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After the Event Insurance

July 2006

The recovery of ATE premiums cause many difficulties for costs draftsmen and lawyers advising their clients.  Difficulties are also encountered by  judges in assessing premiums as there is little guidance in the CPR regarding the recoverability of premiums.

Paragraph 11.10 of the Costs Practice Direction is the only section of the CPR that deals with ATE premiums.  This section provides:

In deciding whether the cost of insurance cover is reasonable, relevant factors to be taken into account include:

(1) where the cost of insurance cover is not purchased in support of a conditional fee agreement with a success fee, how its cost compares with the likely cost of funding the case with a conditional fee agreement with a success fee and supporting insurance cover;
(2) the level and extent of the cover provided;
(3) the availability of any pre-existing insurance cover;
(4) whether any part of the premium would be rebated in the event of early settlement;
(5) the amount of commission payable to the receiving party or his legal representatives or other agents

This practice direction is of limited assistance to a judge when assessing ATE premiums, which begs the question of how they should be assessed.  The problem is that almost all ATE insurance policies taken out are not actually paid for by Claimants, but are picked up by the paying party at the conclusion of the costs proceedings.  This means that there is no real market, as the party taking out the policy will never actually have to pay the premium.  In these circumstances, the level of the premium is at the discretion of the judge.  This was made clear in Callery v Gray [2002] UKHL 28 which stated that “There is only one restraining force on the premium charged and that is how much the costs judge will allow on an assessment against the liability insurer”.

It is now accepted that proportionality does apply to additional liabilities in the same way as base costs (see CPR 44.5(1) and Campbell v MGN Ltd (No 2) [2005] UKHL 61 and King v Telegraph).  However, it is unclear how a judge is to apply the issue of proportionality to a premium.  If a premium is reasonable in the light of the likely costs and risks of failure, then can a judge reduce it if the premium is nonetheless disproportionate to the sums in issue?

The position is made no easier if the Lowndes test of necessity is applied, as it must be questioned how the Court can decide whether a particular premium was necessary.  If the receiving party says that there was only one appropriate policy available then how can a judge refuse to allow that premium?  It would be harsh to say that the policy was “unnecessary” and that the client should have proceeded without insurance.

In practice it has proved very hard for paying parties to make any headway in reducing ATE premiums and the lesson appears to be that it is very difficult for paying parties to successfully challenge high premiums.  It is possible to argue that a premium is unreasonably high in the light of the level of risk and the level of cover required, as the paying parties successfully contended in the RSA Pursuit test cases.  Although it must be noted that the detailed calculations of premium set out in that judgment were based on adapted versions of the insurers’ own rating formula and will not apply to policies from other insurers.

The Court of Appeal appears to have concerns regarding the issues in relation to ATE insurance premiums, and Brooke LJ is presently seeking to use a case before the Court, Rogers v Merthyr Tydfil, as a test case about various issues arising in ATE cases including stepped premiums and the effect of self-insuring policies.  The case is to be heard on 17 July 2006 and it is hoped that this case will give the Court of Appeal  the opportunity to clarify the approach which judges should take, which in turn will provide much needed guidance for practitioners when advising their clients on the likely level of recoverability of ATE premiums.

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Date:29 June 2022     Time:10:03:31