In the recent case of Kelly v Black Horse Limited, Senior Costs Judge Hurst considered when a defendant wishing to challenge payment of an excessively expensive After The Event insurance premium (“ATE premium”) should be allowed to succeed.
The purchase of disproportionately expensive ATE premiums by claimant solicitors has long been a bone of contention for defendants. While it is established that any premium claimed by a claimant must comply with the underlying principles of reasonableness and proportionality(1), attempts to challenge excessive premiums have been met by a cautious judiciary, conscious of the danger of undermining the expertise of the insurers responsible for establishing the premiums(2). The case of RSA Pursuit Test Cases(3) established that a defendant may adduce evidence to the court to justify a lower figure, but the decision offers no answer to the difficulties associated with obtaining independent evidence from the same pool of insurers that calculate and offer these expensive premiums to claimants in the first place. As such, to date defendants who have been subjected to claims for the payment of disproportionately high ATE premiums have found themselves unable to demonstrate the unreasonableness of the amount claimed.
In the case of Kelly v Black Horse Limited, the claimants paid an ATE premium in respect of adverse costs and their own disbursements totalling £15,900. The defendant’s costs totalled £5,837.10 and the claimants’ disbursements amounted to £1,406.20. This meant that the total potential exposure faced by the insurer was just £7,243.30.
Having already decided that both the base costs claimed in the claimants’ bill and the success fee of 100% were disproportionate and that the risk assessment completed for the CFA was “entirely meaningless”, the Judge concluded that the information provided to the insurers which was used as the basis for calculating the premium was unlikely to have been accurate. The Judge agreed with the defendant that the recoverable premium should be established by calculating the “burn cost” of the premium, i.e. the risk of payment multiplied by the insurer’s exposure to the claim (plus an additional percentage for brokerage and profit costs).
In this case, the insurer’s total exposure was £7,243.30. Using that figure and the risk of paying out of 35%, as previously found by him in respect of the success fee, the Judge calculated the ‘burn premium’ (inclusive of brokerage and profit costs) to be £3,168.95, rather than the £15,900 claimed.
The Judge checked this calculation against his own conclusion that it would be reasonable to expect the defendant to pay 25% of the premium paid of £15,000 (the Judge used this figure rather than the actual premium paid of £15,900). He noted that his calculation produced a figure of £3,750, which was extremely close to that produced using the defendant’s ‘burn cost’ calculation. Accordingly, he allowed the claimants £3,975 in respect of their ATE premium, including IPT.
Comment
The Judgment in Kelly v Black Horse Limited may pave the way for a more grounded approach to the calculation of ATE premiums to be paid by paying parties, which in turn suggests a solution to the difficulties previously faced by defendants when attempting to challenge the same. In future, more onus may be placed on claimants’ solicitors to demonstrate that excessive premiums are justified.
(1) Redwing Construction Ltd v Wishart [2010] All ER (D) 305 (Dec)
(2) Callery v Gray (Nos 1 and 2) [2002] UKHL 28 at [44]; [2002] 1 WLR 2000
(3) [2005] EWHC 90003 (Costs)
