High Court criticises regional costs judge for second-guessing ATE insurer

High Court: Premium was reasonable

A regional costs judge was “quite wrong” to assume that “his underwriting skill was better than that of the underwriter” and slashing an after-the-event insurance premium by 85%, the High Court has ruled.

Mr Justice Martin Spencer also found that the claimant had little choice but to accept the quoted premium “and the necessity of so doing makes the premium proportionate”.

In Percy v Anderson-Young [2017] EWHC 2712 (QB), the claimant suffered a severe head injury as a passenger in a road traffic accident.

Her claim settled at mediation and the parties agreed all the costs except for the after-the-event (ATE) insurance premium of £533,017 payable to LAMP.

A regional costs judge, District Judge Moss, reduced the recoverable premium to £82,513.

Initially LAMP provided £50,000 of cover but as it emerged the case was likely to go to trial, the insurer – though on the evidence reluctant to take on the “very significant risk” that a part 36 offer would not be bettered – agreed to top up the cover to £500,000. The premium quoted was £319,315 up to 45 days before trial and £533,017 within 45 days of trial.

Contrary to the expectation of both parties, the claim settled shortly before trial for £1.4m. Costs of £1.1m included the ATE premium. All was agreed except the premium.

Spencer J said there was “an important distinction” between a case where a cost judge decided whether the level of cover was too high – which was not the situation here – and one where the suggestion was that the underwriting decision was flawed and the judge was essentially second-guessing the underwriter.

“District Judge Moss did indeed fall plainly and directly into the trap identified by the Court of Appeal in Rogers and set himself up as better placed than the underwriter to identify the financial risk which the insurer faced.

“Furthermore, if the district judge was to apply such a huge reduction to the premium, a reduction in excess of £400,000, I am very surprised that the district judge did not give directions for expert evidence and/or for [Alan Strange, LAMP’s chief information officer] to give oral evidence: in my judgment he should have done and his decision was flawed in the absence of having so done.

“No-one could suggest that this would have been disproportionate, given the sum at stake.”

Spencer J also criticised the district judge for concluding that the underwriting decision was flawed because it looked only at the chance of the matter going to trial and not at the chance of the claimant exceeding the part 36 offer.

He said it was fair to assume the defendant thought he had a very good chance of securing an award within the part 36 offer, while “this was archetypically the kind of case which could have seriously unravelled for the claimant at trial”.

He continued: “In my judgment, a wholly reasonable attitude for the underwriter to have taken would have been to say: ‘Once the matter gets to trial, all bets are off.’ I expect that this was in fact Mr Strange’s approach.”

Spencer J further criticised the district judge for not actually applying a broad-brush approach, but rather carrying out “a form of mathematical exercise” by wrongly starting with the premium of £319,350 and then applying “an arbitrary” deduction of 75% in assessing the premium at 25% of the starting point.

He also found “considerable force” in the claimant’s submission that the district judge’s ruling would leave claimants’ solicitors in an impossible position. The claimant her faced a binary choice of taking out the additional cover or run the risk of losing a 10-day trial and facing a costs order in excess of £500,000.

“In my judgment it is fanciful to suggest that, had [claimant solicitor Andrew Duff] said to Mr Strange ‘I think your premium is too high’, Mr Strange would have responded, ‘Oh, very well then, I will reduce it by over £400,000’.

“Mr Duff was entitled to assume that the premium he was being quoted was a bona fide and reasonable premium for the risk which the insurer was undertaking, not least because he, Mr Duff, also believed that the prospects of settlement at the mediation were small and that this was a case which was likely to go to trial.

“If he did not think that the claimant could possibly take the risk of going to trial without this insurance, why should he have thought that the underwriter ought to have a different perception of the risk?

“In my judgment, the claimant in this case had little choice but to accept the quotation from LAMP and the necessity of so doing makes the premium proportionate.”

The premium was reasonable, he concluded, and there was no evidence to suggest the underwriting risk was misjudged.

As a result, Spencer J allowed the appeal and assessed the ATE premium at £533,017.

    Readers Comments

  • Bill says:

    The effect of Spencer J’s narrow interpretation of Rogers can be summarised as follows:

    “ATE insurers can charge whatever they like for staged ATE premiums.”

    The argument here is between paying party and ATE insurer. The Claimant and his solicitor have no interest in the level of premium being reasonable. They do not pay the premium or the shortfall. The only restraining factor on what an ATE insurer can charge is the possibility of a reduction on assessment. It is pointless to look at whether a solicitor’s action is reasonable in taking out a particular premium when only his opponent will ever pay the ATE product he utilises.

    The question the costs judge should ask is whether the premium is reasonable in broad brush terms. Even ignoring the fact the vast premium was due to the claimant’s solicitors failure to obtain adequate cover at the outset it is obvious to anyone with a knowledge of civil litigation and GCSE maths that the premium was grossly excessive in the extreme.

    Alternative products for this type of bespoke premium cannot be provided. It is also impossible for a paying party to obtain expert evidence to challenge ATE premiums. ATE insurers are hardly queueing up to offer evidence they are charging too much.

    The option a costs judge has is a cross check in the manner adopted in Rogers. It is hardly rocket science to work out the probable amount paid out in the case of a loss and probability of paying out to work out a reasonable burning costs for a premium and add on a bit for profit and admin. This is a useful cross reference according to Rogers but not permissible in Percy.

    Suggesting a challenge is only permissible if cover is too high means if cover is at the right level but an ATE insurer wants to make a massive profit and assumes a risk that is unrealistically high, a likely pay out that is far too high there is nothing a paying party can do about it even if it is patently obvious. In fact the ATE insurer could charge too much then double it or treble it and there is still nothing a paying party can do about it if this judgment stands.

    The disdain for maths when assessing a £500K premium is difficult to comprehend. Simple approach in line with Rogers. Likely post Part 36 payout by LAMP if loses – own disbs (assuming sol and counsel on CFA) other side’s post part 36 costs I would guess at £400K. Risk of paying this amount 7 weeks before trial with mediation looming. In many cases evidence crystalises late and settlement is late. Only 3% of litigated cases end at trial and presumably claimant’s lose only 50% of that 3% of cases. The risk is that the case needs to (i) actually go to trial which very few cases do and (ii) lose to D’s existing part 36 offer. This is far less than a 50/50 risk. RCJ Moss had it about right albeit not expressed in clear terms

    Incidentally it has long been held that the actual level of cover has very little impact in the level of premium where the cover is not required. ATE premiums do not work that way with a linear increase according to the level of cover.

    The complete lack of understanding is displayed in the comment there is force in the suggestion “Claimants’ solicitors such as Mr Duff are put in an impossible position”. No they aren’t. They take out a premium. They have no interest what the ATE insurer charges. The ATE insurer tries to get away with charging as much as they can get away with, which is pretty much whatever they like on the basis of this judgment.

  • Andrew Lyons says:

    Bill – we will see what the COA makes of this. The defendant is seeking permission from the COA for a second appeal.If permission is given I will update.

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