Unfortunately the workings of the after the event insurance market are often misunderstood upon assessment and there have been conflicting first instance decisions. The recent decision in Banks v London Borough of Hillingdon (2016), presently unreported but hopefully to appear soon in the Costs Law Reports, should assist in clearing the matter up.

The Banks case involves an appeal against a decision of the Senior Costs Judge. The Claimant had taken out a staged ATE policy with DAS Legal Expenses / LawAssist at a cost of £24, 694.25 (being £23,295 plus insurance premium tax). The Defendant had challenged the premium on the basis that it was disproportionate to the damages recovered, argued that the risk of paying out was quite low, referenced the costs insured, relied upon Kelly v Black Horse Limited [2013] EWHC B17 (Costs), advanced that there were other policies available for the same level of cover at much lower sums and challenged the need for a limit of indemnity of £100, 000.

The original action involved a personal injury claim as a result of a tripping incident, with the Defendant denying liability and maintaining that denial to trial. The Claimant was successful at trial and recovered damages of £6, 890, with the Defendant to pay her costs, to be assessed if not agreed.

Upon the original paper provisional assessment Master Gordon-Saker assessed the premium at £9, 375 plus insurance premium tax – a reduction of more than 60% of the premium. Before the oral provisional assessment hearing the Claimant put in evidence from the Claimant’s insurer in relation to the premium calculation and from the Claimant’s solicitor in relation to the selection of the premium. The Defendant did not put in any evidence to support its challenge to the size of the premium.

The insurance premium was the same type of DAS premium which the Court of Appeal had considered in the Rogers v Merthyr Tydfil County Borough Council [2006] EWCA Civ 1134 case, however the insurers had since increased the multiplier that they applied to the estimated maximum loss figure at stage C of the premium to 125%, to reflect their insurance risk across their book of business.

At the oral hearing the sum allowed was maintained, and giving judgment the Master stated:

“While this court does not consider itself to be “better qualified than the underwriter to rate the financial risk the insurer faces”, I do not read the judgment of the Court of Appeal in Rogers as preventing me from judging the reasonableness of the premium in very broad brush terms – the approach taken in both Redwing and Kelly. Where, as here, the premium is obviously unreasonable, the court must be able to approach the matter in very broad brush terms.”

Master Gordon-Saker gave permission to appeal on the grounds of a compelling reason for the appeal to be heard, “namely the conflicting cases on this topic”.

Upon appeal the Claimant/Appellant’s argued that it was wrong for the Master to conclude that it was unreasonable for a premium to be incurred of £24, 684.75 to insure against a liability of approximately £17, 000, contending that the Master had erred in rejecting a book-based or ‘basket of risk’ approach to the insurance. In response the Defendant contended that the Master was entitled to reject that approach where, as here, there was a hybrid approach being taken by the insurers – namely that stages A and B of the premium were block rated and stage C was calculated individually taking into account the estimated maximum loss. The Defendant argued that this meant an individual assessment of risk to the particular case was required, which the Claimant did not accept.

Highlighting that judgment in Rogers was binding upon the Master and the appeal court, and that it was a decision of a strong Court of Appeal and a case in which the Law Society and other major ATE providers intervened, Her Honour Judge Walden-Smith (sitting with DJ Lethem as assessor) allowed the Claimant’s appeal.

She referenced the fact that both the Banks and Rogers cases involved claims for relatively modest personal injury damages, and that Rogers established “that the fact that the ATE premium is large compared with the damages agreed does not necessarily mean that the ATE premium is disproportionate.”

Importantly the guidance at paragraph 117 of Rogers was referred to, to the effect that:

“District judges and costs judges do not, as Lord Hoffmann observed in Callery v Gray (Nos 1 and 2) [2002] UKHL 28 at [44]; [2002] 1 WLR 2000, 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.

HHJ Walden-Smith held that it was not for the Master to re-calculate the premium as he was without access to the whole basket of risk, and accordingly he had misdirected himself in determining that Rogers permitted him to judge the reasonableness of the premium in very broad brush terms, as had been the approach in Redwing Construction Ltd v Wishart [2011] EWHC 19 (TCC) and Kelly v Black Horse Limited [2013] EWHC B17 (Costs).

It was observed that the Judge in Redwing was conducting a summary assessment of costs where the premium was a single-stage premium and there was no evidence before the Judge as to how the premium was calculated – and it was not the correct approach on detailed assessment. In relation to Kelly this was persuasive and not binding, which involved a single stage premium and where the Claimant had failed to provide the necessary evidence to support the ATE premium claimed.

So what do paying parties need to do when challenging insurance premiums?

Kris Motor Spares v Fox Williams LLP [2010] EWHC 1008 (QB) confirms that, with reference to paragraph 117 of Rogers;

“where the issue is raised as to the size of the premium there is an evidential burden on the paying party to advance at least some material in support of the contention that the premium is unreasonable” and “challenges must be resolved on the basis of evidence and analysis, rather than by assertion and counter-assertion.”

It was held in Banks that in the absence of any evidence from the Defendant the Master did not have evidence which he could rely upon to resolve the challenge in the Defendant’s favour. This can also be seen in operation in Nokes v Heart of England Foundation NHS Trust [2015] EWHC B6 (Costs) at paragraphs 99 and 102.

What a paying party cannot do is rely upon headline figures such as Litigation Funding (see paragraph 111 of Rogers). The courts would also be in difficulty in considering any policies proposed as comparators without full details as to how the alternative premium(s) have been calculated, and whether they would have been available to the Claimant.

What does the receiving party need to do to support the premium?

Paragraph 117 of Rogers provides that “If an issue arises about the size of a second or third stage premium, it will ordinarily be sufficient for a claimant’s solicitor to write a brief note for the purposes of the costs assessment explaining how he came to choose the particular ATE product for his client, and the basis on which the premium is rated – whether block rated or individually rated” and this requirement used to appear at paragraph 39.2 of the former Costs Practice Direction.

It is apparent that the courts are looking to receive evidence from the Claimant’s insurers in support of the premium. This is with reference to the requirement at paragraph 117 of Rogers that District Judges and Costs Judges should not regard themselves as better qualified than the underwriter to rate the financial risk the insurer faces without the assistance of expert evidence.

I also note the comments made by Master Leonard in Nokes at paragraph 101 that:

“It may well be appropriate, for example, to reduce an ATE premium where (all other elements of the calculation aside) it is evident that the prospects of success of a given case must have been miscalculated or misrepresented to the insurer. Kelly v Black Horse and Redwing v Wishart both furnish examples of that.”

So where a premium is calculated based upon the case specific risk, as opposed to the insurance book risk, the receiving party needs to ensure that the premium is correctly calculated.

What does the court need to consider when assessing premiums?

It needs to be ascertained whether the premium is calculated based upon insurance book risk, such as the Rogers and Banks cases, or whether there has been a calculation of the premium based upon the individual case costs and risks by the insurers, such as in the RSA Pursuit Test Cases [2005] EWHC 90003 (Costs)[1]. What the courts must not do is to conduct a calculation of the premium based upon the prospects of success in the case where this is not the basis upon which the premium is calculated.

HHJ Walden-Smith gave some helpful guidance, stating “The fact that a party has the benefit of a staged ATE insurance premium does not mean that the court is prohibited from intervening and determining the reasonableness of the costs of such instances however, as is clear from the judgment of Simon J (as he then was), sitting with two costs assessors, it is necessary for there to be some evidence upon which the District Judge or Master can rely.” This is pursuant to paragraph 44 of Kris, and in the Banks case the Costs Master did not have evidence upon which he could resolve the challenge in the Defendant’s favour.

Banks emphasises that Rogers is not supporting the proposition that a District Judge or Costs Master is to assess the appropriate premium on a broad brush basis – “to do so would be to imperil the viability of the ATE market (to paraphrase Brookes LJ) and he is warning against such intervention, without the benefit of expert evidence.”

In my view the challenges being levelled at the ATE insurance premiums are themselves becoming disproportionate, especially upon provisional assessment where the parties face the costs cap pursuant to CPR 47.15(5) and I have seen several cases removed from the provisional assessment procedure pursuant to CPR 47.15(6) as a result of the complexity of the arguments, amount of case law, need for evidence and so forth. With appeal decisions such as in Banks and Axelrod v University Hospitals of Leicester NHS Trust (unreported, 28.01.2016 HHJ Pearce sitting at Chester County Court – involving a post LASPO recoverable between the parties clinical negligence premium) upholding the recoverability of the insurance premiums and dismissing technical challenges I would hope that paying parties will desist in taking such strenuous challenges to insurance premiums in the future.

Caroline Cousins, Costs Lawyer of A & M Bacon Limited – July 2016. 

A & M Bacon Limited were instructed for the Claimant via Bird & Lovibond Solicitors in the Banks case.