After the event

After the event (ATE) insurance is purchased after a legal dispute has arisen to provide cover for the costs incurred in the pursuit or defence of litigation. The premium for this insurance is, in principle, recoverable by the successful litigant as part of their costs from the losing party. In Rogers v Merthyr Tydfil CBC [2006] EWCA Civ 1134, the Court of Appeal had no objections to the staged premium payable under the policy, notwithstanding that the total premium exceeded the damages payable to the claimant.

The facts

In Rogers, a minor (R) suffered personal injury in a playground. The claim had been funded by a conditional fee agreement and, when it became clear that the matter would be contested to trial, R's solicitors took out a three-staged ATE insurance policy with DAS Legal Expenses where the premium totalled £5,103. At the outset, a relatively small premium of £450 was payable. When proceedings were issued, a second premium of £900 was paid. A further £3,510 was paid 60 days before trial.

The local authority was found negligent and damages were agreed at £3,105 plus interest. R's costs were assessed in the sum of £16,821.30 (reduced from £18,632.73) and included the ATE premium in full. The judge also upheld the 100 per cent success fee. The local authority appealed and the judge, relying on the publication 'Litigation Funding', found that ATE cover was available for a premium of between £450 and £1,350 from a range of companies. Costs were therefore reduced to £12,628.30 and, in particular, the recoverable ATE insurance premium was reduced to £900.

R appealed on the grounds that the allowed premium did not reasonably reflect the risks insured and the judge had been wrong to take account of 'Litigation Funding'. R argued the judge should have ordered a detailed assessment, rather than carry out a summary assessment on the limited evidence and information available.

A witness statement from DAS's operations manager, Mr Bellamy, was filed with R's Notice of Appeal. Bellamy said the appeal was extremely important to both public policy and the insurance industry at large. The judge's decision would impact on the entire ATE market and, if all premiums were reduced to such a level at trial, some insurance companies would immediately stop writing this business. The ATE market would become increasingly limited and this would be contrary to the Access to Justice Act 1999.

The Court of Appeal decision

The Court of Appeal found in favour of R, and the full premium was payable by the local authority. Here, the size of the premium was held not to be unreasonable when taking into account the risk and contribution to DAS's reasonable overheads and profit. The Court of Appeal also commented that the judge's reliance on 'Litigation Funding' as a source of dependable evidence was not well founded.

A number of important points arise out of the Court of Appeal's judgment. Firstly, the fact that a premium is large in comparison with the damages does not necessarily mean that it is disproportionate. If a party can justify taking out a staged ATE policy, the premium will be deemed a proportionate expense. Expert evidence will not usually be required to prove the reasonableness of a premium; a brief note from the party's solicitor explaining how the product was chosen will suffice. Further, it is unreasonable to compare the total premium payable under a staged insurance policy with a single premium policy.

Secondly, the Court of Appeal found that there is in principle no difference between a two-staged success fee, consistently endorsed by the court, and a staged ATE insurance premium. The risk the ATE insurer faces inevitably rises as a case proceeds to trial and this is reflected in the premium. Exposure to a greater financial liability will mean the opposing party will consider the merits of its position very carefully before a trial takes place.

Finally, the Court of Appeal also set out that, in future, a party with a staged policy should notify its opponent of this and set out the events that trigger payment of the next part of the premium. This is in addition to the obligations set out in CPR 44.15(1) and in paras 19.1(1) and 19.4 of the Costs Practice Direction. If this is done, the opposing party will have had fair notice of the staging and the liability to pay a higher premium at the second or third stage should not prove to be contentious.

Risky for who?

The approach taken by the Court of Appeal is clearly favourable both to individuals entering into a staged ATE insurance policy and to insurance companies offering this type of cover. Policies with staged premiums are invariably more expensive than those with single premiums if the case does not settle in the early stages, but the paying party will find it increasingly difficult to challenge them. Lady Justice Smith expressed concern that this provides little incentive for individuals to seek the best value in insurance policies and, as the premium is rarely payable if a case is lost (particularly in personal injury litigation), it may result in weak cases being brought.

PRACTICE POINTS

• A premium is not necessarily disproportionate because it is large in comparison with damages.
• If a staged ATE policy can be justified, it will be deemed a proportionate expense.
• Staged ATE insurance premiums should not be compared with single premium policies.
• Notice of "trigger events" when additional premiums fall due should be provided to the other party.

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