When is an after the event premium and when is it recoverable? The decision of Master Leonard (sitting as a Judge of the Mayor’s and City County Court) in Nokes -v- Heart of England Foundation Trusts  EWHC B6 (Costs) addresses many of these issues.
The Master was considering an assessment, on the standard basis, of costs payable by the Defendant following a clinical negligence claim. The premium was for £5,680 for £10,000 cover; plus 3% of damages giving a limit of indemnity of £100,000, in addition to the premium. The premium was recoverable by virtue of the Recovery of Costs Insurance Premiums in Clinical Negligence Proceedings (No 2) Regulations 2013.
- Despite some ambiguous wording in the policy the premium was recoverable under the Regulations.
- It was for the Defendant to establish that the premium was unreasonable.
- The Defendant had not produced any evidence to establish the premium was unreasonable.
- The premium itself did not lead to the costs being “disproportionate”.
- The premium was recovered in full.
The defendant argued that the premium was not recoverable because two separate premiums were recoverable.
Conclusion on Recoverability
- Though I am not sure that I entirely agree with Mr Laughland’s distinction between compliance with one set of statutory requirements and another, I do accept that it would be inappropriate to regard the Claimant’s policy as non-compliant with section 58C and the 2013 Regulations simply because there may be some ambiguity or imprecision in its wording. In my view the question is whether, on a proper reading by reference to established contractual principles of interpretation, the policy does or does not comply with the statutory requirements.
- In the course of submissions I referred to Investors Compensation Scheme Ltd v West Bromwich BS  UKHL 28 and established principles of contractual construction. Among those principles are that a contract is to be read as a whole. That would be the case even if the policy terms accompanying the certificate of insurance did not incorporate the words “this certificate”, indicating that there is no distinction to be drawn between the certificate and the terms.
- Taking that approach, it seems to me to be clear both that this policy is expressly designed to comply with Section 58C and the 2013 Regulations (as Mr Marven conceded, the wording of the policy tracks the statutory wording) and that it does comply.
- The heading “Limit of Indemnity (in addition to the premium)” above both premiums (a) and (b) is, if read in isolation, potentially misleading in that it seems to indicate that premium (a) is self-insured. However for the reasons I have given it is wrong in principle to single out any part of the contract and read it in isolation. The wording relied on by the Defendant is no more than a heading. In contrast the detailed terms of the policy, explaining the insured risks, are clear (and I do not accept that it is right to treat the certificate of insurance as more important for the purposes of interpretation).
- Premium (a) insures against the risk of liability to pay for expert reports in respect of clinical negligence, and nothing else. Premium (b) insures opponent’s costs and the insured’s other disbursements, expressly defined to include “the premium”. As to what “the premium” is, the only definition is that quoted above under the heading “Definition of Premiums” and expressly incorporates the full amount payable by the insured; premiums (a) and (b) are distinguished only by reference to the timing of payment and the particular provisions limiting premium (a) to the amount assessed.
- The words “Definition of “Premiums” are cited in support of the argument that the policy incorporates two stand-alone, self-insured premiums. I agree with Mr Laughland that it is artificial to single out that wording so as to read the policy as providing for two separate premiums. A better reading is that one premium is payable under this policy and it is, in accordance with the statutory requirements, divided into two parts to show which part of it is payable in relation to expert reports and is, in consequence, recoverable.
- However I do not think that much really turns on whether one describes the policy as incorporating one premium in two parts or two premiums. It is compliant with the statutory provisions either way, because it provides the information that the statutory provisions require.
- The argument that the policy incorporates two stand-alone, self-insured premiums supports Mr Marven’s submission that one can strip out premium (b) and then see that premium (a), left in isolation, is self-insured. However I would not be able to accept his argument even on the basis that the policy provides for two premiums rather than (as I have concluded) two parts of one premium. I say that because, for the reasons I have given, premium (a) is not, on any proper construction of the policy, to be regarded in isolation. Premiums (a) and (b) work together as two parts of one whole policy. It would be artificial and wrong to interpret the policy by reference to what it might mean if its terms were different. That would be the case even if this were a bespoke policy rather than (as it is) a block-rated standard policy, not open to individual negotiation.
- In summary, whilst it is possible to interpret the policy, by reference to some loose wording, as non-compliant with the statute, that would in my view (with respect) be an incorrect and distorted reading defeating its purpose. The policy is compliant with section 58C and the 2013 regulations. Premium (a) is, in consequence, recoverable.
THE AMOUNT OF THE PREMIUM
- The amount of the ATE premium claimed is in issue and in that context I must address both reasonableness and proportionality. Because costs reasonably or necessarily incurred may nonetheless be disallowed as disproportionate, I shall focus first on whether the amount of ATE premium sought from the Defendant by the Claimant has been reasonably incurred.
- CPR 44.4 requires that on considering both reasonableness and proportionality I have regard to all the circumstances. For that reason, even if the Defendant had not relied upon comparable market evidence to support the proposition that Temple’s ATE premium is not reasonable in amount, I would be unable to accept the Defendant’s contention that the Claimant cannot rely upon comparable market evidence to support the proposition that in fact it is.
- It is not suggested, nor should it be, that it was unreasonable for the Claimant to arrange ATE cover at all. The reasonableness of the Claimant’s choice of ATE cover must be measured by reference to what is available to her. Hence the Defendant’s criticism of a lack of evidence to the effect that she and her solicitors considered alternatives. That said, the choices available to the Claimant cannot be the only determinative factor: if all available choices were by any objective standard unreasonably expensive then it might still be appropriate to disallow or reduce the actual premium chosen.
- As noted above I do not start from a presumption that the ATE premium is either unreasonable in amount or disproportionate, so that (as Mr Corness suggests) the Claimant must prove that it is not. It is for the Defendant as paying party to advance some viable case to the effect that the amount of the premium is either unreasonable or disproportionate, in which event any doubt will be resolved in favour of the Defendant.
- As to how that is judged, in Rogers v Merthyr Tydfil Brooke LJ, at paragraph 119, said:
“…District judges and costs judges do not, as Lord Hoffmann observed in Callery v Gray (Nos 1 and 2)  1 WLR 2000, para 44, 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. 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 at all 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.”
- It does not follow that a judge would never, unassisted by expert evidence, be in a position to conclude that an ATE premium is unreasonable or disproportionate. I respectfully agree with Mr Marven that matters have moved on to some extent since Rogers. 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.
- However there must be some sound basis for arguing that the ATE premium is unreasonable in amount. I have come to the conclusion that the Defendant has been unable to establish that. In my view the Defendant’s case does not, on examination, yield any point of substance. I say that for these reasons.
- First, the Defendant’s proposed individual assessment of risk in this case is of no assistance in judging the reasonableness of a block-rated scheme such as Temple’s. Mr Marven made it clear that the Defendant is not suggesting that the use of a block-rated scheme is in itself objectionable, because that would be contrary to authority. It would not in any case be a viable argument, for the reasons advanced by Mr Pipkin. That leaves the Defendant either to raise some viable argument to the effect that the premium calculated under this particular scheme is, as a block-rated premium, unreasonable in amount or to show that the Claimant’s choice of that block-rated scheme was unreasonable.
- In my view the Defendant has not made out a case to the effect that the premium produced by Temple’s block-rated scheme is, as a block-rated premium, in some way wrong or unreasonable. It would probably take expert evidence to do that, and I do not have any such evidence. What I do have is a set of general observations about clinical negligence cases which (for reasons I will explain) I do not find helpful, inappropriate comparisons to a hypothetical individually rated premium and the Defendant’s argument that premium (a) should represent the same percentage of the limit of indemnity as does premium (b) and so be limited to £150.
- Mr Marven accepted that this last argument may be seen as simplistic but argued that in the face of a clearly excessive premium for which there is no proper explanation from the Claimant, it (like the alternative calculation in the points of dispute) may provide a starting point. I cannot agree, because it seems to me to be wrong in principle. For the reasons given by Mr Laughland premium (a) and premium (b) insure different kinds of risk and cannot properly be compared in the way contended for.
- I also accept that it is not incumbent upon the Claimant, in explaining the genesis of Temple’s clinical negligence delegated authority scheme, to produce the further detailed evidence referred to by the Defendant. My understanding of Mr Pipkin’s evidence is that it is intended to (and does) show that Temple applied its experience of years in the ATE market to produce a post – 1 April 2013 policy that was intended to be viable and competitive. The outcome of that can be judged by reference to the comparable evidence considered below. Mr Pipkin’s failure to explain the apparent inconsistency between his calculation of Temple’s average premium and the terms of the Claimant’s policy is an unfortunate omission, and I understand Mr Marven’s objection to the way in which Mr Laughland attempted to fill the gap. However I have no real reason to doubt Mr Pipkin’s evidence on Temple’s average premium.
- I have considered whether the Defendant has any real case based on the proposition that an individually assessed premium should have cost significantly less than the premium actually paid by the Claimant.
- As to the first point I have the alternative ATE premium of £347.99 suggested by the Points of Dispute. This has not been produced by any ATE insurer but by the Defendant, offering its own calculation.
- In my view it remains inappropriate for a Costs Judge, given the guidance offered by Brooke LJ in Rogers v Merthyr Tydfil, to simply substitute his or her judgement for that of an underwriter and substitute his or her own premium for the underwriter’s. For that reason alone I would be unable to adopt the Defendant’s calculation: nor (as an examination of the comparable evidence will show) does the proposed premium appear to bear much if any resemblance to what is actually available on the ATE market.
- That aside, there are in my view obvious flaws in the Defendant’s calculation which make it unsafe to use as a reference point. The express assumption in the Points of Dispute that the actual expenditure on expert reports in this case represents the insurer’s maximum exposure, and the accompanying assertion that the (a) premium is three times the amount of exposure, is wrong on any analysis.
- Mr Corness’ alternative suggestion of likely maximum exposure is, like his observations on the likelihood of settlement, based on rather general observations about his experience of clinical negligence cases which – with due respect to his experience – can only have limited value as evidence. It is not supported by the sort of hard statistical evidence to which one might expect the Defendant to have access. It does not meet Mr Laughland’s point about clinical negligence cases in which negative reports are received on liability so that the case ends without the prospective Defendant ever hearing about it. It cannot put me in the shoes of an ATE underwriter.
- In any case the Defendant’s case on maximum exposure seems to me to be based upon the proposition that insurance cover should be limited to what is expected to happen. Surely an insurance policy should rather cover what might (within reasonable limits) happen. This case itself illustrates the point: the Defendant needed the advice of experts from four different disciplines in order to concede liability. Had liability been contested the Claimant might have had to do something similar. The evidence I have seen offers no sound basis for characterising an indemnity limit of £10,000 in an individually rated policy, much less a block-rated policy, as unreasonable.
- Nor do I accept the Defendant’s suggested calculation of the particular risk faced by the Claimant at the time of taking out the policy. The Defendant’s reliance on its “root cause analysis” (which, as Mr Laughland points out, I have not seen) seems to me to assume that establishing breach of duty is sufficient to establish causation, in particular in relation to the Claimant’s OCD. That is not the same thing and the Defendant’s need to consult four experts before conceding liability speaks for itself.
- Mr Marven submits that the Claimant should have been very confident of recovering some damages, but on the evidence before me that is not necessarily so and it would not be the right test, given that the premium (a) covered the cost of reports addressing the Defendant’s liability for OCD.
- The remaining argument for the Defendant is that, by reference to alternative available cover, the amount of premium incurred by the Claimant is unreasonable. This takes me to the evidence produced on comparable policies.
Conclusions on Comparable Evidence
- My conclusion is that that the comparable evidence offered by the Defendant does not offer any indication that the amount of premium incurred and claimed by the Claimant is unreasonable.
- Starting with the pre-April 2013 policies, I cannot accept that it is appropriate for a Costs Judge to entertain broad comparisons of two entirely different types of policy, encompassing different risks, in order to come to a wholly uninformed conclusion that one of them should be less expensive than it is. It might be that such a proposition could be supported by evidence from an underwriting expert but if so the Defendant has not produced it.
- Mr Laughland submits that the economics and dynamics of the ATE market were wholly different before and after 1 April 2013. ATE premiums were, before that date, recoverable in all personal and clinical injury cases and a claimant’s potential liability to pay opponents’ costs in all cases made it very much easier to sell ATE policies. The introduction of QOCS and the abolition of recoverability of success fees, together with the cap at 25% of past damages, led to a general expectation that fewer personal injury or clinical negligence claims would be made.
- I accept that the models needed to set appropriate premium rates would have to be different before and after 1 April 2013. In particular recoverable premiums, for the reasons given by Mr Laughland, represent the cost of insuring a different kind of risk.
- Mr Corness’ comparison between a pre-April 2013 Temple policy and the Claimant’s policy also employs hindsight in relation to the actual settlement upon which he relies. He makes no reference to the fact that the pre-April 2013 policy provides for further staged premiums increasing to £22,975.50. The comparison offered between pre-and post – 1 April 2013 ATE policies does not stand up.
- The post-2013 policies exhibited by Mr Corness are much more to the point. However they do not support the Defendant’s case.
- As I have observed, Mr Pipkin has exhibited evidence of a DAS LawAssist policy which appears to charge a premium calculated at 200% of the actual cost of the liability and causation reports plus premium. Two of Mr Corness’ three examples are, similarly, DAS policies dating from after 1 April 2013. The first includes a recoverable premium of £1,000 + IPT of £60: £1,060. However that is only Stage A of the premium (to the issue of proceedings) and offers a limit of indemnity of £500. The second DAS policy includes a Stage A limit of indemnity of £720 for a premium of £1,440 + IPT.
- Both policies confirm Mr Pipkin’s evidence that the DAS premium is calculated at 200% of cover and in both cases a further individually rated premium is payable at stage B, post-issue. Insofar as the premiums payable under those policies bear comparison to Temple’s premium, they do not make it look unreasonable: quite the contrary.
- Applying the DAS pre-issue formula to this case, Mr Laughland suggests that DAS would at stage A have charged the Claimant (£2,530.80 x 200%): £5,061.60 + IPT. This is little different to Temple’s premium of £5,680 + IPT, and Temple’s premium is not limited to stage A. Adopting Mr Corness’ estimate of overall expert fees of £4,000 – £5,000 then a DAS Policy would have cost, to stage A, more than Temple’s policy: something like (£4,500 x 200%): £9,000 + IPT.
- The third post- 1 April 2013 policy relied upon by Mr Corness is a LAMP policy. The policy schedule shows a premium of £2,000 + IPT, of which £300 plus IPT is for “expert reports and other disbursements” but overall indemnity (including cover provided for adverse costs and own disbursements) is limited to £9,000. Compared to the Temple product, which gives £100,000 cover overall, that is described by Mr Laughland as a very unattractive product. Certainly it does not seem to bear any direct comparison to Temple’s. It has not been suggested that the Claimant should have limited her total insurance cover to £9,000 and I would not have accepted any such suggestion had it been made.
- In any event, as Mr Laughland submits, there is no evidence as to how the LAMP premium was calculated or whether it varies from case to case. It gives me no basis for supposing that the Temple premium might be unreasonable.
- I am unable to accept Mr Marven’s submission that I should, for the purposes of assessing the proportionality of the ATE premium, read the reference in CPR 44.3(5) to “the sums in issue in the proceedings” as referring to the amount of the ATE insurer’s exposure so giving me a basis for finding the ATE premium disproportionate by reference to that exposure. That is not what the rule says.
- In my view it is questionable whether it is right to single out a particular item of cost in applying the post-April 2013 proportionality test. The intention of Jackson LJ, when introducing that test, was that the proportionality of costs as a whole would be considered after costs have been assessed by reference to reasonableness, at which point to court might take the view that the remaining total is still disproportionate and reduce it to a proportionate sum. Jackson LJ has, since the new test was introduced, publicly endorsed that approach and I believe that it is generally adopted on assessment where the new test is applied. I think it may also be wrong, for the reasons advanced by Mr Laughland, to single out one part of the total premium paid by the Claimant for the purposes of judging proportionality.
- However on the assumption that it is right to do both, considering (as I am required to do) all the circumstances and measuring the premium (as I am required to do) against the criteria set out in CPR 44.3(5), in particular the sums in issue and the complexity of the litigation, it seems to me that premium (a) cannot be said to be disproportionate.
Summary of Conclusions
- On a proper construction the Claimant’s ATE policy complies with statute and the part of the Claimant’s ATE premium that relates to experts’ reports on liability and causation is, in consequence, recoverable in accordance with statute.
- It is for the Defendant to establish some case to the effect that the Claimant’s ATE premium is unreasonable in amount. In that event, the Claimant would have to address the point. On a standard basis assessment, any doubt would be resolved in the Defendant’s favour.
- The Defendant has not managed to establish any real case to the effect that the (a) premium of £5,680, against cover of £10,000, is unreasonable. The Defendant relies on Kelly v Black Horse and Redwing Construction Ltd v Wishart, but those decisions concerned individually assessed premiums in which it was evident that at least one factor in the calculation of the premium (the assessment of risk, which a court is well equipped to judge) must have been wrong. There is nothing in this case to justify any such conclusion about Temple’s block-rated premium. The arguments offered in support of that proposition invite me to substitute my judgment for that of Temple’s underwriters on the basis of broad comparisons which have no validity, and on the basis of calculations and evidence which in my view do not stand up to analysis.
- Nor does the available comparable evidence furnish any basis for the conclusion that the (a) premium is unreasonable in amount. The Claimant has, on the evidence, made a reasonable choice of ATE policy from such options as were available to her at the relevant time. I do not know whether or not she and her advisers considered the wider market before she committed to Temple’s policy but there is no evidence to support any supposition that if they had, they would have found a suitable policy at less expense.
- The Defendant is concerned that the recoverable ATE premium offered by Temple is not subject to real market competition and that ATE insurers are under commercial pressure to maximise recoverable premiums and minimise irrecoverable premiums.
- I need more than suspicion or speculation to reduce an ATE premium. In implementing the 2013 reforms Parliament intended that that certain kinds of ATE premium should continue to be recoverable under orders for costs. For that intention to be achieved insurers must be able to offer a compliant product which is realistic and competitive. On the evidence Temple has come up with a compliant, competitive product which the Claimant has accepted.
- The Defendant points out that reduction on assessment is part of the ATE insurer’s “model”. It does not follow that I can reduce the recoverable ATE premium, as suggested, by in the region of 95% without affecting the viability of the insurer’s product. I do not find that credible.
- To the extent (which is doubtful) that it is right to consider the proportionality of premium (a) in isolation it is not, by reference to the criteria set out at CPR 44.3(5), disproportionate and does not stand to be reduced on that ground.
- Being neither unreasonable in amount nor disproportionate the premium is recoverable in full.”