The Court of Appeal dealt with issues concerning the recoverability of ATE premiums in clinical negligence premiums.
Full judgment, dated 17 July 2019
The Respondent sought to have a standard of reasonableness and proportionality applied to the amount of ATE premiums claimed as an expense in two clinical negligence claims. The court rejected the possibility of that exercise being routine in cases of block-rated premiums and limited it to exceptional cases where a Defendant can provide substantial evidence that genuinely puts the reasonableness of a premium in doubt.
The Court began the judgment by setting out the unique status of ATE premiums in clinical negligence cases (paras 5-12). Essentially, the absence of legal aid and the necessity of an expert report to advise on liability in clinical negligence cases renders the recoverability of ATE premiums a key means of ensuring access to justice in such claims. That was the rationale behind s46 of LASPO 2012 and the subsequent Recovery of Costs Insurance Premiums in Clinical Negligence Proceedings (Number 2) Regulations 2013. The difficulty in Ms West’s claim was that her claim was worth £10,000 but the recoverable ATE premium was £5,088. That was caused by the fact that her policy was a block rate one (i.e. where the rate is “flat” and not adjusted according to the risk in the individual case.)
As a result the Defendant challenged the reasonableness and proportionality of the premium. After a number of hearings the challenge was upheld by reference to an alternative policy that could have been obtained for less than £2,000.
In the second linked case, relating to Mr Demouilpied against the same Respondent, his ATE premium was also £5,088 (from the same block-rated provider) for a claim worth £4,500. In that case the judge at first instance had reduced the recoverable premium to £650.
The court noted the importance of resolving this issue, for the reasons of (i) increasing certainty, (ii) preventing ad hoc decision-making and (iii) preventing Defendants from unreasonably placing the burden of proof on Claimants in a highly technical area and providing inappropriate comparators (paras 27-31).
Unusually, the court had directed before the hearing that a report be produced by Kerr J and Master Leonard as assessors, who heard five days of evidence and submissions in order to do so. Their key findings were laid out at paragraphs 38-45 and are as follows:
- solicitors and ATE insurers are entering into contracts whereby the solicitor is obliged always to use the same ATE insurer;
- the premiums in these appeals were fairly typical;
- the comparators produced by the Respondent in these appeals were inappropriate;
- premium levels are largely determined by the average cost risk and there are few incentives for solicitors to review the available products; and
- short of detailed expert evidence in each case on the way block-rated ATE premiums are calculated, judges would find themselves choosing between a “broad-brush uninformed decision” and simply deciding that they had insufficient information to challenge what is a market-rate ATE premium.
The court first addressed the reasonableness of ATE premiums and decided, at para 56, that the reasonableness and recoverability of ATE premiums were not something to be decided on a case by case basis or by district judges, but by the highest courts on a macro-level. Significantly 56(iv) stated that “[i]t 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.”
The correct approach to reasonableness (paras 62 to 69) is:
- scope for challenge of bespoke policies is reasonably wide, on the basis that the risk has been wrongly assessed;
- block-rate policies are much harder to challenge and require expert evidence;
- it will be an issue for determination in such a case whether or not an alternative block rate would have been available at all (give solicitor-insurer contractual issues); and
- comparison of the value of the claim and the size of the premium is not useful, because it ignores the way that a block rate takes into account the average costs risk.
The test, then, for a Defendant to put an ATE premium in issue is whether or not it has provided “substantive evidence which genuinely puts in issue the reasonableness of a premium“. If that is done, the Claimant should be asked to address that evidence (para 68). The court made it clear this is a high threshold, saying (at para 69):
“On the basis of the Assessors’ Report in this case, we consider that the issue of the reasonableness of ATE insurance premiums has, at least for the foreseeable future, been settled. That ought, therefore, to resolve the issue of their reasonableness in all or almost all of the other cases apparently waiting for the outcome of these appeals.”
At paras 70 to 86 the court made it clear that the principle of proportionality does not become relevant either unless the reasonableness threshold set out above has been crossed.
Interestingly, the court then went on to give guidance about the right approach to costs assessment generally (paras 87 to 93), which was:
- to assess the costs for reasonableness and (if needs be) proportionality first on a line by line basis;
- then assess the proportionality of the total figure at the end of that exercise; but
- in assessing the proportionality of the total figure, the unavoidable elements of costs (court fees, ATE premiums etc.) should be disregarded (para 91).
It would appear from this case that it will be very difficult for Defendants to challenge the recoverability of block-rated ATE premiums in clinical negligence cases and this judgment should be cited by any lawyers seeking recovery of the same on detailed assessment.
Paragraph 91 should also be referred to generally by anyone seeking to persuade a judge to assess their bill of costs as favourably as possible!