Clinical negligence claimants can continue to take out after-the-event (ATE) insurance for expert reports when they enter into conditional fee agreements, and premiums will be recoverable even if the case settles before the reports are commissioned, the Court of Appeal has decided in a major ruling today.
The court said that the principle established in the seminal pre-LASPO case of Callery v Gray – that entering into a block-rated ATE policy at the same time as entering into a CFA was a reasonable way to conduct litigation – remained the law in the post-LASPO world.
It also called on the Civil Procedure Rule Committee to introduce rules or practice directions to govern the recovery of ATE in clinical negligence cases.
The defendant trusts in Peterborough & Stamford Hospitals NHS Trust v McMenemy & Ors  EWCA Civ 1941 had sought to argue that courts should decide on a case-by-case basis whether it was reasonable and proportionate for the claimant to take out the insurance.
The two cases before the court involved claims to recover ARAG premiums of £5,088, which had led to differing decisions in the lower courts as to whether it was reasonable for the claimants to have taken out cover at the start of the case.
In one of the cases, the district judge held that it was unreasonable to have insured against the cost of expert reports on the question of liability, but not the cost of reports on causation.
In neither case, however, were experts actually instructed before settlement.
Giving the unanimous decision of the appeal court, Lord Justice Lewison said: “I have not been persuaded that we should depart from the policy decision taken in Callery v Gray and examine the reasonableness of taking out ATE insurance on a case by case basis. Nor am I persuaded that the new proportionality test requires a case-by-case approach.
“It is clear from the government’s formal response to Sir Rupert Jackson’s recommendations that ‘for reasons of public policy’, the government decided to exclude ATE insurance premiums relating to the cost of expert reports in clinical negligence cases from the general abolition of their recovery.
“The concern was that claimants might not be able to afford the ‘upfront’ costs of such reports, and thus that access to justice might be unduly restricted.”
Though an initial draft of the regulations implementing this would have barred recovery where no report was in fact obtained, the version that eventually became law did not, Lewison LJ observed.
“Nor did the government accept Sir Rupert’s recommendation that there should be a breathing space equivalent to the protocol period during which the taking out of ATE insurance would be premature.
“The government knew, as Sir Rupert had reported and as the case law made clear, that ATE policies were taken out at the same time as a potential claimant entered into a CFA, and must have intended not to disturb that practice…
“For these reasons, in addition to those advanced by Mr Bacon, I consider that it is still permissible for ATE insurance to be taken out as soon as a claimant enters into a CFA.”
Lewison LJ deprecated the district judge’s decision to find cover for one type of report reasonable but not the other.
“The case law has also emphasised that costs judges do not have the expertise to second guess the insurance market, still less to deconstruct a policy that is offered as a package into its constituent parts… There was simply no evidence on which he could have come to the conclusion that any such limited ATE insurance was available in the market.”
However, Lewison LJ acknowledged that it may be open to a defendant to argue that it was unreasonable or disproportionate to take out one kind of ATE insurance rather than another.
“The old practice direction directed consideration to the question whether any part of the premium would be rebated on early settlement, and it may be that it would be unreasonable in some cases to take out a single premium policy rather than one with stage payments; or one with the possibility of rebated premiums.
“But those questions go more to whether the amount in question was reasonable or proportionate rather than to the question of principle whether ATE insurance may be taken out at all at the outset.
“Questions relating to quantum are not before us and are, we were told, due to be considered by this court in another test case.”
Lewison LJ said it was “unfortunate” that the rules committee took the view that there was no need for rules or practice directions dealing with the recovery of ATE insurance premiums in clinical negligence cases.
“[I] would invite them to reconsider the question. At the moment, however the pieces of the jigsaw puzzle are manoeuvred, they do not all fit properly.”
ARAG head of claims Chris Millward said the insurer was “particularly pleased with the court’s reassertion that ‘block rating’ is a valid, tried and tested mechanism for setting ATE premiums”.
He continued: “Importantly, the court recognised that the introduction of QOCS has not changed the unsuccessful claimant’s position in respect of their own disbursements. Even a successful claimant will have had a real incentive to insure against the risk of an adverse costs order, which could significantly reduce the damages awarded as compensation.
“These cases represent mere skirmishes in a much longer and wider struggle to defend access to justice for those who could not otherwise afford to bring legal action, but we are optimistic that a broader clarity and understanding is closer to being reached.”