Recovery of post-LASPO ATE premiums: An underwriter’s perspective

Brown: Cases insured under the post-LASPO regime are settling successfully with increasing frequency

Posted by David Brown, ATE underwriting manager at Litigation Futures Associate DAS UK Group

Despite post-LASPO after-the-event insurance (ATE) policies being more relevant now than ever in terms of access to justice, their premiums receive criticism.

But in the case of clinical negligence claims, LASPO explicitly allows for partial recovery of an ATE premium to protect against the risk of a claimant becoming liable for expert reports which address the issue of liability.

In the context of increasingly aggressive challenges to ATE insurers’ underwriting methodology, last week’s Court of Appeal judgment in Peterborough & Stamford Hospitals NHS Trust v McMenemy & Ors [2017] EWCA Civ 1941 has reaffirmed a number of key principles that underpin the basis on which ATE insurers operate. This should help increase understanding of a product that some may find esoteric.

Firstly, the court confirmed the decision in Callery v Gray ((No 2) [2001] EWCA Civ 1246 by ruling that it is reasonable for a claimant to purchase ATE insurance at the same time as entering into a conditional fee agreement with their solicitor.

It also stated that the degree to which it is reasonable to seek ATE should not be examined on a case-by-case basis, which leads to another important principle arising from this decision: most, if not all ATE insurers, adopt a ‘block-rated’ approach to assessing their pool of risks rather than individually calculating premium for a single risk.

Doing the latter would substantially increase premiums, resulting in the irony of further costs challenges on grounds of price and proportionality.

The fundamental point is that, to date, the courts have been satisfied with insurers adopting this approach, which was validated by the Court of Appeal in Rogers v Merthyr Tydfil CBC [2007] 1 WLR 808.

When cases are singled out in the media as involving an ATE premium labelled as high, they clearly fail to take into account all of the factors that influence price. McMenemy has brought the principles of Rogers into the post-LASPO costs regime.

A little further background might assist here: The majority of claimants pursuing a claim for clinical negligence require expert evidence to prove that they have a viable case. This expert report is the only cost for which LASPO allows a claimant to recover an ATE premium; it was one of the few recoverable premiums to survive from the pre-LASPO costs regime and was left in place to ensure that claimants continue to have access to justice.

After all, expert evidence can be expensive and there is no guarantee of it being supportive, despite the rigorous prospects assessment undertaken by a claimant’s solicitor.

With legal aid now all but abolished for such cases, ATE insurance is inevitably sought. In the event that the chosen expert cannot support an intended claim, it will likely come to an end at that point – often before the opponent is aware of a claim being brought against them.

When those cases fail, the ATE insurer suffers the ‘double whammy’ of paying a claim and receiving no premium. This point cannot be emphasised enough and is the reason why attempting a to draw a crude correlation between an ATE premium with a claimant’s award of damages is seldom appropriate, regardless of the new rules governing proportionality of costs.

The point should also be made that it is commercially prudent for an ATE insurer to only work with solicitors with a proven track record and expertise in this area of litigation. That said, being exposed to early losses during the investigation stage is part of the reality of clinical negligence litigation and these losses are factored into premiums.

Put simply, in order for an insurer’s rating model to be sustainable, the insurance premium needs to be recovered in full. A climate in which ATE insurers sustain frequent reductions in premium may mean they begin to question their continued appetite to write these risks, with ensuing implications for justice.

But as already indicated, insurers genuinely have no appetite to set rates at a level that would attract high levels of challenge from opponents. It would result in additional cost and delays in recovery which would only make their proposition less attractive to their target market; it would be self-defeating to do so.

Cases insured under the post-LASPO regime are settling successfully with increasing frequency and ATE insurers have seen this coincide with a rise in premium challenges. The decisions in McMenemy and also BNM v MGN should provide encouragement to claimants and their solicitors, as well as their ATE insurer.

However, these judgments are not the end of the story. The practical application of the decision in BNM remains to be seen, and the market also awaits the outcome of a further Court of Appeal judgment concerning post-LASPO clinical negligence ATE premiums due in 2018.

But, for the moment at least, the outlook is encouraging; at least it is for those who are enthusiastic about access to justice and a sustainable ATE market.


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