist can be more theoretical than real. In practice this source of recompense frequently does not yield money, or even an acceptance of liability, in time to be of use. In Giles v. Thompson  1 AC 142, 155A, Lord Mustill observed that:
‘ . . . there exists in practical terms a gap in the remedies available to the motorist, from which the errant driver, and hence his insurers, frequently profit’.
The additional services provided by accident car hire companies bridge this gap. They redress the imbalance between the individual car owner and the insurance companies. They enable car owners to shift from themselves to the insurance companies a loss which properly belongs to the insurers but which, in practice, owners of cars often have to bear themselves. So long as the charge for the additional services is reasonable, this charge should be part of the recoverable damages.
To those familiar with, or practising, insurance law, this position under tort law may seem anathema. It is contrary to the principle of indemnity applying to insurance law. However, a liability policy covers the type of liability that applies in the particular situation (subject to its terms) and in this case, it is tort law.
As the Court of Appeal’s decision follows well-established law in Australia and England, it is hard to see our Supreme Court wishing to disagree with it.
Assuming there is no successful appeal to the Supreme Court, the legal position in New Zealand is now clear:
- The fact that a credit hire company is behind an uninsured third party’s claim for car hire costs against an insured negligent driver is no defence.
- However, the following two requirements must still be met in order for the negligent driver to be legally liable:
- The third party must reasonably have needed the rental car (i.e. the third party was not overseas or in hospital at the time), and
- The hire charges are reasonable.
Of course, now that motor vehicle insurers know they must meet this additional head of damages under the liability section of their policies, they may wish to consider, either individually or collectively, offering their own rental car service, perhaps through their recommended repairer network, at a lower cost than the credit hire companies do.
Please feel free to contact us if you require any further information.