Premium Challenge Notes – Challenging Times

These notes are intended to assist lawyers in making appropriate submissions where the insured has been successful; costs are being assessed and notice has been given of the nature of a challenge to the premiums recoverability.

Temple usually provides insurance with stepped premiums but much of what I shall discuss applies equally to single premium insurance.

A good starting point is the Court of Appeal’s judgment in the leading case of Rogers –v- Merthyr Tydfil County Borough Council [2006] EWCA Civ 1134 and references to relevant paragraphs of

this judgment are discussed below.

The Relevant CPR / Costs PD

In assessing the recoverability of the premium the court will have regard to the factors set out in Rule 44.5 and the accompanying Section 11 of the Costs Practice Direction, in particular, 11.10 which states that the following factors are relevant to the cost of an insurance premium.

(1) where the 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.

At paragraph 108 of the Rogers judgment the Court indicated that “all the circumstances” in s44.5 (1) specifically includes

“the financial risk faced by the insurer.” For the particular relevance of this comment regarding quantification please see item 8 below.

Specific Challenges

1. The policy was taken out too soon.

Callery –v- Gray (no.1) EWCA 2001 determined that a policy could be taken out at the outset of the claim. In Rogers the Court says that it does not criticise the claimant’s solicitor for delaying the purchase of the policy but otherwise confirms its decision in Callery.

2. Where it is claimed the policy was taken out too late.

An argument that the obtaining of cover at a late stage would have increased the level of the premium at an earlier stage is not sustainable as far as a staged underwriting model is concerned. Had the premium been taken out an earlier stage the premium would have been staged and the final premium would have been reached because the claimant pursued the claim to trial.

In support of the acceptability of obtaining insurance at a late stage, see the decision of The High Court of Justice in the case of Kris Motor Spares Limited v Fox Williams LLP [2010] EWHC 1008 (QB). This was an appeal related to the costs of the trial of a preliminary issue in proceedings. Fox Williams had taken out an ATE Insurance Policy in respect of the trial of the preliminary issue, which the defendant claimed was unreasonable to obtain at such a late stage and that the obtaining cover at such a late stage would have increased the level of the premium.

At Paragraph 41, Mr Justice Simon states:

“I can see no basis for concluding that Fox Williams should not have taken out any insurance, or (more importantly) that they should not be able to recover the ATE insurance premium because they insured at a late stage…there is no principle that the premium on a late incepting policy is irrecoverable as an unreasonable cost, and each case is likely to depend on its facts.”

It may be much more difficult to show why a non staged premium should not be reduced and it will be necessary for the underwriter to demonstrate the reasons why a premium was unreasonable at the time of inception, and it will be crucial to look at the underwriting formula. The initial burden is upon the paying party to introduce evidence relating to the alleged over pricing of the premium and merely stating that the premium is too high will not be sufficient.

3. The policy should be a single premium / it would have been cheaper to take out a policy with a single premium rather than have to pay a later stage premium

Paragraph 107 of Rogers confirms that staged premiums are as legitimate a choice as a single premium. Paragraph 111 states clearly that it is not appropriate to challenge the level of a third stage premium by comparing it with a single stage premium (which almost certainly would have been more expensive if compared to the first stage premium should the case have settled rather earlier.)

4. Where it is claimed that BTE insurance should have been used instead of ATE or where it is claimed that BTE insurance was not adequately investigated.

It has been confirmed in case law that BTE cover does not have to be utilised where it is deemed inappropriate. A solicitor has a duty to advise their client of any insurance that can be obtained to cover their liability for adverse costs. It is an implied term of this duty that the most appropriate method of funding should be selected.

BTE may be inappropriate where it requires the claimant to instruct solicitors on their panel. In the Senior Courts Costs Office case of Chappell v De Bora’s of Exeter [2004] SCCO SUMMARY NO 3, the Judge concluded that it was reasonable in a case of this kind for the claimant to instruct the solicitors of her choice in Exeter rather than the DAS panel solicitors, the nearest of whom would have been so many miles away from where she lives. Accordingly the Judge dismissed the appeal in so far as it related to the claimant’s choice of solicitor.

BTE is also usually inappropriate in complex cases where costs will almost always exceed the cover provided by most BTE policies. Although some may argue that that top up cover can be requested once the limit of indemnity is exceeded, in practice BTE insurers are usually unwilling to increase cover unless the prospects of success are very high and sometimes even then top up can be refused for a variety of reasons. If a BTE insurer refuses top up cover, the solicitor must then search the ATE market for an insurer willing to provide cover. This can be very difficult as ATE insurers are usually unwilling to provide top up cover for cases that are being defended and reaching the latter stages of proceedings.

As long as any BTE policy has been investigated and subsequently deemed inappropriate, the ATE premium should be recoverable. In the Supreme Court of Judicature Court of Appeal case of Imran Sarwar v Muhammad Alam [2001] EWCA Civ 1401 it was confirmed at paragraph 46 that:

“The solicitor’s enquiries should be proportionate to the amount at stake. The solicitor is not obliged to embark on a treasure hunt, seeking to see the insurance policies of every member of the client’s family in case by chance they contain relevant BTE cover which the claimant might use.”

Further, it has been confirmed that if the solicitor asked their client whether they had BTE and it was reasonable to believe that the client’s word should be trusted, further investigations are not necessary. We refer you to the Senior Courts Costs Office case of Keith Lewis James White v Mark Peter Revell [2006] EWHC 90054 (costs). This was an RTA in which the claimant had confirmed to his solicitor that he was not a member of a union and did not have any other insurance cover available that could protect his costs position.

At Paragraph 104, Master Wright states:

“Given the nature of the client, the circumstances in which Irwin Mitchell were instructed and the nature of the claim it seems to me to have been reasonable for Irwin Mitchell to have dealt with the matter as they did. Ms Wright asked Mr White if he had any relevant policies. He is articulate and educated and a professional quantity surveyor. The nature of the claim was such that legal expenses insurance would have had to have had very substantial cover for costs and disbursements. In my judgment, Ms Wright was entitled to accept the statement of her client that he had no such insurance cover.”

5. The Defendant was unaware of the existence of any ATE insurance.

Notice of Funding should be set out in the letter of claim and if there is any change further notice must be served within 7 days of any such change. Notice of funding in form N251 must be served with court proceedings. In the absence of notice the claimant may be caught by rule 44.3B (1) (c) which states that a party may not recover…

“Any additional liability for any period in the proceedings during which he failed to provide information about a funding arrangement in accordance with a rule, practice direction or court order”

If notification was merely delayed it can be argued that the level of the insurance has not been altered by the delay in notification (unlike delay in notifying a success fee where the amount payable by the defendant continues to increase.) It will be necessary to apply for relief form sanction (see CPR rule 3.9).

If notice of issue of insurance is given out of time the opponent may be asked to waive any objection.

You must state:

• The name and address of the insurer, the policy number and the date of the policy.
• The level of cover.
• Whether the premiums are staged and, if so, the points at which an increased premium is payable.

6. Where the policy was taken out after an admission.

A claimant is entitled to take out ATE cover even after liability has been admitted and I refer to the decision of the Nottingham County Court in the RTA case of Avril v Boultby [2008] unreported This was an appeal by the Claimant against an order made on detailed assessment of costs, whereby he ordered that a premium incurred in respect of ATE insurance cover should not be recovered by the defendant because the premium was taken out after liability had been admitted by the defendant. At paragraph 11, his Honour Judge Inglis states:

“The risks that fell to be considered were…that the admission of liability might be withdrawn; that there might be adverse interlocutory costs orders; that there might be irrecoverable disbursements; and that there might be a failure to beat a part 36 offer…the most obvious risk is the failure to beat a part 36 offer, which may give rise to a liability both for the opposing party’s costs and the paying party’s costs, or at least where there is a CFA, disbursements…Not beating such an offer might have the result in the value of the claim being diminished or even obliterated. That risk is real. It could not sensibly be insured against at a later stage after the offer had been made and rejected…Nobody generally takes the point that insuring against such risks is unreasonable.”

At paragraph 13 Judge Inglis goes on to say:

“It is not clear why, when, as here, the amount of the premium cannot be said to be disproportionate, the particular risks identified cannot reasonably be the subject of ATE insurance….The question is whether it is reasonable between this claimant and this defendant for this premium to be incurred. For the reasons given above I think it obviously is reasonable, so that on the basis of the risks identified…the premium should be recovered as costs.”

The premium was recovered in full.

More recently, in the case of Burgess v J Breheny Contracts Ltd [2009] EWHC 90131, the Supreme Court Cost Office gave further consideration to the situation where an ATE policy is entered into after primary liability has been admitted. At paragraph 25 Master Haworth states:

“In my judgment it was reasonable for the claimant to take out after the event insurance. Section 11.7 CPD requires me to have:

“regard to the facts and circumstances as they reasonably appeared to the solicitor when the insurance was entered into.”……

At the time the ATE policy was taken out…the defendant insurer had admitted primary liability although causation was in issue….In my judgment at the time the policy was entered into there were a number of risks against which it was proper to insure, namely:

· a real risk on causation

· the risk of the defendant withdrawing its admission of breach of duty

· the risk of the defendant making a part 36 offer which the claimant did not accept and failed to beat

· the risk of an adverse interim costs order

· the risk of failing to recover a disbursement…

At the time the after the event insurance policy was entered into, these were real risks faced by the claimant. They were not illusory or fanciful…. I concur with the judgment of HHJ Inglis in Avril v Boultby…I allow the amount of the premium in full

7. The limit of indemnity / level of coverage is greater than was reasonably required.

The cost of the upper levels of indemnity especially in bloc rated scheme cases is comparatively little. The comfort that it gives the claimant to know that he is fully covered should not be ignored.

8. The premium is too high.

The decision to use an ATE policy cannot be criticised; indeed the use of such insurance is described as “necessary”. Therefore in order to advance any argument on the quantum of the premium convincingly the defendant will need to prove that an alternative policy could have been purchased at a lower cost. CPR 44PD.5 11.10 obliges the paying party to prove that the insurance premium is unreasonable by way of comparable alternatives etc.

I refer to the decision of the Supreme Court Costs Office in the case of Tyndall v Battersea Dogs Home (2005) EWHC 90011 (costs). This was an RTA claim that was heard at trial. The premium was staged and £1890 was claimed by the ATE insurer, Europ Assistance. At paragraph 98, Master Wright states:

“The question is, it seems to me, whether the premium charged was within a reasonable bracket. I have no doubt that it was and that the actual figures drawn from this case confirm that.”

The premium in Tyndall was allowed in full.

In the case of Rogers v Merthyr TydfilCounty Borough Council [2006] EWCA Civ 1134, the Court of Appeal gave further consideration to stepped premiums. At paragraph 117, Lord Justice Brooke states:

“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 a 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. District 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 then the underwriter to rate the financial risk the insurer faces. Although the claimant very often does not have to pay the premium himself, this does not mean that there are no competitive or other pressures in the market. As the evidence before this court shows, it is not in an insurer’s interest to fix a premium at a level which will attract frequent challenges”

Justice Brooks goes on to state at paragraph 108:

“the fact that the ATE premium was large compared with the agreed damages of £3000.00 did not necessarily mean that it was disproportionate. Under CPR 44.5(1) a court must take into account “all the circumstances”. These include all the financial risk faced by the insurer.”

The test involves an assessment of what is a reasonable premium rather than what is the cheapest premium.

9. The premium is disproportionate to the value of the claim

I refer to the Court of Appeal decision in the case of Home Office v Lownds [2002] EWCA Civ 365 (21st March, 2002), which sets out the test for proportionality. Paragraph 26refers to paras 11.1. and 11.2 of the costs practice direction which says:

“In applying the test of proportionality the court will have regard to rule 1.1(2). The relationship between the total of the costs incurred and the financial value of the claim may not be a reliable guide. A fixed percentage cannot be applied in all cases to the value of the claim in order to ascertain whether or not the costs are proportionate…in any proceedings there will be costs which will inevitably be incurred and which are necessary for the successful conduct of the case. Solicitors are not required to conduct litigation at rates which are uneconomic. Thus in a modest claim the proportion of costs is likely to be higher than in a large claim, and may even equal or possibly exceed the amount in dispute.”

The judgment goes on to say at paragraph 28:

“If the appropriate conduct of the proceedings makes costs necessary then the requirement of proportionality does not prevent all the costs being recovered either on an item by item approach or on a global approach…..“In assessing costs judges should have no difficulty in deciding whether, in order to conduct the litigation successfully, it was necessary to incur each item of costs. When an item of costs is necessarily incurred then a reasonable amount for the item should normally be allowed….If the costs as a whole are not disproportionate according to that test then all that is normally required is that each item should have been reasonably incurred and the cost for that item should be reasonable.”

The test in relation to ATE premiums is dealt with in detail in Rogers (especially paragraphs 102 to 106.) Litigation in a “post Legal Aid world” makes ATE insurance “necessary.”

Consequently, even if the court concludes that a premium appears disproportionate according to the Lownds test it will still be recoverable if the amount is reasonable in itself. The size should be proportionate to the risk to the insurer and that means the extent of the exposure to the defendant’s costs and the claimant’s disbursements (In Rogers see paragraph 109 this is described as the Estimated Maximum Loss or EML).

If a case has reached a hearing, ATE insurers are entitled to assume that it is a 50/50 case. Consequently in two similar cases the insurers could expect to win one and lose one. The income from the winner therefore needs to pay for the loser (not to mention produce a profit element etc.) Accordingly, as long as the premium is no more than 100% (and this does not allow for overheads or profit) of the EML figure in a case which went to a hearing the reasoning in Rogers can be followed to recover the premium as claimed. (Do not forget that the opponents should have served a costs schedule/s which will allow you to make the necessary calculation.) Do not allow opponents to get away with this as it will be much more difficult to make such calculations if you have to rely on your “guestimates” of the opponent’s likely costs.

Requesting costs estimates from the opponent will also allow you to more accurately review the appropriate level of indemnity required.

10. Where it is claimed that the solicitor should have shopped around for quotes.

Solicitors are required to review the market periodically to ensure that their clients are offered the best combination of cover for a reasonable premium but they are not required to shop around for each individual policy. This was confirmed in the Court of Appeal case of Rogers v Merthyr Tydfil [2006] EWCA Civ 1134. Paragraph 78 refers to the evidence of the Law Society in the form of a statement by the Funding Manager of Russell Jones & Walker:

“she thought that the idea that solicitors should shop around for the best premium in every case would involve an extremely protracted process. When cases were presented individually, insurers would be reluctant to entertain any negotiation of their premium and their policy terms. The offer of a sizable book of business…is a much more satisfactory way of proceeding…”

At Paragraph 113 Lord Justice Brooke concurs with this point and states:

“Mr Williams who appeared for the claimant, boldly asserted that in tying himself to DAS in the way he did, Mr Cater was in breach of section 4(1) of the solicitors Introduction and Referral Code 1990…. This was a surprising submission given that the success of ATE insurance has been dependent from the outset on arrangements like these. They are designed to prevent ‘cherry-picking’ and to ensure that very many low risk cases are available as a counter weight to the few high risk cases….. We find it impossible to say that the approach Mr Cater adopted…was an unreasonable one.”

We also refer you to the case of Able UK Ltd. v Reliance Security Services Ltd. [2006] EWHC 90058 (Costs). In this case the parties were able to agree all elements of the bill with the exception of the ATE premium. The defendant contended that other insurance providers should have been contacted and that there had been a lack of proper investigation about the availability of a reasonable insurance premium.

At paragraph 41, Master Wright states:

“It is clear to me that Ward Hadaway have considerable experience of commercial after the event insurance policies. It is also clear to me that in advising the claimant to approach Greystoke, they took into account their client’s needs and the alternative options which were in their professional opinion available”

He goes on at paragraph 42 to say:

“To insist that the claimant should have gone in search of alternative insurers (bearing in mind the expense which would have been involved not only in insurance company’s fees but also in solicitor’s charges) would, in my judgment be to fail to have regard to CPR 1.1(2)(b) and (c).”

11. The policy covers additional benefits that go beyond s29 Access to Justice Act 1999.

The issue arose in the Claims Direct and The Accident Group Test Cases. The defendant would need to show that some of the policy benefits do not come within the definition of an insurance policy as defined in s29 (and which is set out in Rogers at paragraph 98.)

12. The defendant should not have to pay for the part of the premium that covers the cost of insuring the premium itself.

This argument was dismissed in Callery –v- Gray (no.2) and the point is reiterated at paragraphs 97 and 118 of Rogers.

David Pipkin

Director, Underwriting Division

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