Keoghs, a Davies business, has successfully saved its insurer clients over £57,000 in two recent cases by successfully reaffirming and extending the loss of profit rule in excessive credit hire claims, bringing the total saved for insurers by Keoghs for taxi credit hire alone over the last 12 months to over £5m.
First established in Hussain v EUI, the loss of profit rule applies in relation to credit hire claims brought where the vehicle is used for profit-generating purposes, and unless an exception applies, limits the recoverable amount to the profit generated during the hire period.
In two significant judgments, the court was required to give further guidance on the practical application of the potential exceptions to the loss of profit rule, making clear that they are available only in truly exceptional cases. Significantly, it was held that the exceptions cannot apply where the business use is not sufficiently profitable.
LOSS OF PROFIT RULE
Speaking of the judgments, Gary Herring, Head of Credit Hire at Keoghs said: “These cases shine light on the practice of disproportionate credit hire claims being generated on the basis of a purported need for business use, where the costs incurred commonly run into vast multiples of the profit generated by the business during the hire period.
“The two judgments represent a positive development of the loss of profit rule, creating a more stringent test to be applied than has previously been the case, which should result in fewer taxi and courier claims in which excessive credit hire charges are recoverable going forward.”
Herring, who was also the lead lawyer on the original case, Hussain v EUI in 2019, and the Keoghs complex credit hire team founded the defence of two cases, Mahmood v Liverpool Victoria Insurance Company and Nabozny v Newton involving a taxi driver and courier respectively.
£258 PER DAY
In Mahmood, the claimant hired a replacement taxi for 124 days at the rate of £258 per day, amounting to a total cost of hire of £31,992. The evidence showed that the claimant’s reported profit for the most recent tax year was £8,062, equating to £155 per week, or just £6.72 per hour. The claimant and the credit hire organisation sought unsuccessfully to rely on all three Hussain exceptions; arguing that it was reasonable to credit hire because of a ‘real risk of a greater loss’, that there was also a need for social, domestic and pleasure use, and that he was impecunious.
However, Keoghs’ defence, founded on the claimant’s failure to mitigate his loss given the obvious disproportion between the profits generated during the hire period and the hire cost incurred by the claimant, was successful. £1,805 was awarded against the pleaded amount for credit hire of £31,992.
“The judgment of HHJ Malek is a welcome reminder that the availability of the potential exceptions to the general rule which were discussed in Hussain v EUI ought to be just that – exceptional,” explained Herring.
“The judgment is persuasive and is likely to have significant ramifications, particularly given that the vast majority of credit hire claims pursued in the name of self-employed taxi driver claimants concern reported profit figures which are strikingly similar to the £8,062 showing in the tax return of Mr Mahmood. As such many, if not most, taxi driver claimants will similarly be hiring for the purpose of continuing work that “yields income which is less than the equivalent National Living Wage”. Credit hire organisations should no longer expect hire charges to be recoverable in these circumstances.”
MOPED HIRE COURIER CASE
In Nabozny, the second of the two cases, the claimant, a motorcycle courier hired a replacement moped for 132 days and sought a total of £28,869.84 in hire charges, whereas the claimant’s profit earned from her work as a courier during the period of hire was just £528. The claimant was awarded a total sum of £1,428 in the judgment, which represents the first known decision at appellate level where the principles of Hussain v EUI have been applied to a motorcycle courier rather than a taxi driver.
Herring advised: “Going forward, insurers should consider making ‘Copley’ intervention offers for both a standard vehicle and a cash sum for loss of profit at the same time, particularly where a plated taxi is unlikely to be available to be sourced. This is likely to considerably diminish a claimant’s prospects of successfully arguing that either a need for an SD&P vehicle, or a lack of funds, applies as an exception to Hussain v EUI.”