UK insurers have unnecessarily paid out millions of pounds in hire car charges, as a result of "secret" arrangements.

The claims relate to the credit hire arrangements between now defunct uninsured loss recovery (ULR) company Motor Law and credit hire company Dash Motor Services (Dash).

A source close to the arrangement claimed that Dash should not have been able to recover the hire charges from third party insurers, as an underlying contract precluded this.

The contract said: "...the hirer [Dash] agrees that no such recovery [of hire charges] may proceed without prior reference to and written consent from the company [Motor Law]."

The source said that consent was unlikely to have been given. "Motor Law is acting for its clients. Why would it allow Dash to recover from clients?"

The source said existence of the contract was never revealed to defendant insurers. "If insurers had known about the first contract, none of the charges would have been recoverable. It could have saved insurers as much as £50m."

Royal & SunAlliance technical consultant John Hall said: "These agreements are an area of great concern to the market. The problem is that many are secret."

Recent years have seen a number of test cases in the field of credit hire, including Dimond v Lovell [2000].

Credit hire charges cost the insurance industry hundreds of millions of pounds. The source said much of these hire costs may also have been unnecessarily paid if a similar underlying contract existed between the ULR provider and the credit hire company.

Norwich Union technical claims director Dominic Clayden said: "It raises some interesting points and we will be investigating further."

Dash was unable to comment for legal reasons.