ATE insurance premiums—reasonableness and proportionality (Demouilpied v Stockport)
Dispute Resolution analysis: How should the court approach submissions that after the event (ATE) insurance premiums are unreasonable and costs disproportionate? Anil Virji, head of costs and Robert Patterson, senior costs draftsman, at Civil & Commercial Costs Lawyers, analyse the judgment in Demouilpied v Stockport NHS Foundation Trust.
Demouilpied v Stockport NHS Foundation Trust; West v Stockport NHS Foundation Trust  Lexis Citation 710
What practical implications does this judgment have?
The judgment gives a useful insight into how the courts will treat submissions by a paying party that premiums are unreasonable and the approach to be taken in circumstances where the costs are not globally dis-proportionate, but an individual item of costs is disproportionate. However, within the preamble to the case HHJ Smith accepted that his decision would not be authoritative, but, in doing so he highlighted the reality of the ongoing conflict being claimants and defendants over the issue of premiums.
What were the facts in this case?
In this case the court was dealing with two appeals concerning the reasonableness and proportionality of block rated ATE insurance premiums intercepted post 1 April 2013. The recoverable element of both premiums was £4,700 and the premiums were taken out in claims for clinical negligence which settled without court proceedings for £4,800 and £10,000. In the case of West the premium was reduced to £650 on grounds of proportionality and in Demouilpied the premium was reduced to £2,500 on grounds of reasonableness.
What approach is the County Court taking to dealing with the assessment of ATE insurance?
By way of background section 46 of Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO 2012) repealed section 29 of the Access to Justice Act 1999 which had previously permitted the recovery of ATE premiums from the paying party. In relation to clinical negligence claims the Recovery of Costs Insurance Premiums in Clinical Negligence Proceedings (No 2) Regulations 2013, SI 2013/739 allows for part of the insurance to be recoverable where the financial value of the claim is more than £1,000 and the costs insurance policy insures against the risk of incurring a liability to pay for an expert report or reports relating to liability or causation. In relation to the premiums, the court decided that the premiums were subject to the tests of proportionality and reasonableness in accordance with rules 44.3 and 44.4 of the Civil Procedure Rules 1999 (CPR), SI 1998/3132. This position differs significantly from the pre-LASPO 2012 position where, in relation to block rated premiums only, the court’s hands were tied in relation to premiums as they did not have underwriting experience (see Rogers v Merthyr Tydfil County Borough Council  EWCA Civ 1134,  All ER (D) 471 (Jul)).
How is the issue of proportionality being addressed by the courts?
In this case the court was concerned with three issues in respect of proportionality:
whether or not the court can award disproportionate costs notwithstanding the wording of CPR 44.3(2) that ‘the court will only allow costs which are proportionate to the matters in issue’
whether or not the court, when determining proportionality can take into account factors which are not specific to the case
whether or not the court is to determine proportionality on a global basis by looking at the totality of the costs or on an individual basis by determining that an individual item is disproportionate even though the total figure for costs is proportionate
The major issue for the court to decide was how to balance the tension between the case of Rogers and any reduction made to an ATE premium on the basis of proportionality, which could be considered to be broad-brush and contrary to Rogers. The argument that CPR 44.4 allowed the court to consider ‘all the circumstances’ was particularly relevant as if the court was not fettered by the factors listed under CPR 44.3(5) then it would be entitled to consider wider issues relating to the block rating of premiums and access to justice. Significantly, the court did not accept the argument that it could take account of factors which were not specific to the case when determining proportionality, such as wider issues relating to the integrity of the ATE market.
In relation to the general application of the proportionality test the court ruled that the wording of CPR 44.3(1) did not preclude the court from applying the test of proportionality in the same way as the test of reasonableness, ie on an item by item basis.
Having reached the above conclusions, and discounted the argument that the word ‘may’ in CPR 44.3(2) meant that the court had a discretion to award costs which were disproportionate in amount, the court con-firmed that the application of proportionality could be applied to the premium. In this particular case the court gave particular weight to the compensation targeted (the value of the case, CPR 44.3(5)(a)) and the limited amount of risk to which the insurer was exposed. This latter remark being reference to the number of, and likely cost, of the reports which were to be covered by the policy, which was an expression of the (lack of) complexity of the case (CPR 44.3(5)(c)).
There is a caveat to this and that is the judgment failed to consider whether or not the test of proportionality actually applies to additional liabilities. This decision is shortly to be decided by the Court of Appeal in the case of BNM v MGN  Lexis Citation 62 (the float dates are in October 2017). Depending on the out-come of that case it could render this decision moribund.
What relevance was the issue of ‘reasonableness’?
Pre-LASPO 2012, the Court of Appeal stated in Callery v Gray  EWCA Civ 1117,  3 All ER 833 that it was reasonable to take out insurance at an early stage (before the end of the protocol period). This practice was confirmed for post-LASPO 2012 cases in the matter of McMenemy v Peterborough and Stamford Hospitals NHS Foundation Trust (unreported, HHJ Pearce, Liverpool County Court, 12 February 2016), which is also due to be heard by the Court of Appeal in October 2017. In both the cases of Demouilpied and West no question was raised as to whether it was reasonable to insure the cases.
The only issue which the court sought to determine (in West) was the nature of the burden upon a paying party seeking to raise the issue. In other words what did the paying party need to do in order to raise a doubt for the purposes of CPR 44.3.2(b) so that the burden passed back to the receiving party to justify the reasonableness of the item?
In relation to block rated premiums (such as the ones in these cases) the established position was that there was an evidential burden on the paying party to advance ‘at least some material’ to establish that the premium was unreasonable. Without such material then the court was not entitled to reach a decision ‘instinctively’ that the premium was unreasonable. Further the previous case of Nokes v Heart of England Foundation NHS Trust  Lexis Citation 81 had established that it would probably require expert underwriting evidence to determine that a block-rated premium was wrong or unreasonable.
The court accepted that the alternative policies provided by the defendant were sufficient to satisfy the evidential burden as the challenge was not to the calculation of the premium, but was based upon the potential availability of alternative cover (thus distinguishing it from Nokes). Having reached this conclusion and, crucially, in the absence of any evidence in response from the claimant, the court determined that it was entitled to rely upon its experience and award a reasonable sum for the premium, having resolved any doubt as to reasonableness in favour of the paying party.
Anil Virji is head of costs at Civil & Commercial Costs Lawyers. Anil has over 20 years’ experience in dealing with contentious costs and has been instructed in all areas of civil litigation ranging from group actions, libel, commercial disputes, clinical negligence, personal injury and matrimonial cases. In 2009 Anil became the first costs lawyer to be appointed as a partner of a law firm.
Robert Patterson is a senior costs draftsman at Civil & Commercial. He has 14 years’ experience as a costs draftsman has a particular interest in claims arising out of clinical negligence, solicitors negligence and commercial disputes. His main role is as a fee earner and he is able to prepare all types of bills, replies to points of dispute and conducts negotiations on all types of civil litigation.
Interviewed by Barbara Bergin.
The above article was originally published by Lexis ® PSL Dispute Resolution. The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
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