A Court of Appeal ruling could put a stop to frivolous lawsuits over insurers refusing to pay car hire claims, according to DAS Legal Expenses.

Royal & SunAlliance (R&SA) stands to pay legal costs in the region of £1m following a long-running dispute with DAS over the insurer’s refusal to pay a £610 replacement car hire claim after its client was at fault in a collision in 2004.

R&SA argued that DAS had a commercial arrangement with the car hire agency HelpHire and refused to pay the claim until it knew what percentage of the total cost was commission.

A High Court judge ruled in favour of DAS in December 2006 and ordered R&SA to pay the claim and full costs, stating that HelpHire’s rates were competitive.

R&SA challenged the ruling but lost on appeal. DAS claimed the insurer now faces legal expenses of around £1m.

Kathryn Mortimer, head of legal services for DAS, claimed the case could set an important precedent and reduce the number of car hire claims reaching the courts.

She said: “This shows that the courts are looking at the amount and whether it’s reasonable within the market rate. They are not looking at the commercial arrangement.

“We’ll now see significantly fewer challenges to car hire claims. That’s why the appeal was allowed because [the court] felt it was important for the insurance industry.”

Mortimer added: “Challenges have arisen because third-party insurers are aware that there are commercial arrangements between parties. But the judge was very clear that he didn’t want to know about that.”

Khalid Mahmood, a solicitor with DLA Piper UK, called the decision signif-icant for the insurance industry. He said the case reaffirmed the basic principle that insurers were responsible for paying the reasonable losses of claimants, which included a replacement vehicle.

He said: “The decision may lead to an increase in pay-outs by insurers for replacement vehicles as more of them enter into arrangements with the likes of DAS, to save on the cost of providing ‘free’ courtesy vehicles.

“This benefit will then be included for their policy-holders under the terms of their motor policies.”

Royal & SunAlliance said it was considering appealing the decision.