Kerry Underwood

ASSESSING RECOVERABLE AFTER-THE-EVENT INSURANCE PREMIUMS AND PROPORTIONALITY GENERALLY

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The matters dealt with in this piece are examined in great detail in my three volume, 1,300 page book Personal Injury Small Claims, Portals and Fixed Costs – price £50 and available from Underwoods Solicitors here.

Kerry Underwood offers consultancy services in relation to this and other matters and details are here.

In

West v Stockport NHS Foundation Trust and Demouilpied v Stockport NHS Foundation Trust [2019] EWCA Civ 1220 (17 July 2019)

the Court of Appeal considered the correct approach to assessing After-the-Event insurance premiums in cases where the premium remains recoverable from the paying party.

Although this case concerned premiums in clinical negligence cases, the principles will apply in defamation and privacy cases, where recoverability of success fees has been abolished, but recoverability of After-the-Event insurance premiums remains.

This may well be the model used in other areas of civil litigation going forward as it provides access to justice, a point emphasized in this case by the Court of Appeal:

 

“Access to justice must therefore be the starting point for any debate about the recoverability of ATE insurance premiums in any dispute about costs.” (Paragraph 12)

 

“If a claimant’s right to recover the ATE insurance premium in clinical negligence cases is the subject of a capricious system of cost assessment, then a claimant may be denied the very access to justice which the exception at s.58C and the Regulations were designed to protect.” (Paragraph 29)

Here, judges at first instance and on appeal had refused to allow recovery of premiums in block-rated cases, that is where the premium is not linked to a particular case, but rather where there is a fixed premium set by reference to a wide basket of cases.

To avoid solicitors cherry-picking, that is using a standard premium policy then only insuring the riskier cases, normally a solicitor will be contractually obliged to offer the policy in every appropriate case.

The Court of Appeal was critical of the National Health Service Litigation Authority, asking why, if the risk of the claimant losing the case was very low, the NHSLA had not admitted the claim from the outset. (Paragraph 17).

The NHSLA also used, as a comparator, an insurance product called LAMP.

The Court of Appeal observed:

“It appears that LAMP was a company registered in Gibraltar. It is now insolvent, although it was apparently still trading at the time of the cost assessments in these cases.” (Paragraph 18).

“30. Thirdly, there are concerns about the respondent’s repeated reliance on the burden of proof. This can be seen in their Points of Dispute documents and other written submissions, and it was noted unfavourably in the Assessors’ Report (see paragraphs 42 and 45 below). The respondent’s strategy appears to be to offer something minimal to put the reasonableness or proportionality of the ATE premium in issue, and then assert that the burden of proof falls upon the individual claimant, who will usually be unable to deal with the wider questions that might be raised concerning the insurance market. On this aspect of the case at least, the respondent has access to much more information than an individual claimant, so that the respondent’s reliance on the burden of proof has potentially a distorting effect on the costs assessment.

31. Fourthly, and related to the previous point, we note the respondent’s use of so-called comparables. We consider that, when dealing with reasonableness, detailed evidence about unarguably comparable insurance policies and premiums would be admissible. What is not permissible is reliance on the production of a few photocopied pages of another policy which, taken as a whole, is not in fact comparable.

The very lengthy judgment has a flash of comedy, with the Chief Executive of LAMP disavowing the NHSLA’s use of its own policy as a comparable:

“He [Mr Cousins, then the CEO of LAMP] described the policies with a £9,000 indemnity limit, memorably, as a ‘pregnant albatross’, referring to the fact that schedules from those policies are regularly produced, out of context and without reference to availability or scheme specifics, to challenge on detailed assessment insurer’s clinical negligence ATE premiums. That includes, ironically, LAMP’s own premiums under other schemes, which can be significantly higher …” (Paragraph 41)

 

Reasonableness of the ATE Premium

The Court of Appeal set out the four principles to be distilled from the case law:

“56.

i) Disputes about the reasonableness and recoverability of the ATE insurance premium are not to be decided on the usual case-by-case basis. Questions of reasonableness are settled at a macro level by reference to the general run of cases and the macro-economics of the ATE insurance market, and not by reference to the facts in any specific case [McMenemy].

ii) Issues of reasonableness go beyond the dictates of a particular case and include the unavoidable characteristics of the ATE insurance market [Rogers].

iii) District judges and cost judges do not have the expertise to judge the reasonableness of a premium except in very broad-brush terms, and the viability of the ATE market will be imperilled if they regard themselves (without the assistance of expert evidence) as better qualified than the underwriter to rate the financial risk the insurer faces [Rogers].

iv) It is for the paying party to raise a substantive issue as to the reasonableness of the premium which will generally only be capable of being resolved by way of expert evidence [Kris]”

The Court of Appeal said that these principles must be applied in every case because the After-the-Event insurance market is “integral to the means of providing access to justice in civil disputes [now limited to clinical negligence cases] in what may be called the post-legal aid world”, that being a direct quote from the case of

Rogers v Merthyr Tydfil County Borough Council [2006] EWCA Civ 1134.

In fact such premiums remain recoverable in mesothelioma cases and defamation and privacy cases, not just clinical negligence cases.

The suggestion in

Surrey and others v Barnet and Chase Farm Hospitals NHS Trust [2016] EWHC 1598 (QB)

that Rogers is out of date and that Costs Judges can consider ATE insurance premiums by engaging in a robust analysis and “entering the arena” is an incorrect statement of law and an unacceptable and wrong approach.

 

Guidance

If the ATE policy is a bespoke one, then the “grounds of challenge of the amount of the premium are relatively wide”. (Paragraph 64)

“65. As regards a block-rated policy, such as the policies in the present appeals, the ability of the paying party to mount a sustainable challenge will be much more restricted. The majority of challenges to block-rated premiums must relate back to the market in one way or another, and would therefore require expert evidence to resolve. In particular, it will not usually be enough for the paying party simply to give evidence that another policy was cheaper. It is not for district judges or costs judges to have to plough through the detail of allegedly comparable policies, still less to be required to assess the effect of any differences in content. An expert’s report would be required to the effect that the other policy was directly comparable to the policy under review.

66. Moreover, by reason of the contract terms commonly agreed between insurers and solicitors, an alternative block-rated policy may not in fact have been available to the receiving party in any event. That may not of itself rule out consideration of that policy as a comparable, but the challenge would involve difficult issues as to reasonableness to be resolved on the facts of the particular case.

67. Finally, a simple comparison between the value of the claim (either the claim made or the settlement sum) and the amount of the premium paid is not a reliable measure of the reasonableness of the ATE insurance premium. That would ignore the way in which the premium payable for a block-rated policy is fixed taking into account a basket of a wide range of cases. It is similar to the “swings and roundabouts” comments associated with fixed costs. In Sharp v Leeds City Council[2017] EWCA Civ 33[2017] 4 WLR 98, for example, Briggs LJ (as he then was) said:

“41. … The fixed costs regime inevitably contains swings and roundabouts, and lawyers who assist claimants by participating in it are accustomed to taking the rough with the smooth, in pursuing legal business which is profitable overall.””

 

Proportionality

The Court of Appeal ruled that a proportionality challenge is to be assessed by reference to all of the circumstances, and this encompasses matters which were not necessarily related to the case in question.

This is the so called “wider interpretation”.

A block-rated ATE premium can never be challenged on proportionality grounds.

It joins the categories of costs, such as court fees and VAT, which must always be left out of account. (see paragraphs 79 to 83).

Nevertheless, the court may still take into account the total bill, including these sacred items, and cut it on proportionality grounds, and reductions “will simply be by reference to other elements of cost, not the ATE insurance premium”.

“85. We recognise that this means that, when undertaking the proportionality exercise, it is those elements of cost which are not inevitable or which are not subject to an irreducible minimum which will be vulnerable to reduction on proportionality grounds in order that the final figure is proportionate. Such costs are, however, likely to be costs which have been incurred as a result of the exercise of judgement by the solicitor or counsel. Those are precisely the sorts of costs which the new rules as to proportionality were designed to control.

86. As should be apparent, leaving particular items out of account when considering proportionality because they are both reasonable and an unavoidable expenditure does not re-introduce theLowndstest, by which necessity always trumped proportionality. Most costs will still be subject to the proportionality requirement.”

The position will be different in relation to bespoke policies.

 

Costs Assessments Generally

The Court of Appeal gave guidance as to the correct approach to the assessment of costs generally.

“87. We are anxious not to restrict judges or force them, when assessing a bill of costs, to follow inflexible or overly-complex rules. One of the matters, however, which is apparent from the many cases cited to us, and from the submissions of counsel on the hearing of these appeals, is that there is an absence of consistency in the way in which costs bills are assessed. Taking the various points made above and drawing them together, we give the following guidance on an appropriate approach.

88. First, the judge should go through the bill line-by-line, assessing the reasonableness of each item of cost. If the judge considers it possible, appropriate and convenient when undertaking that exercise, he or she may also address the proportionality of any particular item at the same time. That is because, although reasonableness and proportionality are conceptually distinct, there can be an overlap between them, not least because reasonableness may be a necessary condition of proportionality: see Rogers at paragraph 104. This will be a matter for the judge. It will apply, for example, when the judge considers an item to be clearly disproportionate, irrespective of the final figures.

89. At the conclusion of the line-by-line exercise, there will be a total figure which the judge considers to be reasonable (and which may, as indicated, also take into account at least some aspects of proportionality). That total figure will have involved an assessment of every item of cost, including court fees, the ATE premium and the like.

90. The proportionality of that total figure must be assessed by reference to both r.44.3(5) and r.44.4(1). If that total figure is found to be proportionate, then no further assessment is required. If the judge regards the overall figure as disproportionate, then a further assessment is required. That should not be line-by-line, but should instead consider various categories of cost, such as disclosure or expert’s reports, or specific periods where particular costs were incurred, or particular parts of the profit costs.

91. At that stage, however, any reductions for proportionality should exclude those elements of costs which are properly regarded as unavoidable, such as court fees, the reasonable element of the ATE premium in clinical negligence cases, and the like. Specifically, therefore, if the ATE premium is assessed as reasonable, it will not fall to be reduced by any further assessment of proportionality.

92. The judge will undertake the proportionality assessment by looking at the different categories of costs (excluding the unavoidable items noted above) and considering, in respect of each such category, whether the costs incurred were disproportionate. If yes, then the judge will make such reduction as is appropriate. In that way, reductions for proportionality will be clear and transparent for both sides.

93. Once any further reductions have been made, the resulting figure will be the final amount of the costs assessment. There would be no further stage of standing back and, if necessary, undertaking a yet further review by reference to proportionality. That would introduce the risk of double-counting.

 

There can be no further look at proportionality.

The judgment contains a very lengthy report from the assessors, which is an extremely helpful explanation of how ATE insurance works, and how the premiums are calculated.

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Written by kerryunderwood

July 30, 2019 at 7:49 am

Posted in Uncategorized

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