INSURANCE companies could refuse to pay outstanding credit hire bills totalling £30million following a Court of Appeal ruling in their favour. The verdict will force all credit hire companies to examine their documentation carefully to make sure it complies with the 1974 Consumer Credit Act.

Credit hire firms provide temporary replacement cars free to non-fault accident victims, with the costs recovered from the blameworthy driver's insurers. The court ruled that the agreement between credit hire company and customer should comply with the CCA, unless certain provisions make it exempt.

Its verdict stemmed from a case in which the Co-operative Insurance Society refused to pay a credit hire bill incurred by the non-fault party in a car accident. The driver had received a free replacement car from credit hire firm 1st Automotive, which had then sent the bill to CIS. CIS claimed the agreement between the driver and 1st Automotive should, but did not, comply with the CCA.

The Court of Appeal accepted CIS's argument, thereby rendering the credit hire agreement 'unenforcable'. Industry-wide, the court heard that up to £30million in unpaid credit hire bills were resting on its verdict. David Faithful, solicitor and insurance partner with Amery-Parkes, said: 'This decision is a landmark for insurers. Potentially all credit hire agreements which do not comply with the Consumer Credit Act are now unenforcable.'