Rogers v. Merthyr Tydfil County Borough Council  - Proper Approach to the Assessment of Staged ATE Premiums

Personal injury practitioners and particularly those who mainly or regularly represent Claimants will welcome the recent decision of the Court of Appeal in Rogers v. Merthyr Tydfil County Borough Council. The Court of Appeal in a judgment delivered on 31 July 2006 gave arguably overdue guidance on the proper approach to the assessment of staged after-the-event (‘ATE’) insurance premiums.

The substantive claim was modest and straightforward. The infant Claimant suffered cuts from shards of glass lying in a play area owned by the Defendant Local Authority. The matter went to trial on the facts of the accident, the court found in the Claimant’s favour and damages were agreed at £3,105 plus interest. At first instance the DJ allowed a three-stage ATE premium of £5,103 (£4,860 plus insurance premium tax) and upheld the 100% success fee. On appeal the premium was reduced to £900 on the basis of information contained in Litigation Funding magazine and because the DJ considered the premium ‘wholly excessive.’

Master Hurst heard the evidence which was to form the foundation of the Court of Appeal’s decision. In summary, he heard detailed evidence on the availability of ATE insurance, the state of the market, the factors to be considered by a Claimant’s solicitor in deciding whether a particular product was appropriate, and why the information in Litigation Funding might not be considered complete. The Claimant/Appellant’s evidence was heard ‘live’ and the Defendant/Respondent’s evidence in witness statements, due to non-availability of the witnesses. Submissions were made on behalf of interested parties the Law Society and several insurance companies in addition to the parties to the appeal.

The issues for decision were (i) the proper approach to proportionality in small personal injury cases; (ii) the proper approach to evidence of reasonableness of the ATE premium; and (iii) whether both staged and single-stage ATE premiums were legitimate and recoverable. The issues were to be considered in the context of CPR 44.4 – 44.5 and Section 11 of the Costs Practice Direction which sets out the factors to be taken into account in deciding the amount of costs. This makes it clear – as does common sense you might think - that the relationship between the total costs and the value of the claim is not always a good test of proportionality. Following the approach set out in Lownds v. Home Office (Practice Note) [2002] 1 WLR 2450, the Court of Appeal found that if it was necessary to expend the full amount of the premium, then it should be considered reasonable.

The court dealt shortly with the question of whether a staged premium is legitimate by drawing an analogy with two-stage success fees, which have been positively encouraged by the courts. The level of risk to the ATE insurance provider rises the closer a case gets to trial. As the trial approaches, the increasing costs should encourage the Defendant to think seriously about the merits of its position and its potential costs exposure, and the Court of Appeal felt this obligation was consistent with the underlying philosophy of the CPR.

The Court of Appeal found in this case it was impossible to say the premium was unreasonable given the insurers’ estimated maximum loss figure of £6,500 (the loss would in fact have been £6,875 so this was an astute estimate). Having assessed the risk at almost 50/50 on the basis of previous experience of similar cases (slips and trips), the insurer was entitled to charge a premium at the same sort of level as the estimated maximum loss because otherwise it would be losing money. For every case that is unsuccessful and the insurer must pay out, it must recover the same amount in order to maintain the business.

This reasoning is of course the same as that applied to risk assessment in CFA cases – if the chances of success are only 50%, you must charge a 100% success fee because for every case you win you will also lose one. (As pointed out by Lady Justice Smith the evidence produced by DAS suggested that more like 70% of slipping and tripping cases fail, a worrying statistic for some of us).

Further, comparison with figures in Litigation Funding was not reliable as it was not legitimate to compare the amount of a single premium model with the amount payable at the end stage of a three-stage premium model. It was not comparing like with like. The truth was in this case that the Defendant/Respondent was unable to identify a cheaper product that met the client’s needs, and it was impossible to say that the approach of the Claimant’s solicitor to making the decision was unreasonable.

The Court of Appeal did say however that in future where there is a policy with two or more stages, the Defendant should be informed of this fact and should be told when the later stage/s will be reached (the first obviously already having been incurred). If this is done and the case fights, the Defendant’s liability to pay a higher premium that would have been incurred if the case had been settled, or settled earlier, should not be contentious in principle because the risks were made known.

In relation to the evidence required in consideration of the amount of the premium, it should ordinarily suffice for the Claimant’s solicitor to write a brief note for the purposes of assessment explaining how the particular policy was selected and the basis on which the premium is rated, i.e. block rated or individually rated. The implication here in my reading of this paragraph of the judgment (117) is that challenges to the size of ATE premiums are to be discouraged, although it seems that Lady Justice Smith had reservations about giving this impression.

Based on my experience the discouragement is understandable. Whilst Judges usually have a great deal of experience in practice, whether at the Bar or as solicitors, to call upon when assessing other costs and disbursements, many will have little or no knowledge of the ATE insurance market or in some cases of how CFA cases are run, and there is an obvious danger in the ‘broad brush’ approach. This decision should give some comfort to Claimant’s solicitors as long as they are able to give reasonable justification for the choice of a particular product.