The Senior Costs Judge has slashed the after-the-event (ATE) premium claimed in a payment protection insurance (PPI) case, giving hope to defendants currently facing huge bills for mis-selling.
Master Peter Hurst said that as the issue of ATE premiums “recurs constantly” in the many PPI cases before the courts, he was handing down a written judgment in Kelly and anor v Black Horse  EWHC B17 (Costs) “in the hope that this may assist in resolving future disputes in this area”.
Kelly was a fully defended claim. After a full day’s hearing, the deputy district judge ordered that the defendant write off the £5,202.63 balance outstanding from the loan agreement, re-pay the claimants £6,000 and that pay 70% of the claimants’ costs.
One of the outstanding issues at the detailed assessment was the £15,000 ATE premium claimed as part of a total bill of over £46,000 (including disbursements of £1,406.20). The defendant’s costs, including counsel’s fees, amounted to £5,837.10.
On the basis that the defendant’s maximum exposure was £7,243.30 (adverse costs and own client disbursements), the defendant argued that the recoverable premium should be arrived at by calculating the ‘burn’ premium – the risk of paying out (found by Master Hurst to be 35%), multiplied by the exposure – plus an increase of 25% for brokerage and profit. This led to a figure of £3,168.95.
Master Hurst said: “There is no doubt that the ATE premium sought in this case is wholly disproportionate… I have been given no evidence as to the information which was given to the ATE insurers to enable them to rate the policy, but, given the risk assessment completed for the purpose of the CFA, which was entirely meaningless, it is safe to assume that the insurers were not given accurate information.”
Using the defendant’s method, the insurer must have been told its costs exposure exceeded £20,000, he said, when it would have been reasonable to predict just £7,000.
“In my judgment it is reasonable to expect the defendant to pay 25% of the premium claimed of £15,000. This produced a figure of £3,750, which compares favourably with the £3,677 which I calculated using [the defendant’s] formula.”
Alex Bagnall, technical director of costs firm John M Hayes – which acted for the defendant on the detailed assessment – said the ruling challenged the generally held view that an ATE premium can only be challenged if the paying party is able to adduce expert evidence, which is hard to persuade other ATE insurers to provide.
Writing on the firm’s website, he said: “Many lenders which are in the throes of PPI mis-selling litigation will find Kelly to be a very useful case. Claimant firms of solicitors frequently purchase disproportionately expensive ATE premiums and, to date, challenging the reasonableness of the same has proven all but impossible.
“Now that the Senior Costs Judge has delivered such a robust judgment, lenders may start to see significant reductions in the level of legal costs that they are required to pay to successful PPI claimants.”