Key case for motor vehicle insurers

Late last year, the Court of Appeal issued its decision in the “Right2Drive” litigation – three leading cases dealing with at-fault drivers’ liability for replacement car hire costs incurred by the not-at-fault party.

 In these cases, not-at-fault drivers hired replacement vehicles from Right2Drive (New Zealand) Limited (R2D). While the rental agreement provided for a hire fee, R2D advertised on the basis that not-at-fault drivers would not, in fact, be charged a fee. R2D then sought to recover the hire fees from the at-fault drivers’ insurers. The insurers resisted payment on the basis that the hire fees were not a recoverable loss because the not-at-fault drivers would never in fact be required to pay them.

The Court of Appeal upheld the High Court’s decision, finding that at-fault drivers are liable for these hire costs, including delivery and collection fees, notwithstanding that the not-at-fault drivers may not in reality be required to pay them.

Companies like R2D have been the subject of much litigation in the United Kingdom and Australia, as they are perceived to be more expensive than traditional hire companies. However, the Court of Appeal in this case sent a clear message to insurers, warning against taking technical points. The Court commented that this litigation:

“… 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 to be 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 at-fault drivers’ insurers have sought leave to appeal to the Supreme Court. As at 31 January 2020, the Supreme Court was yet to decide whether to grant leave to appeal. However, motor vehicle insurers should consider the implications of this judgment, not only in the way they handle claims, but also in their underlying business models.


While this decision relates to three cases, the Court restricted its summary of the facts to those relevant to Mr Blumberg, the first-named respondent.

Mr Blumberg’s car was damaged in a collision with a vehicle driven by an employee of Frucor Beverages Limited. Frucor’s insurer sent Mr Blumberg to Barrys Point Panelbeaters & Painters to have the damage repaired. The repair was initially estimated to take two to three weeks. However, it took 33 days in total, due to the need for additional replacement parts and delays in ordering the parts.

When Mr Blumberg took his car in to be repaired, the panel beater told him that a courtesy car was not available and referred him to R2D. R2D advised Mr Blumberg that it would provide a replacement vehicle free of charge. Mr Blumberg signed a rental agreement, which said that R2D would use its best endeavours to recover the hire charges from the at-fault driver or its insurer, but “after expiry of the credit period R2D may demand that the hirer pay,and if so demanded this hirer shall pay forthwith, any charges unrecovered” from the at-fault driver or its insurer. The rental agreement also gave R2D authority to act on his behalf (Hire Agreement).

After the hire period ended, R2D prepared an invoice addressed to Mr Blumberg for hire charges of $3,782.46 (plus GST), together with a delivery and collection fee. When Frucor’s insurer refused to pay the invoice, R2D issued proceedings against Frucor in Mr Blumberg’s name.

The High Court found that Mr Blumberg and the other not-at-fault drivers were entitled to claim R2D’s hire costs as special damages i.e. costs incurred in mitigating the loss arising from deprivation of their vehicles, providing that:

a) they acted reasonably in hiring a replacement car; and

b) the hire charges were reasonable.

The fact that liability for these charges would not have been enforced against Mr Blumberg did not affect their recoverability.

Court of Appeal decision

In finding for R2D, the Court of Appeal upheld the High Court decision, finding that:

  • The Hire Agreement was not ‘champertous’: Frucor’s insurer asserted that R2D’s ability to sue in Mr Blumberg’s name amounted to an improper assignment of a bare cause of action, barred by the tort of champerty. However, the Court of Appeal found that R2D had a genuine commercial interest in Mr Blumberg recovering the charges from Frucor and was entitled to sue in his name. This was not a case where R2D had taken assignment of a bare cause of action in which it had no commercial interest.
  • The correct test for determining reasonableness is an objective assessment of what a prudent driver would do: The Court of Appeal found that Mr Blumberg did not act unreasonably by hiring a car from R2D simply because it was convenient: “Having damaged Mr Blumberg’s car and having put him to the inconvenience of having to arrange for its replace and for a replacement vehicle during the repair period, Frucor cannot be heard to criticise Mr Blumberg for taking the most convenient option available to him.” It was relevant that the panel beater could not offer a courtesy car, he was unsure of the length of time he would require one so traditional rental companies were not convenient, Frucor’s insurer did not offer to provide Mr Blumberg with a replacement car and nor did it promote such a service on its website.
  • The 2015 Mitsubishi ASX hire car was a comparable vehicle: The Court of Appeal found that “…the replacement need be no more than in the same broad range of quality and nature as the damaged car”. In this case the 2015 Mitsubishi ASX was a comparable vehicle to Mr Blumberg’s 2005 Nissan Wingroad. In making an assessment “one must not be hypnotised by any supposed need to find an exact spot rate for an almost exactly comparable car…”
  • Delay in repair works was not an intervening cause disentitling Mr Blumberg from recovering the charges: Frucor argued that delays caused by the panel beater’s carelessness in not ordering replacement parts in a timely fashion disentitled Mr Blumberg from recovering charges for the period of that delay. The Court rejected this, nothing that “it is foreseeable that there may be delays when vehicles are given to a repairer due to either the need to obtain parts, due to heavy workloads for repairers or insurance assessors having competing priorities”.
  • Interest was payable for non-payment of R2D’s invoice: Under Mr Blumberg’s rental agreement, R2D was entitled to interest on charges that remained unpaid after the 90-day credit period ended. Frucor’s insurer should have paid R2D’s invoice to Mr Blumberg when it received it. Had it done so, R2D would not have been out of its money. If interest was not awarded Frucor’s insurer would have received a windfall and R2D would have suffered hardship.

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