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Ownership and credit or hire purchase interest

When you apply for car insurance on a quotation or proposal form you must have what is known as an ‘insurable interest’ in the vehicle.

You will be asked a question along the lines of:

Is the proposer the owner of each vehicle?

Is the vehicle being acquired under a hire purchase agreement? If so, please state the name of the hire purchase company. (It should be noted here that hire purchase companies and finance houses generally insist that vehicles in which they have an interest are insured comprehensively to protect their security.)

Is each vehicle registered in the owner’s name?

The answers to these questions will indicate whether the proposal is being made by one person on behalf of another. This other person may by reason of age, record or occupation attract heavier than normal terms and higher premiums.

The answer to whether the car is under a credit agreement is particularly important. Insurers do not endorse their policies noting the interest of the hire purchase company but most policies covering damage to the vehicle are so worded that any payment in cash in respect of own damage may be made direct to the hire purchase company. This protects the hire purchase company’s interest if the vehicle is being treated as a total loss. The credit purchase company cannot recover more than the balance outstanding on their agreement, any excess amount being paid to the insured.

There is another, most important, problem to consider in connection with the involvement of hire purchase or finance houses in the ownership of motor vehicles and the problem was highlighted by the case of Moorgate Mercantile Company Ltd. v Twitchings (1976). Mr. Twitchings, a motor dealer, was offered a Ford Lotus Cortina by a Mr. McLarg and before accepting the offer Mr. Twitchings went through the normal procedure by contacting Hire Purchase Information, a body established to protect its members, whether finance house or dealers, against the risk of fraud in connection with the hire purchase of motor vehicles. H.P.I. informed Mr. Twitchings that they had no record of any of their members having an interest in that particular vehicle and on the basis of that information, Mr. Twitchings concluded the deal with Mr. McLarg. It so happened that a finance house, Moorgate Mercantile Company Ltd. did have an interest in the vehicle which was the subject of a hire purchase agreement with them, but for some unaccountable reason the registration card which they had sent to H.P.I. informing the latter of the situation never reached its destination. Mr. Twitchings subsequently sold the car to a Mr. Morley and Moorgate pursued an action, based on the tort of conversion, against Mr. Morley because his purchase of the vehicle involved Moorgate’s property. When the case came to the County Court the judge held that Moorgate should succeed in their action because Mr. Twitchings had not discharged the onus of proving carelessness by Moorgate. The Court of Appeal subsequently reversed this decision on the grounds that Mr. Twitchings had been told by H.P.I. that there was no hire purchase interest and had acted fairly and reasonably on that information. The case eventually went to the House of Lords who decided, by a majority of three to two, in favor of Moorgate on the grounds that the dealer or finance house acting on a negative report from H.P.I. must regard it as the taking of a reasonable business risk. One of the Law Lords argued that Moorgate was under no duty to a motor dealer to take reasonable care to register the hire purchase agreement with H.P.I.

The decision of the Court of Appeal in this case stated a position that was convenient for insurers. If an insurance company is dealing with a claim for the total loss of a vehicle and is told by H.P.I. that there is no hire purchase interest in the vehicle, the insurer could simply settle the insured’s claim and sell the wreckage of the vehicle for the highest price obtainable without being open to any subsequent recourse by a finance house. The House of Lords decision makes the insurer’s position rather more precarious, however, because even if the insurer makes the usual inquiry of H.P.I. and receives a negative reply, the insurer could be found legally liable in conversion to the true owner if the insurer should sell the wreckage and pocket the proceeds. The insurer would have a right of recovery from the insured but this could prove worthless if the insured has vanished, taking his insurer’s cheque with him. Therefore a credit or hire purchase aspect is by no means ‘open and shut’ and will always be investigated most thoroughly by insurers.

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