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England and Wales High Court (Senior Courts Costs Office) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Senior Courts Costs Office) Decisions >> RSA Pursuit Test Cases, Re [2005] EWHC 90003 (Costs) (27 May 2005) URL: https://www.bailii.org/ew/cases/EWHC/Costs/2005/90003.html Cite as: [2005] EWHC 90003 (Costs) |
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SUPREME COURT COSTS
OFFICE
![]() ![]() London, EC4A 1DQ | ||
B e f o r e :
____________________
RSA Pursuit Test Cases |
____________________
(instructed by
Hextalls) for RSA First Assist
Mr Jeremy Morgan QC (instructed by Charles
Russell) for the Claimants
Mr Andrew Bartlett QC and Mr Alexander Hutton
(instructed by Beachcroft Wansbroughs and Kennedys) for the Defendants in the
cases of Sandiford, Clarke, Anthony Baker, Deborah Baker
Mr Nicholas Bacon
(instructed by Leo Abse & Cohen) for the Defendant in the case of
Farr
Hearing dates : 14, 15, 16, 17, 18 February 2005 and 27 April 2005
____________________
Crown Copyright ©
para | ||
Background |
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The Issues |
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The Applicable Law |
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The Pursuit Policy Wording |
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The Test Cases |
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Deborah Baker v Addenbrookes |
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Anthony Baker v Euromark |
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Clarke v Tom James |
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Sandiford v Price' |
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Farr v Kerslake |
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The Evidence |
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Rsa And First Assist' |
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Peter William Smith |
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Emmanuel Gilbert |
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The Claimants' Witnesses |
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Mark Scrivenger |
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William John Vallance |
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Amanda Stevens |
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Kenneth Besfor |
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Peter Henry Evan Bennett |
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The Defendants' Witnesses |
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Christopher Wait |
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Kate O'Reilly |
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John Paul Ivory |
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Adam Richard Burrell |
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Comments On The Evidence |
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First Assist Witnesses |
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The Claimants' Witnesses |
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The Defendants' Witnesses |
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General Submissions |
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First Assist |
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Test Case Claimants |
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Defendants 1 - 4 |
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(i) Section 29 Access to Justice Act 1999 |
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(ii) The Costs Judge |
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(iii) The Ultimate Question |
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Defendant 5 (Farr) |
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General Conclusions |
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Submissions On The Issues |
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Issue 1: Is the contract of insurance void for uncertainty because at the time the contract is made the amount of the premium is insufficiently certain and is the said contract accordingly unenforceable by RSA against the claimant and if so what is the consequence? |
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First Assist |
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Defendant 5 (Farr) |
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Issue 1 - Conclusions |
||
Issue 2: Is the insurance arrangement between the client, the insurer
and/or the |
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First Assist |
||
Defendants 1 - 4 |
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Defendant 5 (Farr) |
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Issue 2 - Conclusions |
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Issue 3 - Is the method of calculation of the premium inherently flawed and if so what is the consequence? |
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First Assist |
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Test Case Claimants |
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Defendants 1 - 4 |
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1. Constant Relationship |
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2. Policy taken out after CFA entered into |
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3. The relative sizes of the estimates |
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4. Estimates of success |
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5. Premium calculated on Claimant' |
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6. Premium calculated so as to make up a lack of premium income in unsuccessful cases |
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Defendant 5 (Farr) |
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Issue 3 - Conclusions |
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Issue 4 - What commissions, if any, are payable to the Claimants' legal representatives and/or any other agents of the insurers and if there are any, when and in what circumstances are they payable? |
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Issue 5 - Should the amount of the recoverable premium be reduced on the grounds that an insurance policy ought reasonably to have been taken out at an earlier stage in the proceedings? |
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First Assist |
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Test Case Claimants |
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Sandiford |
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Clarke |
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Defendants 1 - 4 |
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Sandiford |
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Clarke |
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Defendant 5 (Farr) |
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Issue 5 - Conclusions |
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Issue 6 - Has the claimant acted reasonably in taking out the RSA Pursuit policy, and if not what are the consequences? |
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First Assist |
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Test Case Claimants |
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Deborah Baker |
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Anthony Baker |
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Clarke |
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Sandiford |
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Farr |
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Defendants 1 - 4 |
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Deborah Baker |
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Anthony Baker |
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Clarke |
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Sandiford |
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Defendant 5 (Farr) |
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Issue 6 - Conclusions |
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Deborah Baker |
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Anthony Baker |
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Clarke |
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Sandiford |
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Farr |
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Issue 7 - What if anything is the recoverable amount of the premium against the defendant pursuant to Section 29 of the Access to Justice Act 1999? |
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First Assist |
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The Claimants |
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Defendants 1 - 4 |
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Defendant 5 (Farr) |
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Issue 7 - Conclusions |
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Deborah Baker |
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Anthony Baker |
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Clarke |
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Sandiford |
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Farr |
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Issue 8 - Has the indemnity principle been breached in the case of Farr? |
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First Assist |
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Test Case Claimants |
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Defendant 5 (Farr) |
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Issue 8 - Conclusions |
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Issue 9 - What is the impact of BTE cover in Farr? |
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Summary |
BACKGROUND
THE ISSUES
THE APPLICABLE LAW
"Where in any proceedings a costs order is made in favour of any party who has taken out an insurance policy against the risk of incurring a liability in those proceedings, the costs payable to him may, subject in the case of court proceedings to rules of court, include costs in respect of the premium of the policy."
"11. It was common ground, and rightly so, that the court, when considering whether to award an insurance premium by way of costs, has to consider whether the premium is reasonable. It was also common ground that, insofar as the court finds that the premium is not reasonable, it can and should reduce it. There was debate as to the appropriate approach to the application of the test of what is reasonable.
12. It is important in this context to draw a distinction between two separate matters. The first is the nature of the benefits to which the litigant is contractually entitled in exchange for the payment of the premium. This falls to be determined from the terms of the contract under which the premium is paid. Section 29 permits the recovery of a premium where this is payment for insurance against the risk of liability for costs. If payment of a so-called premium buys a contractual entitlement to other benefits it is, to say the least, arguable that the premium cannot, to that extent, be recovered under section 29. Thus the court has to consider the terms of the contract under which the premium is paid to see whether it is simply a contract of insurance against liability for costs or whether it is something other than, or additional to, that.
13. The contractual benefits purchased by the premium must be distinguished from the use made by the insurer of the premium. An insurer will necessarily look to premium income to meet the costs of the business. The primary costs are likely to be those of meeting claims, but the costs will also include matters such as commissions, advertising and, indeed, refurbishing the insurer'
s
premises. The court will not be directly concerned with how, or on what, the insurer spends the premium income. The court will, however, be concerned with the question of whether the premium is a reasonable price to pay for the benefits that it purchases. Ultimately, this should be a question to be considered having regard to experience, or evidence, of the market. If an insurer is conducting his business in a manner which incurs extravagant, extraneous or otherwise unnecessary expenditure, which has to be covered by the premiums, those premiums are likely to be uncompetitive. To pay such a premium where other more reasonable premiums are available may disentitle the litigant from making a full recovery of the costs of the premium.
...
15. It is highly desirable in the interests of justice that an effective and transparent market should develop in ATE insurance. If the litigant is not at risk as to the premium … it is less easy for a competitive market to develop. Nonetheless, we consider that the
solicitor
advising the client should be in a position to assist him in selecting ATE insurance cover that caters for his needs on reasonable terms. Master O'Hare informed us that there are at present two sources of information as to availability of ATE cover: the magazine "Litigation Funding", published by the Law Society and the web site www.thejudge.co.uk. We would encourage
solicitors
to take advantage of such sources of information and hope that before long the exercise of choice will result in competition for ATE business which establishes transparent market rates.
16. In the meantime, where an insurance premium is challenged it must be open to the insurer, whose position is akin to a subrogated underwriter, to place evidence before the court in an attempt to demonstrate that the premium is reasonable having regard to the costs that have to be covered. Satellite litigation involving such an exercise is, however, unsatisfactory. The Judge can only be expected to give broad consideration to such evidence, for it is not part of the function of a judge assessing costs to carry out an audit of an insurer'
s
business."
"17. (1) The general objective of this Part is the development of legal services in England and Wales (and in particular the development of advocacy, litigation, conveyancing and probate services) by making provision for new or better ways of providing such services and a wider choice of persons providing them, while maintaining the proper and efficient administration of justice.
(2) In this Act objective is referred to as "the statutory objective"."
31. Champerty is a variety of maintenance. Maintenance and champerty used to be both crimes and torts. A champertous agreement was illegal and void, involving as it did criminal conduct.
Ss
. 13(1) and 14(1) of the Criminal Law Act 1967 abolished both the crimes and the torts of maintenance and champerty.
S
.14(2) provided, however:
"The abolition of criminal and civil liability under the law of England and Wales for maintenance and champerty shall not affect any rule of that law as to the cases in which a contract is to be treated as contrary to public policy or otherwise illegal."
Thus, champerty survives as a rule of public policy capable of rendering a contract unenforceable.
"…the law of maintenance depends upon the question of public policy, and public policy …is not a fixed and immutable matter. It is a conception which, if it has any sense at all, must be alterable by the passage of time."
33. In Trendtex Trading v Credit Suisse [1980] 1 QB 629 at p.663 Oliver LJ remarked:
"There is, I think, a clear requirement of public policy that officers of the court should be inhibited from putting themselves in a position where their own interests may conflict with their duties to the court by agreement, for instance, of so called "contingency fees".
34. The introduction of conditional fees shows that even this requirement of public policy is no longer absolute. This case raises the question of whether the requirement extends to expert witnesses or others in a position to influence the conduct of litigation and, if it does, whether on the facts of the present case the agreements concluded by Grant Thornton can be justified.
35. In Trepca Mines Ltd (No.2) [1963] 1 Ch 199 at p.219 Lord Denning MR observed:
"The reason why the common law condemns champerty is because of the abuses to which it may give rise. The common law fears that the champertous maintainer might be tempted, for his own personal gain, to inflame the damages, to suppress evidence, or even to suborn witnesses. These fears may be exaggerated, but, be that so or not, the law for centuries had declared champerty to be unlawful, and we cannot do otherwise than enforce the law; and I may observe that it has received statutory support, in the case of
solicitors
, in section 65 of the
Solicitors
Act 1957."
36. Where the law expressly restricts the circumstances in which agreements in support of litigation are lawful, this provides a powerful indication of the limits of public policy in analogous situations. Where this is not the case, then we believe one must today look at the facts of the particular case and consider whether those facts suggest that the agreement in question might tempt the allegedly champertous maintainer for his personal gain, to inflame the damages, to suppress evidence, to subborn witnesses or otherwise to undermine the ends of justice.
37. In reaching this conclusion we have been particularly influenced by the approach of the Court of Appeal and the House of Lords in Giles v Thompson…
38. In the leading judgment in the Court of Appeal [1993] 3 All ER 321 Steyn LJ at p.328 identified the public policy which renders champertous agreements illegal as resting on the perceived need to protect the integrity of public justice. Later, at p.336, he added that the policy focused on the protection of the party confronted with the maintained litigation, it did not exist to protect the plaintiff. At pp.328-9 he gave a valuable exposition of the history of this area of the law, culminating in the enactment of
s
.58 of the Courts and Legal Services Act 1990, which we shall have to consider in more detail in due course. As to this, he remarked at p.331:
"The relevance of s58 is that Parliament has, subject to the requirements of the section, empowered the Lord Chancellor to validate by order agreements for a percentage uplift in the costs in the event of success. The ability to recover fees beyond what was otherwise reasonable was intended to be ‘an incentive to lawyers to undertake speculative actions'. Such agreements were, and in the absence of an order still are, unlawful as being contrary to public policy. The rationale of the common law rule is that such agreements allowed the duty and interest of
solicitors
to conflict with a resultant risk of abuse of legal procedure. Section 58 evidences a proposed modification in relation to an important species of champerty. It represents at least a concession to the view that the abuses associated with champerty are not the inevitable result of all variants of contingency fee agreements. And there is, of course, no more cogent evidence of a change of public policy than the expression of the will of Parliament."
Subsequently, he observed at p.332:
"Contingency fee agreements are nowadays perhaps the most important species of champerty. Such agreements are still unlawful. Yet an English
solicitor
may share in a contingency fee earned in foreign litigation; see r.8 (contingency fees) of the
Solicitors
' Practice Rules 1990. This reinforces the point that the doctrine of champerty serves to protect only the integrity of English public justice. It is based not on grounds of morality but on a concern to protect the administration of civil justice in this country."
He continued, on the following page:
"Ultimately, it is necessary to consider the questions posed in this case in the light of contemporary public policy. The correct approach is not to ask whether, in accordance with contemporary public policy, the agreement has in fact caused the corruption of public justice. The court must consider the tendency of the agreement. The question is whether the agreement has the tendency to corrupt public justice. And this question requires the closest attention to the nature and surrounding circumstances of a particular agreement. That is illustrated by the well-known decision of the House of Lords in Trendtex Trading Corp v Credit Suisse [1981] 3 AllER 520, [1982] AC 679."
40. In the House of Lords [1994] 1 AC 142 Lord Mustill gave the leading speech, in which the other members of the House concurred…
42. On these facts Lord Mustill held that it was appropriate to consider whether the mischief was established against which the public policy was directed. As to this, he observed at p.161:
"It is sufficient to adopt the description of the policy underlying the former criminal and civil sanctions expressed by Fletcher Moulton LJ in British Cash and Parcel Conveyors Ltd v. Lamson Store Service Co. Ltd [1908] 1 KB 1006, 1014:
"It is directed against wanton and officious intermeddling with the disputes of others in which the [maintainer] has no interest whatever, and where the assistance he renders to the one or the other party is without justification or excuse."
This was a description of maintenance. For champerty there must be added the notion of a division of the spoils."
43. Lord Mustill held that in neither case was this mischief established. Summarising the position, he said at p.165:
"Returning to the company, is it wantonly or officiously interfering in the litigation; is it doing so in order to share in the profits? I think not. The company makes its profits from the hiring, not from the litigation. It does not divide the spoils, but relies upon the fruits of the litigation as a source from which the motorist can satisfy his or her liability for the provision of a genuine service, external to the litigation. I can see no convincing reason for saying that, as between the parties to the hiring agreement, the whole transaction is so unbalanced, or so fraught with risk, that it ought to be stamped out. The agreement is one which in my opinion the law should recognise and enforce."
44. This decision abundantly supports the proposition that, in any individual case, it is necessary to look at the agreement under attack in order to see whether it tends to conflict with existing public policy that is directed to protecting the due administration of justice with particular regard to the interests of the defendant. This is a question that we have to address. In so doing we revert to the statement of Lord Mustill that ‘the rule, now in the course of attenuation, which forbids a
solicitor
from accepting payment for professional services calculated as a proportion of the sum recovered from the defendant …survives nowadays, so far as it survives at all, largely as a rule of professional conduct'. With respect, this statement is not correct. The basis of the rule is statutory. It is now necessary to look at the relevant statutory provisions …
62. More generally, however,
s
.58[of the 1990 Act] evidences a radical shift in the attitude of public policy to the practice of conducting litigation on terms that the obligation to pay fees will be contingent upon success. Whereas before this practice was outlawed, it is now permissible - subject to the requirements imposed by the section. These requirements do not appear designed to mitigate the mischief that had led to the banning of contingency fees - the undesirability of the interests of officers of the court conflicting with their duties to the court. Rather the requirements appear designed to protect the litigants concluding conditional fee agreements who, when the section was first enacted, were required to pay any ‘uplift' out of their recoveries. Conditional fees are now permitted in order to give effect to another facet of public policy - the desirability of access to justice. Conditional fees are designed to ensure that those who do not have the resources to fund advocacy or litigation services should none the less be able to obtain these in support claims which appear to have merit.
76. In Giles v Thompson Lord Mustill applied the test of public policy identified by Fletcher Moulton LJ in the British Cash case. That test is appropriate when considering those who, in one way or another, support litigation in which they are concerned. It is not, however, really in point when considering agreements under which those who are playing a legitimate part in the process of litigation provide their services on a contingency fee basis. A
solicitor
who charges a contingency fee which does not satisfy the requirements of
s
.58, can hardly be said to be guilty of ‘wanton and officious intermeddling in the disputes of others …where the assistance he renders to one party or another is without justification of excuse'. The public policy in play in the present case is that which weighs against a person who is in a position to influence the outcome of litigation having an interest in that outcome.
..."
"11.7 Subject to paragraph 17.8(2), when the court is considering the factors to be taken into account in assessing an additional liability, it will have regard to the facts and circumstances as they reasonably appeared to the
solicitor
or counsel when the funding arrangement was entered into and at the time of any variation of the arrangement.
...
11.10 In deciding whether the cost of insurance cover is reasonable, relevant factors to be taken into account include:
(1) [omitted]
(2) the level and extent of the cover provided;
(3) the availability of any pre-existing insurance cover;
(4) whether any part of the premium would be rebated in the event of early settlement;
(5) the amount of commission payable to the receiving party or his legal representatives or other agents."
"The premium is the consideration required of the insured in return for which the insurer undertakes his obligation under the contract of insurance (Lewis Ltd v Norwich Union Fire Insurance Co [1916] AC 509, 519)."
"44. ... The expression "premium" is not defined by the Access to Justice Act 1999. The court has been referred to the Civil Procedure Rules and various authorities. … In my judgment the premium is not necessarily limited to payments paid on inception of cover, but could include any further amounts paid by, or on behalf of the insured, pursuant to terms agreed with the insurer."
"46. ... The court specifically added "Satellite litigation involving such an exercise [i.e. examining evidence of insurance cover] is however unsatisfactory. The Judge can only be expected to give broad consideration to such evidence. It is not part of a function of a Judge assessing costs to carry out an audit of the insurance business" ... The court may wish to check the overall result which it reaches by reference to the alternative method of obtaining access to justice. This might involve looking at alternative rates of cover, or the costs which would be involved if litigation were to be funded in some other way. This has been called the "top down" approach. Nonetheless, in making that comparison it may be necessary to bear in mind that like may not be being compared with like ... Nevertheless in my judgment, the comparison between the cover provided by these appellants and other means of financing litigation, including other insurance cover, is a relevant consideration to which the appellants could properly bring ... the attention of the Senior Costs Judge. I say this, bearing in mind the general purposes of the new methods of funding litigation introduced by the 1999 Act and by the fact that it is obviously highly desirable in the interests of justice that these methods should be competitive. A premium may not be reasonable if there are alternative ways of providing the same funding at significantly less expense."
THE PURSUIT POLICY WORDING
"The Insurer will provide the insurance described in this Policy in
consideration of the Insured's
promise to pay the Premium."
"INSURED
The term used to denote collectively both the Insured Litigant and Insured
Solicitor
in their capacity as beneficiaries under this Policy.
...
LIMIT OF INDEMNITY
The Insurer's
liability in respect of Normal Fees and Expenses shall not
exceed in the aggregate 100% of the amount specified in the proposal for this
insurance as the Insured
Solicitor
'
s
reasonable estimate of the sum likely to
be recovered from the Opponent, excluding costs, if the Legal Proceedings are
resolved in the Insured Litigant'
s
favour. This amount appears on the
Schedule.
...
ADVERSE COSTS
The net costs of the Opponent in the Legal Proceedings to the extent that
the Insured Litigant is legally liable to discharge them, after taking account
of any costs awarded against the Opponent or agreed to be paid by the
Opponent. No cover is provided in respect of any success fee to which the
Opponent or Opponent's solicitor
or Opponent'
s
barrister may be
entitled.
NORMAL FEES
The costs of the Insured's Solicitor
acting for the Insured Litigant under
the Conditional Fee Agreement and which form the basis of the calculation of
the Success Fee.
Where the outcome of the Legal Proceedings is not a Success the Insurer
shall have the right to have the Insured's Solicitor
'
s
bills taxed or assessed
on the standard basis.
EXPENSES
Expenses and other disbursements paid by the Insured's Solicitor
to other
parties which are reasonably and properly incurred by the Insured'
s Solicitor
a) in connection with the Legal Proceedings,
b) in appealing or resisting an appeal against the judgment of a court in connection with the Legal Proceedings provided Our prior written consent has been obtained to the appeal.
The Insurer shall not be liable for Counsel's
fees where Counsel is
retained to act in the Legal Proceedings under a conditional fee
agreement.
...
PERIOD OF INSURANCE
Cover commences at the later of the inception date shown on the Schedule and the date of signing of the Conditional Fee Agreement.
Cover ceases when
a) the Legal Proceedings are concluded by a judgment of the Court of first instance or following an appeal to which We have given Our prior written consent, or
b) the Legal Proceeding are discontinued with Our prior written consent, or
c) the Conditional Fee Agreement is terminated whichever is the earliest.
PREMIUM
The amount shown on the Schedule which becomes payable when the outcome of the Legal Proceedings is a Success.
Where the Insured Litigant receives an offer to settle or a payment into Court which equals or exceeds the definition of Success the Insured Litigant may at that time immediately pay the Premium based on the Normal Fees at that date. The Insured Litigant may elect by written notice to Us to continue with the action and defer payment of the Premium to the Conclusion of the Legal Proceedings. The Premium will then be based on the Normal Fees at the Conclusion of the Legal Proceedings. If, having made this election, the Insured Litigant ultimately fails to achieve a Successful outcome to the Legal Proceedings the Premium payable at the date when the Insured Litigant made the election shall remain payable.
SUCCESS FEE
The amount specified in the Conditional Fee Agreement as the percentage
uplift to the Insured Solicitor
'
s
Normal Fees payable on the successful
conclusion of the Legal Proceedings.
SUCCESS/SUCCESSFUL
The Insured Litigant is offered or obtains at any time a net entitlement to money and/or damages and/or costs which, taking into account any counter-or cross-claim in the Legal Proceedings, equals or exceeds the sum shown in the Schedule as the definition of Success. If the Insured Litigant achieves such an outcome at trial and is required by Us to defend an appeal which results in a net entitlement to money, damages and costs which is lower than the definition of Success then the action will be deemed unsuccessful.
Where an offer to settle is received from the Opponent at any time which equals or exceeds the definition of Success then the outcome of the Legal Proceedings is Successful even if the Insured Litigant elects not to accept the offer.
...
COVER
Section A
Where the outcome of the Legal Proceedings is not a Success the Insurer will, subject to the Limit of Indemnity indemnify the Insured Litigant in respect of
a) Adverse Costs
provided that
1. the Court makes an award of Adverse Costs against the Insured Litigant or
2. the Legal Proceedings are settled or otherwise discontinued with the
prior written agreement of the Insured Litigant, the Insured Solicitor
and
Us
3. the Insurer shall not be liable to pay any Adverse Costs until the Legal Proceedings are finally concluded.
(b) Expenses
provided that
1. the Insurer shall only be liable for any Expenses to the extent that the Insured Litigant is not entitled to recover them from the Opponent or any other party
2. the Insurer shall not be liable to pay any Expenses until the Legal Proceedings are finally concluded.
...
GENERAL EXCLUSIONS
This insurance does not cover
1. The Insured Solicitor
'
s
Contribution
2. Any payment by the Insurer under this Policy which is due as a result of a discontinuance or settlement to which We have not given Our prior written consent.
3. Damages of any kind.
4. Enforcement proceedings.
5. Wasted costs or any increased legal or other costs arising from any
unreasonable delay or negligence
by the Insured Litigant or Insured
Solicitor
which in Our opinion is prejudicial to the conduct of the Legal
Proceedings.
6. Under Section B only, any liability of the Insurer arising from the
Insured Solicitor
'
s
failure to comply with procedural directions or pre-action
protocols.
7. Legal Proceedings made, commenced, brought or transferred outside the Territorial Limits or which are not governed by English law.
8. Any payment by the Insurer arising from Legal Proceedings in respect of which the Insured is or but for the existence of this insurance would be entitled to indemnity under any other insurance policy.
9. Any amount which the Opponent is obliged to pay but fails to pay to the
Insured Litigant or Insured Solicitor
for any reason.
10. Normal Fees, Expenses and Adverse Costs incurred outside the Period of Insurance.
11. Any costs incurred by the Insured Litigant or Insured Solicitor
in
providing Us with any information or documentation under this insurance.
12. Any payment by the Insurer under the Policy where there has been
misrepresentation or material non-disclosure by the Insured Litigant or
Insured Solicitor
.
13. Any payment by the Insurer under the Policy if the Legal Proceedings are stayed, discontinued, abandoned or withdrawn by virtue of the bankruptcy, insolvency or liquidation of the Opponent.
CONDITIONS
1. Premium
The Premium payable under this Policy and shown on the Schedule is
established by reference to the Normal Fees of the Insured Solicitor
.
The Premium is payable even if the Opponent delays or defaults in settling any judgment or agreed settlement.
The Premium will not be affected by taxation or assessment or any agreement
which reduces the Insured Solicitor
'
s
Normal Fees or the level of the Success
Fee.
...
3. Termination
The policy will terminate if the Insured Litigant or Insured Solicitor
terminates the Conditional Fee Agreement.
We may cancel the Policy by giving fourteen days' notice in writing to the
Insured Litigant and Insured Solicitor
if
a) the Insured Litigant fails to comply with the terms of the Conditional Fee Agreement
b) the Insured Litigant does not follow the Insured Solicitor
'
s
recommendations with regard to settlement of the Legal Proceedings
c) the Insured Litigant does not follow Our recommendations with regard to settlement of the Legal Proceedings
d) the Insured Litigant rejects the Insured Solicitor
'
s
advice to
discontinue the Legal Proceedings.
In the event that the Policy is cancelled, the Insurer shall be under no obligation to make any payment.
4. Minimising Claims or Legal Proceedings
The Insured must take all reasonable measures to minimise the cost of Legal Proceedings.
...
7. Due Observance
The due observance of and compliance with the terms provisions and
conditions of the Policy insofar as they relate to anything to be done or
complied with by the Insured Litigant or Insured Solicitor
shall be conditions
precedent to any liability of the Insurer to make any payment hereunder. In
the event that the Policy is terminated the parties to this Policy shall
continue to observe the conditions to the extent that they remain relevant.
8. Provision of information
The Insured Solicitor
must
a) provide to Us regular progress reports on the Legal Proceedings and associated costs and when specifically requested by Us.
b) advise Us in writing as soon as an offer to settle the Legal Proceedings
or a payment into Court is made by the Opponent. The Insured Solicitor
and the
Insured Litigant must not enter into any agreement to settle without Our prior
written consent.
c) advise Us in writing as soon as either the Insured Solicitor
or Insured
Litigant wishes to discontinue the Legal Proceedings.
d) provide Us with a copy of the judgment of the Court in the Legal Proceedings.
e) advise Us immediately in writing if the Conditional Fee Agreement for which the Policy has been issued has been terminated or varied.
f) provide Us promptly with any requested information.
g) provide Us immediately with a copy of any Counsel's
Opinion.
h) allow Us to inspect the files of the Insured Solicitor
at any time,
including after the conclusion of the Legal Proceedings.
The Insured Litigant or Insured Solicitor
must advise Us of any material
changes to the prospects of success in the Legal Proceedings.
..."
THE TEST CASES
Deborah Baker v Addenbrookes
31 July 1999 |
The Claimant was admitted to hospital, the alleged |
26 September 2001 |
|
8 January 2002 |
|
18 February 2002 |
|
15 March 2002 |
|
2 April 2002 |
First Assist correspond with The Judge as to possible cover. |
20 June 2002 |
First Assist quotation: limit of indemnity ?18,500 [own disbursements only] premium 172% of normal fees plus IPT. |
20 September 2002 |
Inception of cover on terms of quote. |
24 April 2003 |
Defendants offer ?100,000. |
16 June 2003 |
Defendants offer ?350,000. |
22 July 2003 |
Settled by Consent Order for ?400,000 plus costs. |
"Definition of success
The case is finally decided in favour of the insured litigant whether by a court decision or an agreement to pay the insured litigant damages."
Anthony Baker v Euromark
19 August 1999 |
Incident occurs. |
1 August 2001 |
Thompsons advise client they will proceed no further. |
14 November 2001 |
|
26 July 2002 |
After rejection of previous applications for ATE insurance RSA First Assist proposal form submitted. |
12 August 2002 |
Quote from First Assist. |
16 August 2002 |
Claim form issued (limitation period expires 19 August 2002). |
16 October 2002 |
Inception of policy. |
19 August 2003 |
Part 36 payment by Defendants ?850. |
25 September 2003 |
Settled for ?1,250. |
"Definition of success:
The claim for damages is finally decided in favour of the Insured Litigant whether by a court order or an agreement to pay the Insured Litigant damages or acceptance of any offer as advised."
Clarke v Tom James
23 March 2001 |
Claimant instructed |
6 February 2002 |
The Defendants having denied liability the Claimant instructed Charles Russell. |
7 March 2002 |
CFA entered into: success fee 67%. |
27 March 2002 |
Proposal submitted to The Judge Broker. Further information requested by First Assist. |
1 May 2002 |
Proceedings issued. Further correspondence between Charles Russell and RSA. |
27 August 2002 |
Quotation to Charles Russell. |
29 August 2002 |
Policy incepted. Limit of indemnity ?7,000 [own disbursements only]. Premium 123% of normal fees. |
10 July 2003 |
Acceptance of Part 36 payment, ?20,000. |
"Definition of success:
The claim for damages is decided in favour of the Insured Litigant whether
by a court decision or where an offer is received which the Insured Litigant's
Solicitor
advises should be accepted or acceptance of any offer."
Sandiford v Price's
Patent Candles
August 1998 |
The cause of action accrued. The Claimant' |
23 February 2001 |
The Claimant instructed |
31 July 2001 |
Proceedings issued. Subsequent unsuccessful applications for ATE insurance. |
21 August 2002 |
The CFA: 70% recoverable success fee. |
23 August 2002 |
Inception of policy. Limit of indemnity ?10,000, [own disbursements only] premium 160% of normal fees. |
15 July 2003 |
Settled for ?44,000 plus CRU. |
"Definition of success:
The case is finally decided in favour of the Insured Litigant whether by a
court decision or an agreement or acceptance of any offer as advised by the
Insured Litigant's Solicitor
."
Farr v Kerslake
23 August 1999 |
Accident occurred. |
3 October 2000 |
|
18 June 2002 |
Proceedings commenced. |
22 July 2002 |
|
17 December 2002 |
CFA entered into: 80% recoverable success fee. |
18 December 2002 |
Proposal to First Assist. |
16 January 2003 |
First Assist quote (the quote is based on incorrect figures). |
23 January 2003 |
Insurance policy incepts. |
15 August 2003 |
Defendants offer ?100,000 otherwise will proceed to trial on liability and quantum. |
29 September 2003 |
Settled on first day of trial for ?250,000. |
"Definition of success:
The claim for damages is finally settled in favour of the Insured Litigant
whether by a court decision or where an offer is received which the Insured
Litigants Solicitor
advises should be accepted or any other offer
accepted."
THE EVIDENCE
RSA AND FIRST ASSIST'S
WITNESSES
Peter William Smith
"Without ATE the use of CFAs would be impossible (since a litigant who
could not afford to meet his own solicitor
'
s
costs could also clearly not
afford to meet his opponent'
s
costs if unsuccessful in the action)."
"Firstly it was obvious that the premium for such cases would have to be much larger than in run of the mill personal injury cases … Secondly it was obvious that a losing litigant would not have the means to pay the premium."
"That the premium needed to be deferred and conditional upon success. Those who won their cases would have the means to pay the premium. Those who lost would not need to do so."
"A ground breaking "after the event" conditional fee agreement protection plan."
"One further feature of the product's
development was that we were aware
that some
solicitors
were reluctant to use CFAs for fear of the effect of
losing cases on the firm'
s
financial position. We therefore incorporated a
section of cover … under which we would cover a proportion of the
solicitors
own costs. This facility was not used in any of the Test Cases but does have
relevance to the rating mechanism explained below."
"We therefore determined to make the premium deferred and we did this prior to any legislation as to recoverability of the premium from the opponent."
"will always be in a position at any stage in the case to know what their costs are and these will be quantifiable at whatever stage the case is concluded."
"We felt that it was a reasonable assumption … to make in broad terms, for
the purpose of establishing and maintaining a consistent underwriting
procedure that the level of the insured's
costs and the opponent'
s
cost would
escalate for the duration of the case on a roughly equal basis … We thus
arrived at the basic fundamentals of a sliding scale premium calculated by
reference to own
solicitor
'
s
fees. It is important to appreciate that each
case is rated on the estimated costs of that case. There is no standard
assumption, for example, that the insured liability will always be a fixed
proportion of own costs. The only workable assumption is that, as costs for
both sides start at zero and proceed to the estimated levels at trial, the
relationship between own costs and the insured'
s
liability will remain
constant throughout the action."
"In order to do this it was necessary to form a view as to:
(i) the likelihood of the insured's
case succeeding in percentage terms;
and
(ii) if the policy was called upon, how much would have to be paid out in order to work out the break even position, or "burning cost" for the scheme, where the cost of the claims paid exactly matches the value of risk premium income (excluding expenses and commission) received. Given the product was an entirely new concept, the absence of previous underwriting data, and the considerable volatility in rates in the ATE market, we resolved to apply basic principles to arrive at an appropriate rating model."
"In order to form a view as to the burning cost it was necessary for rating
purposes to predict what the policy liability, ie own disbursements and
adverse costs and disbursements, might come to in each case. This was done by
asking the prospective insured's solicitors
in the proposal form to provide us
with the best estimate of these costs and disbursements to trial … The
insured'
s solicitors
would also be in the best position to know the likely
rate of the other side in coming to their estimate which we could then use to
calculate the premium."
(a) adding together the opponent's solicitor
'
s
estimated fees and
disbursements and the claimant'
s solicitor
'
s
own disbursements;
(b) dividing the total by the anticipated basic fees of the claimant's
solicitors
(producing an exposure multiplier);
(c) arriving at a multiple, which is inversely proportionate to the percentage prospects of success of the case at the time the cover is taken out (producing a risk multiplier);
(d) applying the risk multiplier to the exposure multiplier to reach the relevant burning cost premium rate;
(e) adding an allowance for profit and administration and an allowance for
broker's
commission (if a broker is appointed). IPT is then due on the
resultant premium (paragraph 41).
"It can also be seen that our exposure is on average approximately ?60,000
compared with the solicitors
' exposure of ?38,000. If it is reasonable for a
solicitor
to recover a success fee in a range of 60% - 100% to reflect the
risk, it follows that the required premium rate for our exposure is in the
range of 100% - 150% to reflect the risk we take."
"The intention was to introduce a policy that was cost effective and also
was aimed at solicitors
who did bulk PI work and had the demonstrable track
record of using CFAs effectively. Such
solicitors
needed to have high quality
systems in place for handling such large scale work, and expertise in it.
Watermark was designed as a delegated authority scheme for such
solicitors
as
opposed to one off cases only - they were therefore expected to place
all eligible risks with us.
...
14. The cover is similar to Pursuit to the extent that premium is
conditional and deferred. However there is a limit of indemnity of ?125,000,
and in common with other delegated authority schemes in the market there is a
stringent set of acceptance criteria for cases to be eligible to be put on
cover by the solicitor
."
"It [obviously] depends on the state of proceedings. It depends on whether
information has been shared under protocols between the solicitors
, and often
in our cases, because they are taken on late, there may be reliance on an
estimate provided by the other side, but that still suffers from the same
propensity for variance as the
solicitor
'
s
own costs. By the nature of the
fact that they are estimates, they are not likely to be absolutely accurate.
On the other hand, they may be much more accurate than saying that you want,
let us say, ?100,000 cover in every case. I would say there is some
difficulty. In the majority of cases those estimates are unlikely to be
seriously adrift in terms of their relationship one to the other, which is
fundamental to Pursuit rating. In some cases -- in the Gouldens case I
mentioned previously, which is such an example -- where because the case had
an unexpected turn, all the estimates were similarly affected and were wrong.
From my experience there is a tendency for estimates to be inaccurate in
individual cases. In most cases, the inaccuracy is not material. In some cases
both sides costs will be materially underestimated because the case goes all
the way to trial and the trial is more complex than is anticipated, but I have
some difficulty with the assertion that there is systematic under - or over -
estimating ..."
"… the reason for that is if we charge an up front premium there would be
no reduction if solicitor
'
s
costs were taxed or assessed down, so why should
there be with the benefit of hindsight? We set the premium rate up-front. If
we charge an up-front premium amount there would be no adjustment and we think
it is inequitable that there should be a retrospective adjustment."
Emmanuel Gilbert
"I set up The Judge in April 2000 as an advisory source and started broking
in 2001. The Judge is deliberately not a tied agent. Its business purely comes
in from solicitors
. The Judge has broked about 2,500 cases since November 2001
on behalf of about 700 firms of
solicitors
. There has been a 50% increase in
cases submitted on an annual basis. We reject about 40% of cases on sight of
the proposal forms and these do not go to the insurers at all."
"We would usually send a proposal to the most suitable three or so of them
[ATE insurers] on any occasion. I would regard it as a tight market so far as
the availability of ATE insurance underwriting capacity is concerned. There
are only a limited number of insurers active in the market. In most cases it
would be rare to get as many as three quotations back accepted … Outside the
mainstream personal injury field the market is a declining one and is far from
vibrant. This is particularly the case with clinical negligence
where there
are only a handful of providers remaining in the market."
"Pursuit is a somewhat different product than some of the alternatives in
the market in that it operates on a sliding scale and does not have a
specified premium figure at the outset. At the time we supply the quotation to
solicitors
we take pains to make it clear how Pursuit operates, particularly
to any
solicitors
who may be unfamiliar with the product. When in discussion
with
solicitors
, I seek to tell them that there is a parallel between the
premium and their success fee, with the risk for
solicitors
bearing their own
fees being comparable to the risk being borne by the insurers. I also explain
that the risk for insurers can in fact be substantially greater than theirs,
because the policy covers adverse costs, adverse disbursements and own
disbursements. I also tell them that the nature of the policy can also be an
incentive for the other side to settle, because the cost of the premium rises
the longer the case proceeds."
"We receive a deferred commission of a general rate of 10% from First Assist conditional upon the successful outcome of the case."
"Where insurance cover is provided under a delegated authority scheme, it
is a condition of the scheme that the solicitors
must insure all their CFA
cases using that particular policy and for the policy to be incepted at the
same time that the CFA is entered into, usually before any letter of claim is
dispatched.
Solicitors
who are not part of the insurer'
s
panel authorised to
work on a delegated basis could not access that type of policy. … The usual
period of time for acceptance is 14, 21 or 28 days. Once a claimant has been
declined cover by one insurer, that has to be disclosed in any future
insurance applications and in my experience if a proposal has been turned down
by two insurers it is almost "certain death" to the prospects of sourcing
insurance from any other provider."
"Premiums shown here are indicative only and may vary depending on a number of factors which might include the stage the case has reached, whether liability is in dispute, the prospects of success, etc."
There are also other more specific warnings relating to particular policies.
"insurance policies are not that black and white. It's
a mechanism to try
and spread the risk because you could have had a premium which is charged on
the full amount which is payable from day one and then it settles the day
after, and that in certain circumstances can end up being more expensive than
a policy like this … If you draw a comparison with a case which is insured
early on, say for ?100,000 cover, and you might pay a premium of between 20
and ?30,000 for that typically for a non- personal injury case. Pre-
proceedings the only liability for the insurer is always going to be
disbursements but the premium is still ?20,000 to ?30,000. So the thing you
are describing is not unique to First Assist. "
THE CLAIMANTS' WITNESSES
Mark Scrivenger
"We can advise that for a limit of indemnity of ?100,000 the premium payable, for our Clinical Justice Plan will be ?13,230 being ?12,600 together with insurance premium tax at the current rate of 5% of ?630.
We can advise that for a limit of indemnity of ?75,000 the premium payable for our Clinical Justice Plan will be ?9,922.50 being ?9,450 together with insurance premium tax at the current rate of 5% of ?472.50."
"If cover is not taken out in this period it may or may not be available at a later stage depending on the circumstances although the premium required will certainly be higher. If you are unable to accept this quotation within 21 days please advise before the expiration of this period.
You should ensure that the level of indemnity you have sought will provide full cover for the entirety of the proceedings. Because of relevant actuarial evidence most underwriters are reluctant to consider later increases to the indemnity particularly after the issue of proceedings."
"I trust the premium is acceptable to your client and look forward to receiving your cheque in order that we may issue the policy documentation. If your client is obtaining funding for the premium we need confirmation of their application, in writing, within 21 days."
"I therefore approached a lender with a request for a loan by way of a credit agreement under the Consumer Credit Act 1974. The loan was to be used to pay the premium. Mrs Baker signed such an agreement with the proposed lender First National Bank Plc (FNB)."
"I requested he investigate possible funding terms on behalf of Mrs Baker, I also pointed out that I had to issue proceedings by the end of July 2002, so time was short.
...
18. Mr Gilbert returned to me with the possibility of a policy with First Assist. There were discussions about the nature and terms of the policy but it was also clear to me that First National were no longer effective or interested, and in fact never replied to the application for a loan by Mrs Baker to pay the premium to LPL. This left the Bakers with an LPL policy which they would have to pay the premium up-front which, financially, they were not in a position to do and which left Mrs Baker in a thoroughly unsatisfactory position with limitation a few months away."
"This letter is written to provide an opportunity for settlement of our
client's
claim without the additional cost of proceeding to trial including
the cost of insurance cover which is available to our client."
"If this offer is not accepted (within 21 days) then our client will exercise the insurance cover available to her … such a settlement would save additional cost particularly for the Trust and we would draw your attention to the savings made in avoiding the insurance premium cover if such a cover is reached."
"You will therefore appreciate that we do not have the luxury of delaying the cost of insurance cover beyond the limit of the Part 36 offer."
"Yes there are different functions. The claimant has to build a case and that takes a lot more time and effort, whereas the defendants try and destroy it and that takes a lot less time."
"My client and I were both astonished about the level of premium but you
have to take the product as you find it and it is insurers who run the market
not the lawyers. These were observations that I made as a clinical negligence
lawyer but of course bear no relation to the rating set by the insurance
industry. I might also say that the limit of ?75,000 - ?100,000 I would not be
comfortable with these days."
"In the event of the costs and the premium being reduced upon assessment we would be agreeable to taking a commercial view in such a situation and that we would consider either accepting a reduced premium based on the actual assessment of the costs or limiting any sum in respect of the shortfall that we would seek from the claimant from damages depending upon the reason for the reduction in the costs claimed."
William John Vallance
"I am aware of a range of different ATE products available in the market as a significant proportion of my caseload is conducted pursuant to CFAs backed by ATE products. I use a number of different ATE providers and I am not tied to recommending any particular product. I advise my clients on a case by case basis depending on the circumstances. It is not possible to give standardised advice in this regard. I must consider whether the proposed ATE product is suitable for my clients in accordance with my professional responsibility."
"Our client has received an offer of after the event insurance from Royal
and Sun Alliance pursuant to their "Pursuit Protection Plan" this offer of
insurance remains open until 11 September 2002. The premium for this policy
cannot be identified at the outset, as it is based on a percentage of our
normal fees (i.e. basic costs under the conditional fee agreement) calculated
upon conclusion of the case. It is therefore in the party's
interest to
conclude a settlement of this case sooner rather than later.
To this end we enclose a claimant's
Part 36 offer to settle the issue of
liability."
"We see no reason to alter or previous stance in this matter. Both liability and causation are denied and we leave it to your client to take whatever steps he considers appropriate."
"Quantum was considerably lower than had been anticipated at the outset because of difficulties in establishing medical causation. This was one of the risk factors identified in the CFA with my client."
"I generally find costs estimates to be difficult whether it is own or
other parties costs. But I arrived at that figure on the basis that at the
time I was making the application, the defendants had not instructed
solicitors
at that point, it was still being dealt with by insurers. So I felt
that the defendants
solicitors
would be involved over a shorter time span so
that their costs were likely to be less."
"It no longer seems likely that we will be able to attribute a loss of earnings claim to the accident at work and, in the circumstances, our expectation of a successful outcome would be ?5,000."
Amanda Stevens
"I advised Mr Clarke to use the legal expenses insurance brokerage service provided by The Judge.Co.UK.Ltd (The Judge) whereby he would complete one proposal form which would be sent to a panel of five or six after the event legal expenses insurance providers. I considered this to be a cheaper and more effective way of obtaining several quotes simultaneously than approaching insurers direct. I also advised Mr Clarke that by requesting five quotes he would be well prepared to counter any subsequent arguments by the Defendants that the premium was unreasonable.
...
5. An insurance proposal form was forwarded to The Judge on 27 March 2002 and on 2 April I received a letter from The Judge advising that the application had been submitted to Amicus, Mike Young Legal Associates (MYLA), Litco and First Assist being the only insurance providers on their panel that The Judge considered might offer insurance for this particular case.
...
Emmanuel Gilbert managing director of The Judge advised me on 11 April that two of the insurance providers had responded to date and that they had explained no insurance quotation would be forthcoming until medical evidence had been obtained."
"Mr Clarke also asked me to enquire about the option of a deferred premium as he was already paying out money for disbursements and had concerns about the other expenses he would have to pay in pursuing the litigation. I spoke again with Emmanuel Gilbert on 1 August 2002 and he advised that MYLA were not able to quote on this case for their disbursement funding policy. He mentioned one other disbursement funding policy, which might be available with First National Bank, but explained that Charles Russell would have to register with the bank and show the last two years accounts before being accepted, so it was not going to be easy to get cover up and running in time for this claim. This avenue was therefore not pursued."
"It is not necessary to protect a client from adverse costs before
proceedings are served, as there can be no liability for such costs at that
time. In this case it took five months for a quotation to be obtained as the
insurers were unwilling to provide one without medical evidence. I had applied
on Mr Clarke's
behalf for insurance as quickly as possible after receiving his
instructions to pursue the claim."
"It is my belief that the ATE insurance market for RSI cases was virtually non existent. I have formed this view from discussions with colleagues in the personal injury world outside my own firm whom I meet regularly at training and social events and where we naturally discuss our cases on an anonymous basis."
"The comments I have made in respect of RSI and stress claims would apply equally to not only our own DAS ATE product, called Conditional Fee Insurance Services and subsequently renamed 80E, but also to other products underwritten by DAS namely Litigation Protection, Greystoke Legal Services, QLP and Saturn Professional Risks."
"The nature of my practice has not really come out through the witness statement but I only handle about 10 cases at any one time. That was true in 2002 and it is true now. They are all very different cases and when I have gone to various providers to ask about being accepted onto their schemes, they have said that they do not find me an attractive proposition for insurance purposes.
...
I seem to have the very difficult cases. I get referrals from other
solicitors
perhaps when they turn down the case on merits but the client wants
to go on and they will ask us to have a look at it. I have catastrophic injury
cases, a number of very difficult brain injury cases, RSI cases. The sort of
things that you cannot handle too many at one time and do them properly."
"I like the idea of having one form, one small fee and somebody else who is more knowledgeable about the market than I was who could get simultaneous quotations."
"The fact that we have not seen your employer's
file, which may include
documents prejudicial to your claim.
The claim could fail on the issue of medical causation and we do not yet have a medical report.
The employer may produce witnesses who deny your method of handling work trolleys was the appropriate and approved method.
We could fail to beat a Part 36 offer."
"I always find when you're handling claims from employees, you never quite
know what is going to happen. You receive the client in the office and they
tell you their account, but it's
the strange situation where the defendant
actually knows them and their working practices much better than you do.
...
You never quite know what is going to come out of the woodwork in terms of
other employees coming forward with evidence. That's
one big risk factor. On
the liability side there was also a risk factor on medical causation."
"Our estimate of costs of ?35,000 to ?40,000 is our estimate of the total
costs (including disbursements of ?6,500), that we expect to incur in taking
this case to trial. When assessing the adverse costs risk, we have assumed
that the defendant's
hourly charge out rate will be no higher than our own
(frequently insurance companies require their panel
solicitors
to work at a
lower hourly rate than the court norm). We cannot see that they are unlikely
to incur any less costs than we will and they will no doubt have to interview
witnesses as well and are likely to get their own expect evidence in a case of
this type. I am not sure whether this will affect your calculations, but I
feel it would be acceptable for the adverse risk to be ?35,000 with ?6,500
cover in respect of own disbursements so potential risk to insurers of
?41,500."
"What I actually meant was that I didn't think that they would need any less hours on the job than we would … and that they will no doubt have to interview witnesses as well and are likely to get their own expert evidence in a case of this type …"
"This is high but we have been out to the market place and that is what it is really."
"Well I had no intention for this claim to run a day longer than it had to. But, I had a client who had had two surgical operations on his arm for this injury caused at work. I thought he was entitled to make a claim. He wanted to make a claim. We had no other alternative in the marketplace, and I could never advise the client to go into litigation facing a potential adverse costs order without insurance so I thought I was stuck really. The client was given the information and with informed consent he wished to proceed."
"In the event of the costs and the premium being reduced upon assessment at our discretion we would be agreeable to taking a commercial view of such a situation and that we would consider either accepting a reduced premium based on the actual assessment of the costs or limiting any sum in respect of the shortfall that we would seek from the Claimant to the amount of her damages depending upon the reason for the reduction in the costs claimed."
Kenneth Besfor
"I was aware that this would be a difficult and risky claim to pursue on behalf of the Claimant and that therefore it might be difficult to obtain after the event insurance. I was satisfied that the client that she had no alternative method of funding and even applied for public funding from the Legal Service Commission despite the provisions of the Access to Justice Act 1999. However this proved to be unsuccessful …
...
7. A proposal was submitted to Litigation Protection Ltd on 2 May 2002 a company which had successfully provided after the event insurance in the past. Unfortunately the application was returned, it would appear unread, with the blanket reason that stress at work cases were not covered by them … Efforts were also made to contact other after the event insurance providers including Eastgate Assistance, ENA Underwriting Ltd, Temple Legal Protection, Watkins Davies Insurance Consultants Ltd … Eastgate Assistance and Temple Legal Protection simply could not be contacted. I cannot now recall why ENA Underwriting Ltd and Watkins Davies Insurance Consultants Ltd were not of assistance but I am certain that they were not. It was then decided to utilise the services of The Judge.Co.UK.Ltd and proposal forms were submitted to them on 30 May 2002. It was indicated by "The Judge" that a number of potential insurance providers would be nominated. However due to the difficulties of pursuing a case of this nature they were only able to provide a quotation from the First Assist Group Ltd.
8. Consideration had also been given in addition to the above insurance providers to the services of Accident Line of which my firm were a panel member. There was a delay in pursuing this option as at the time my firm were still putting in place a funding arrangement to compliment that scheme. In any event an application to Accident Line was also refused."
"Please contact the insurers on our behalf and thereafter inform us whether or not the premium calculation is correct. It would be helpful to establish, in view of the substantial amount of the premium, whether the insurers would accept a premium based on the costs which are ultimately agreed, not on the costs set out in the bill of costs."
"This was a sort of premium that I had not dealt with before and I wanted to ensure that I could get any assistance that was necessary."
Peter Henry Evan Bennett
"Please note that Royal Sun Alliance's
premium for issuing this (ATE)
policy of insurance has been calculated by reference to the risks inherent in
the action and with specific reference to the defence put forward by your
clients.
Further, this premium is also calculated by reference to our costs in conducting the action and the extent of any adverse costs as estimated by us by reference to the information on that issue that you have provided to the court and/or this firm …
Specifically, the amount of the premium is calculated as a multiple of our base costs, prior to the addition of our CFA success fee, plus insurance premium tax at the prevailing rate."
"By way of example the Defendant's
legal costs up to and including the
liability trial were predicted by their
solicitors
, to be in excess of
?92,000. There was a very real possibility of this case being fought equally
hard on quantum, if Mr Farr had succeeded at the liability trial on 29, 30
September 2003 … Upon that basis, with adverse costs of liability only being
in excess of ?92,000 it is, in my submission, easy to see how the funding
issue could have resurrected itself, with a vengeance, following the liability
trial and/or during the preparation of the Claimant'
s
case on quantum.
Particularly if adverse costs were "capped" at say ?100,000 which was a fairly
common upper ceiling in my experience."
"Examples I have seen from The Judge website caused me a number of concerns … in the context of my position as a partner within Dolmans in Cardiff. The first issue is that we as a practice are a predominantly - vastly predominantly - a defendant practice. I would say about 90 per cent of our work is defendant insurer work. To that extent, because of the way the work comes to us, which is predominantly from local authorities, predominantly directly from local authorities as opposed to through insurers … On that basis, we have to be very very careful in terms of the relationships we develop or maintain … with ATE insurance providers. The reason being that local authorities particularly … are very sensitive about any of their advisors, whether they are legal advisors or otherwise having connections to the ATE market."
"I would have concerns about the extent of the cover at ?120,000. Because of the way that the costs developed in this case … or the way the case generally developed. I also have concerns in relation to the nature of the policy itself in the sense that Mr Wait appears to suggest that it is possible - even though it is a product offered by another insurer - to use the BTE cover in the manner that it was used in this case. I don't see how one insurers competitor with another insurer would be prepared to allow that second insurer access … to its BTE fund ..."
"What I said to Mr Farr at the time was that this was the best option, albeit in my view at that stage, he had very very few options."
THE DEFENDANTS' WITNESSES
Christopher Wait
"The services provided by Temple are carried out exclusively for the
provision of a full range of legal expenses insurance both before the event
legal expenses (BTE) and litigation insurance, ie after the event insurance
(ATE). Temple provides ATE insurance to all categories and classes of
litigation including personal injury, contract disputes, defamation, clinical
negligence
, professional
negligence
, intellectual property and marine disputes
for both claimants and defendants."
"6. I can confirm that Temple would have offered ATE insurance for this case had it been approached for a quote in or about December 2002. We had a Binder from Lloyds of London which allowed us to rate and condition such cases up to a limit of ?250,000. On the basis of the information provided to First Assist in requesting cover I confirm that Temple would have provided a limit of indemnity of ?150,000 for a premium of ?22,400 plus IPT. The limit of ?150,000 allows for an estimate of ?120,000 adverse costs and allows for ?22,400 plus IPT cover for the premium.
7. In relation to the method of calculating the premium I can state as follows:
(i) I would pay particular attention to the advice given by the Claimant's
solicitors
and their counsel;
(ii) from my own experience of these cases I would then have made my own assessment of the likelihood of success;
(iii) in this case I would regard the chances of success as high;
(iv) assuming a loss of about ?112,000 I would have calculated the pure burning costs at about ?14,000;
(v) I would have added a percentage for profit and insurance administration costs of 60% or ?8,400;
(vi) the premium would be on the basis that the BTE policy (with a cover of ?25,000) would have been used for disbursements."
"Our policy would have offered deferred premium and protection for that
premium within the policy cover, our policy would also have been a step
premium policy. All of our policies since the beginning of 2002 or end of 2001
have all been written on a stepped premium basis, both for personal injury,
commercial and clinical negligence
, so the key features would have been
premium payable at the end, with protection for the insurance."
"We would have added Step C premium to the limit of indemnity and then that would have calculated the limit of indemnity for us. Premium A is payable if the case settles before proceedings are issued. Premium B is paid if the case settles between the proceedings being issued and 45 days before trial, and the last window, Premium C, is payable 45 days before trial and including trial. They are the three blocks of risks that we as underwriter look at and think they are the different dynamics of the case."
The premium is payable at the conclusion of the case.
"Given that the solicitor
involved in that case was a pretty good clinical
negligence solicitor
we would have probably covered it. The premiums probably
would have been for Band A about ?5,000, for B it would have been about
?20,000 and for C it would have been about ?50,000, I would have thought so if
this case had gone to trial and settled at trial we would have wanted
?50,000."
"Probably but we would need to look at the case, do our homework on the
solicitor
and on the medical side of things to work out, would we have covered
it first, and then looked at the exposure to do a proper job on it."
"We would have queried that because if he wants to run the case and he
thinks it is very unlikely to win we would have queried it ... When a
solicitor
tells us what the prospects are we use that as a basis for thought
but we look because
solicitors
tell you all sorts of different things, and it
is my money that is at risk, not theirs, so even when they tell us it is a
great case we sometimes do not insure it because we do not believe it to
be."
"That is correct, although it is unlikely we would unless it was a
significant deterioration, because, remember, we are going to have to go on
risk and pay all the adverse costs. It is a similar situation to the top-up
thing … where there is no point in a legal expenses underwriter not providing
top-up in a case. … If I have got ?80,000 exposed and a solicitor
comes along
and says: we've got it wrong, the adverse costs order because the other side
are messing us around, it may be ?120,000, if I say, no, I'm not going to give
you cover then I am going to have to write a cheque out for the costs that
have already been incurred, so it is in my interests to give a top- up
cover."
"I think the point I am making is that there are other underwriters out
there, including us, that would see a request for higher limits as something
that you have to deal with. If the case is okay - assuming that the case has
not gone wrong when that request is made ... we are either going to have to
write a cheque because the guy is going to abandon his claim because he will
not have sufficient funds to carry on. [Mr Dutton suggested he might accept
the offer of ?100,000 and recover his costs, and therefore the premium.] … I
think that the solicitors
would not be giving him advice to take ?100,000 if
they thought that was wrong."
"Yes, but the thing about stand alone one-off premiums in those scenarios is that you are … buying cover from now until when the thing finishes. I accept with First Assist it is a sliding scale and with Temple it is a stepped premium similar sort of sliding scale type thing. With them, yes, if it settles early fine. If it settles very late then it is sort of swings and roundabouts for them and us."
"It is really not in our interests to have so few players as there really
are. You heard yesterday Emmanuel Gilbert's
evidence about everybody gets to
see these things from Litigation Funding. The reality is, when you apply to
all these different providers they cannot act. A lot of them are almost
quasi-claims management type companies. They are not underwriters in the same
sense that First Assist and Temple and DAS and Law Club are underwriters. If
First Assist are knocked out of this market, let me assure you, it is not in
our interests. "
"One of the requirements of a delegated requirement scheme is that the firm has a sufficient number of risks to insure through the scheme. We look for a minimum of six insured cases a month, so it is viable for us to monitor and audit the scheme. If you do not have a sufficient number of cases then we would be happy to receive individual submissions as long as we are assured you are not cherry picking the marginal risks for insurance."
"We are trying to discourage them from sending us all their rubbish, which,
if you come to our office … you will see the enormous amount of rubbish claims
that we get all the time. We do not charge a fee for that, so yes we are
trying to discourage stuff, but we are also saying, come to us if there are
compelling reasons. On this Dolmans one [Farr] there would have been. On the
clinical negligence
we would have loved to have a dialogue with Charles
Russell, they are a good firm."
Kate O'Reilly
"(a) the increase of premiums collected in successful cases in order to allow for the lack of any premiums in unsuccessful cases;
(b) the deferral of payment of premiums until the end of the case; and
(c) the fact that cover is unlimited."
"The rating is based on the assumed total of costs at risk under the policy … ; own costs are then used only as a scaling factor to link increases in own costs with increases in the premium."
"An estimate of costs at risk which is too high relative to own costs will also lead to a premium higher than is needed to match the risk."
"For example if the estimated failure rate, when the ATE policy was incepted was 30% and the actual underlying failure rate is 20% then the premium would be 71% higher than needed."
"In placing a cost on unlimited cover, the important factor is to estimate what percentage of claim has adverse costs in excess of standard market limits and by how much they exceed these limits. For convenience I will refer to these cases as "large losses". … If the probability of large losses is low then the cost of providing this cover will be low. If say 5% of claims go to trial, 30% lose and 1% of these have costs at risk of ?500,000, the additional cost per policy of covering these large losses is ?75.
38. … Using the simple example in the previous paragraph and assuming that the initial estimates of costs at risk and own costs were accurate, Pursuit scheme methodology would calculate the premium for the large costs at risk cases on the basis of a risk amount of ?500,000. Under the Pursuit scheme, due to the method of calculation of the premium it is already the case that the larger the risk covered, the larger the premium. Therefore, there is no mathematical requirement to add any extra factor to the premium in all cases to cater for large losses."
"If he has accurate estimates to trial he will be able to accurately estimate the premium at trial, but it may be overstated before trial.
...
If the assumption of a constant ratio between adverse costs and own costs is correct, then yes ... [if the estimates are reasonable he has a reasonable basis for calculating the premium.]"
"That's
why it would be good to get cases where there was in fact a swing
the other way. The Test cases have … a swing the other way, but we can't tell
from the [exhibit PWS3] which ones are.
...
We have seen absolutely no evidence that there are any swings the other way for First Assist."
"Well, for example, in the First Assist methodology, if the assumption is that own costs are ?25,000 and adverse costs are ?50,000, if the adverse costs go to ?100,000 you might think that is a problem, but within the First Assist methodology if the own costs have also doubled to ?50,000 the methodology will make allowance for that fact.
... It is the ratio between the adverse costs and the own costs that is important rather than the absolute amount of the estimate."
"It can be stepped. It'll be … basically mirroring and always increasing. It can only ever go up.
...
Constantly increasing, and mirroring each other in the way they step forward."
"I think the Baker case is unusual but, maybe it's
not unusual I think
you're basically saying that Mrs Baker had a choice between a premium with a
minimum of ?8,000 to ?9,000 with an unlimited downside premium. Or a flat
?12,000 or ?10,000 or ?14,000. I personally would consider a minimum of ?9,000
with no limit on, how big it can get I personally would go with the flat
?12,000. But that'
s
just me."
"If you're rating a flat rate premium, ATE policy, it's
looking at how the
adverse costs have gone relative to the estimated versus actual that'
s
important. That'
s
the averaging that'
s
important to you. But in the First
Assist methodology the averaging needs to be between policies which were rated
too high relative to the risk and too low relative to the risk and there is
nothing here to say that those policies were not rated correctly relative to
the risk. So it is quite possible that all of the First Assist policies are
rated too high relative to the risk. Even though some have very high pay outs,
some have very low premiums, that isn't proof that they are not excessive
relative to the risk presented."
"We have no way of knowing whether that is an unfair or fair premium to either side."
"Insurance companies are usually quite clever at getting around that. I mean, your bulk carrier example, for example. It could sit in port for the whole year, it could go out on a trip every day of the week and have a very high exposure. What will usually happen is that there will be a statement at the end of the year from the shipping company saying, "This vessel was out on these days. This vessel was in on these days," and an adjustment at the year end to take account of that."
"But again it goes back to the issue of a lower premium does not
necessarily mean that it's
not excessive. Because of the way the RSA
methodology works, it'
s
not an average between high and low, it'
s
an average
between excessive for the paying parties and excessive for RSA and I haven't
seen any policies which are excessive in terms of fairness to the Pursuit
policy, whereas we are seeing the cases where they are excessive relative to
the paying parties.
...
I think the concept of the Pursuit policy is great … it gives the claimant access to justice, it in theory offers low premiums if the case settles early and they don't have to pay, they don't have to fund, they don't have to get into bank loans. But that doesn't mean that it shouldn't be priced fairly for the paying parties."
"I think with Mr Wait's
policy or any other policy, the reason it'
s
so
expensive is because people have got to the ?100,000 limit. They've actually
spent the money, that amount is at risk, definitely at risk so they need to
top it up. Whereas, when people are taking it out at the start, it may get to
?100,000 or it may settle at ?1,000. So it'
s
more a question of, "this is a
definite definite risk as opposed to it'
s
not very likely."
John Paul Ivory