ATE premiums incepted after 1st April 2013, save for exceptions in relation to certain types of cases, ceased to be recoverable between parties as a result of the changes introduced by LASPO. However, there are many thousands of cases still running under the old regime which often raise contentious issues surrounding reasonableness, necessity and proportionality.
Evidence based assessment
Successfully challenging ATE premiums has proved problematic to paying parties ever since the Court of Appeal determined in Rogers v Merthyr Tydfil CBC [2006] EWCA Civ 1134 that judges lack the necessary expertise to assess the reasonableness of a block rated ATE premium (except in very broad brush terms) and it was reasonable to price a block rated premium by reference to its basket of risk.
The court gave guidance that it was sufficient for the receiving party to provide a note explaining why the premium was chosen and the basis on which the premium was calculated. As a result, the courts have been very reluctant to interfere with ATE premiums and thereby imperil the viability of the ATE market.
This approach was the focus of the court in Kris Motors v Williams LLP [2010] EWHC 1008 (QB) in which Simon J asserted that the burden was on the paying party to provide evidence that the premium was unreasonable in amount when he said:
“ challenges must be resolved on the basis of evidence and analysis , rather than by assertion and counter assertion”
Therefore, without comparator evidence, which is extremely difficult to obtain, it has been notoriously difficult for paying parties to demonstrate that an ATE premium sought is unreasonable or disproportionate in amount.
Proportionality
Challenging ATE premiums on the basis of proportionality has also proven difficult since Rogers also held that, applying the old proportionality test, if it was necessary to incur a staged premium then it is a proportionate expense. This was supported by the Supreme Court in Coventry v Lawrence [2015] UKSC 50.
A different approach?
There are, however, some examples where the judiciary have felt themselves able to take a different approach, notwithstanding Rogers. Redwing Construction v Wishart [2011] EWHC 19 (TCC), [2011] All ER (D) 101 (Jan) and Kelly v Black Horse SCCO 27.09.2012 are two such cases where the courts determined that premiums should be linked to an assessment of the risks and prospects of success and that a premium could be reduced on a costs assessment to reflect the fact that, at the time when the insurance was entered into, the prospects of success were good or high.
Assessments using the “burn premium” calculation, i.e the risk of paying out multiplied by the exposure as referred to in Motto v Trafigura [2011] EWHC 90209 (Costs), have become more common.
Another example of the court taking a contrary view to the underwriter without evidence provided by the paying party was in Surrey v Barnet & Chase Hospitals [2015] EWHC B16 Costs where Master Rowley considered that a premium could be reduced if the risk assessment or the level of cover has manifestly resulted in an overly high premium being claimed. Whilst accepting that Rogers was clear authority that the court should be slow to adjust block rated premiums, he considered the level of cover of £500,000 provided by the ATE premium to be considerably more cover than was required and determined that the premium should be reduced to reflect this.
On appeal, Foskett J, having been invited by the receiving party to follow the approach in Rogers and Kris Motor Spares, pointed out that there was now some 10 years of experience gained by costs judges since Rogers and found that costs judges were entitled to intervene using their experience gained in analysing and assessing costs over the years. Accordingly, whilst not seeking to diminish the importance of the guidance in Rogers and Callery v Gray, Foskett J considered that neither of those cases expressly held that a costs judge should not reduce a premium on a brush basis - simply that they should be approached with caution.
But this alternative approach has not found favour with all. In Pollard v University Hospitals of North Midlands NHS Trust 2016 (unreported – 7 July 2016) - an appeal in respect of a Recorder’s decision to reduce an ATE premium on the basis that it did not reflect the individual risk in the case - Langstaff J, reaffirmed Rogers as the undiminished legal authority and rejected Surrey saying:
“I have reservations about this approach. It endorses the experience of costs judges but it provides no principled reasoning of its own before reaching the conclusion that it does”.
Given the differing approaches, challenges to block staged ATE premiums are likely to continue. We expect the courts to be reluctant to interfere but where the paying party can show good reason to for a reduction then significant savings can be made.
Keoghs comment
Whilst the production of comparator ATE products with lower premiums may provide a good reason, it is clear that it is not the only method.
Good reason will include situations where the risk factor has been overstated and the chance of success understated by reference to what was known or ought to have been known when the ATE policy was incepted. It will also include situations where the ATE insurer has not been given proper information about the level of costs so that the likely amount of adverse costs and own disbursements has been overstated.
We shall continue to challenge pre-LASPO ATE premiums where there is good reason to do so.
The service you deliver is integral to the success of your business. With the right technology, we can help you to heighten your customer experience, improve underwriting performance, and streamline processes.