Now that the Jackson Costs Review has jumped back to the top of the agenda, the inevitable frantic lobbying over the proposals has started afresh. One of the first out of the starting blocks was Matthew Amey, director at TheJudge defending the current after-the-event (ATE) regime (NLJ, 6 August 2010, p 1094).
The ATE debate is an interesting one from an historical perspective. Lord Justice Jackson wants to end recoverability of ATE premiums. In large party this is because of the perceived excessive and disproportionate amounts now claimed by way of premium. The judiciary has come out strongly in support of his proposals.
The first irony is that it was the judiciary that allowed matters to reach their current critical state. The decision in Rogers v Merthyr Tydfil  EWCA Civ 1134 granted ATE insurers virtually a blank cheque to set their premiums at whatever level those chose. With the odd limited exception, challenges to ATE premiums became virtually impossible. If the judiciary had been prepared to take a more robust approach to ATE premiums, the current “nuclear option” of ending recoverability would probably not have arisen. (Equally, if the Court of Appeal had one down a different road when interpreting “proportionality” in Lownds v Home Office  EWCA Civ 365 the Jackson Costs Review would probably have been entirely unnecessary.)
The second irony is that ATE insurers may have been the victims of their own success. They did such a good job warning of the precarious state of the Ate market that they frightened the judiciary into its current fear of interfering with premium levels. If ATE insurers had fought a little less hard to repel every ATE premium challenge we might now have an ATE system that was market led and proportionate. The recently launched zero rated premiums for claims in the new RTA claims process from Abbey Legal Protection appear to represent a serious attempt to bring some sense into the system. However, from the perspective of the future of ATE insurers this may be too little too late.
Matthew Amey suggests there may be some changes that could be made to make the market more competitive without taking a sledgehammer to the whole system: “The cost of ATE premiums in the PI market are sustained at unnecessarily high levels due to the existence of contractual guarantees to the insured claimant that they will never be liable for any premium shortfall following a successful challenge to the premium at detailed assessment. Tackling this issue by giving the insured claimant (and therefore the claimant’s legal advisers) a stake in the recoverability process would mean that the purchasers of the insurance will be far more concerned than they currently are about price. The paying party will ultimately benefit from the claimant’s greater endeavours to search the market for the best deal.”
ONE & THE SAME?
It would take a real pedant to explain the difference between an ATE policy that self-insured any shortfall in premium recovery and a policy that “ring-fences” the successful client’s damages. “Ring-fencing” is the process of providing cover such that unrecovered costs, i.e. part of the ATE premium, will not reduce the amount of damages the claimant receives below a specified minimum level. Self-insurance and ring-fencing are not identical, but when looked at closely, they are often found to be one and the same.
When the senior costs judge, Master Hurst, considered the issue of ring-fencing in Re Claims Direct Cases  EWHC 9002 (Costs), he concluded: “In my view, since the cover purchased for £245 plus Insurance Premium Tax was a discrete add on to the existing insurance for which the claimant paid separately, and since the cover provided does not fall within the strict limits of Section 29, no part of the £245 plus IPT is recoverable. Had the claimant taken out a policy which included ring-fencing at the outset it still seems to me that this element of cover and therefore its cost should be excluded from what is recoverable from the paying party.”
This decision was affirmed by the Court of Appeal in Re Claims Direct Test Cases  EWCA Civ 136,  4 All ER 508 although not on this specific point. Therefore, assuming Master Hurst is correct on this point (and he is not well known for being overturned by the Court of Appeal), the courts should already be reducing premiums where the protection against shortfalls is, in reality, ring-fencing. Do they? Do they heck as like. Nor are they falling over themselves to deconstruct premiums containing referral fees, “capacity fees” or panel membership fees.
This is based on their reluctance (refusal) to go down the “deconstruction” route of examining how ATE premiums are arrived at by breaking down the premium to examine the different elements they insure and ensuring that each element is properly recoverable. Again, this reflects the guidance given in Rogers, which states that it will “ordinarily be sufficient for a claimant’s solicitor to write brief note for the purpose of the costs assessment explaining how he came to choose the particular ATE product for his client, and the basis on which the premium is rated – whether block rated or individually rated. District judges and costs judges do not, as Lord Hofmann observed in Callery v Gray (Nos 1 and 2)  UKHL 28 at ,  1 WLR 2000, have the expertise to judge the reasonableness of a premium except in very broad brush terms, and the viability of the ATE market will be imperilled if they regard themselves) without the assistance of expert evidence) as better qualified that the underwriter to rate the financial risk the insurer faces.” This guidance has recently been formalised by CPD 39.2.
A combination of the judiciary and the ATE insurers themselves have created a situation where abolition of recovery now looks like the only way out of the current mess. It could have all been so different.
Simon Gibbs is a partner with defendant costs consultants Gibbs Wyatt Stone