Court can take insurance market considerations into account when assessing reasonableness of ATE premiums

The Court of Appeal has held that the reasonableness of an ATE premium is to be judged by reference to the economics of the ATE market rather than the facts of a specific case. Once a block-rated ATE premium has been assessed as reasonable, it is not then to be assessed as disproportionate.

Facts

In West (1) and Demouilpied (2) v Stockport NHS Foundation Trust [2019] EWCA Civ 1220, both claimants took out block-rated ATE policies with the same insurer for a premium of £5,088. Block-rated policies are assessed by reference to a basket of typical cases rather than the individual facts of a particular claim. The claims settled for £10,000 and £4,500 respectively, with costs to be assessed. On assessment, one premium was reduced to £2,500 on grounds of reasonableness and the other to £650 on grounds of proportionality. Both claimants appealed to the Court of Appeal. Due to the similarity of the issues, both appeals were held together.

Assessors’ Report

Given the potential significance of the issues in the appeals, the Court of Appeal ordered an initial fact-finding hearing to be held in front of two expert assessors. In summary, the assessors reported as follows:

• The premium in these cases was “fairly typical” in the block-rated policy market.

• Premiums in this market were set largely by reference to the claimant’s costs risk rather than the selected limit of indemnity.

• The reductions at assessment had been based partly on evidence of the availability of cheaper policies, but in reality, these policies would not have been available to the claimants.

• Suggestions that lower premiums would lead to better cost management were unrealistic.

General principles

The Court of Appeal began by making a number of general observations:

• An issue such as the recoverability of a fixed premium “ought to be the subject of clear guidance with minimal room for debate” rather than being decided on a case-by-case basis.

• It was not permissible for costs judges to make such a decision based on a subjective assessment of what was reasonable or proportionate.

• Defendants in clinical negligence cases should advance a positive case on costs rather than relying on the burden of proof, given that they would generally have better access to comparative data than claimants would.

• Comparative data should be based on detailed evidence of “unarguably comparable insurance policies and premiums”.

Reasonableness of premiums

As to the reasonableness of ATE premiums, the Court of Appeal derived the following principles from previous case law:

1. Disputes about the reasonableness and recoverability of ATE insurance premiums are not to be decided on the case-by-case basis that is used in resolving other costs issues, but “at a macro level by reference to the general run of cases and the macro-economics of the ATE insurance market”.

1. The assessment of reasonableness must take into account the unavoidable characteristics of the ATE insurance market.

1. District judges and cost judges should not attempt to judge the reasonableness of a premium without the assistance of expert evidence. In particular, they should not simply compare the value of the claim (or of the settlement sum) to the premium paid.

1. There is an evidential burden on the paying party to adduce at least some material to challenge the reasonableness of the premium.

The court noted that the scope for a challenge to reasonableness would be greater in the case of a bespoke policy where the risk had been individually assessed.

Proportionality of premiums

Civil Procedure Rule 44.4 states that the court will have regard to “all the circumstances” when considering proportionality. The defendant argued that this meant only the circumstances of the specific case, whereas the claimants took the view that it allowed the court to take into account the wider circumstances of the insurance market. The Court of Appeal agreed with the claimants on this point.

The court also held that, when assessing proportionality, judges should not take into account items which “are fixed and unavoidable, or which have an irreducibile minimum, without which the litigation could not have been progressed.” This included the following examples:

• The ATE premium

• Court fees

• VAT

• The costs of drawing the bill itself

The correct approach to cost assessment

Finally, the Court of Appeal noted that there was an “absence of consistency” in the way in which costs bills were being assessed. While they did not wish to impose inflexible rules, therefore, they gave the following guidance on the correct approach:

1. The judge should first go through the bill line-by-line and assess the reasonableness of each item. It was up to the judge whether or not to address the proportionality of any particular item at the same time.

1. This line-by-line analysis will produce a total figure which the judge considers to be reasonable. The judge must then assess whether or that total is proportionate. If so, no further assessment if required. If not, the judge should consider proportionality by reference to categories of cost such as disclosure, expert’s reports or specific periods, but not on a line-by-line basis. Any items considered to be unavoidable should not be reduced as part of this process.

1. Once this category-by-category assessment had been undertaken, the judge should not make any further reduction in respect of the overall figure.

Applying these principles, the ATE premiums in both West and Demouilpied were held to be reasonable and proportionate, and therefore both appeals were allowed

Comment

The Court of Appeal stated that unless further identifiable changes affecting the ATE insurance market occur, it now considers the question of recoverability of block-rated insurance premiums to be settled. This will be welcomed by insurers and claimants’ solicitors. NHS Trusts and others who regularly defend clinical negligence claims should note the guidance provided by the court on the conduct of costs assessments generally and challenges to ATE premiums in particular, especially the need to discharge an evidential burden and the likelihood that expert evidence will be required.

The authors would like to acknowledge the assistance of Dan Saul, paralegal at CMS Sheffield, in preparing this article.