CASE REPORT – ATE PREMIUMS – THE PURSUIT OF HAPPINESS?

ATE PREMIUMS – THE PURSUIT OF HAPPINESS?

Our Director and one of our senior Advocates, Andrew Jones, recently appeared upon a Detailed Assessment, where we secured a huge reduction on the opponent’s claimed ATE premium from just under £55,700 to just over £10,700. This despite our opponent being represented by Costs Counsel and a representative of the Insurer attending the hearing.

As many practitioners will know, achieving a reduction on such premiums is very difficult, particularly in the light of the oft quoted passage from Kris Motor Spares Ltd v Fox Williams LLP [2010] EWHC 1008(QB):

“District judges and costs judges do not, as Lord Hoffmann observed in Callery v Gray… have the expertise to judge the reasonableness of a premium except in very broad brush terms, and the viability of the ATE market will be imperilled if they regard themselves, without the assistance of expert evidence, as better qualified than the underwriter to rate the financial risk the insurer faces. Although the claimant very often does not have to pay the premium himself, this does not mean that there are no competitive or other pressures at all in the market. As the evidence before this court shows, it is not in an insurer’s interest to fix a premium at a level which will attract frequent challenges”

In our case, we were instructed by Solicitors acting for private individuals who, after the commencement of proceedings, settled a commercial dispute. The Claimant had given notice that he had the benefit of an ATE policy. As it transpired, this was a Pursuit type policy. Most ATE policies are block rated and a certain amount of cover is bought in advance for a fixed premium (or a number of staged premiums depending upon the progress of the claim). However, the Pursuit type policy is different in that the premium is calculated at the conclusion of the matter and uses actual costs incurred as the basis for that calculation. A key selling point of such a policy is that it will always be proportionate because it uses those actual costs. If a claim settles early than the actual costs will be lower and accordingly so will the premium. This method of calculation was considered and confirmed in the RSA Pursuit Test Cases [2005] EWHC 90003 (Costs) and in Motto & Ors v Trafigura Ltd & Anor [2011] EWCA Civ 1150. Cover is for opponent’s costs and own disbursements.

The basis for the calculation involves looking at the prospects of success when the policy is initiated; calculating the estimated maximum loss/liability; adding in the cost of sales/marketing and then something further for profit/administration. From these factors, a “Premium Rate” is calculated and applied to the estimated maximum loss which then gives the premium.

In our case, the Premium Rate was calculated (entirely properly in accordance with the approved methodology) at 72.851%. However, it was alleged that the Defendants had failed to provide proper information as to their costs incurred and therefore the insurer made an assumption about those costs, basing them upon the Claimant’s own costs. This meant that the estimated maximum loss figure used was over £72,000 and the resultant premium was just over £52,000 which together with IPT, made the sum claimed just under £55,700.

Given that the Defendants’ costs at the point of settlement (the relevant time in accordance with the methodology) were just over £9000, it is perhaps easy to see why the level of that premium was the cause of great consternation and particularly robust challenge.

By way of a little further background, the Defendants had initially instructed legal representatives who, it transpired within the proceedings, were not actually Solicitors. They had filed a costs estimate (actually in the form of a budget) with the Allocation Questionnaire (as it then was) indicating costs, obviously exclusive of VAT, in the order of £9000. The Claimant, it appeared, was never served with that estimate.

Upon Solicitors being appointed to replace the former representatives, a further estimate (again in the form of the budget) was filed and served with the Listing Questionnaire, showing that if the matter proceeded to trial then the total costs would be in the order of £27,000.

Not long after, negotiations ensued and the matter was compromised. In order to enable calculation of the premium, the Claimant asked the Defendants for details of costs incurred to that point. A reply was sent indicating that those costs were in the order of £9000.

Within the assessment proceedings, it transpired that the ATE Insurer was not satisfied with that indication. The Claimant’s costs were so much higher (as stated above, in the order of £72,000) that it was felt that the Defendants were deliberately understating the costs incurred in order to limit the amount of the premium which would be payable. It further appeared that the Claimant’s Solicitors and the Insurer were of the view that the estimate served with the Listing Questionnaire was purely in relation to the Solicitors’ costs and did not include those of the former representatives. Therefore, without advising the Defendants that they were not prepared to treat the indication of incurred costs as reliable, the Insurer elected to disregard that indication and use the Claimant’s costs as a more reliable guide.

The challenges to the premium were many and varied. However, notwithstanding the arguments raised in the Points of Dispute, the Claimant maintained the premium and the matter had to be determined by way of Detailed Assessment.

As to the specifics of the arguments, it was pointed out that the Defendants had supplied an indication of their costs when requested to do so. They had never been requested to provide any form of certification as to those costs, nor had they been advised at any stage that the Insurer had doubts about the accuracy of the same and was therefore intending to disregard the indication.

It was further pointed out that the estimate (in the form of the budget) served with the Listing Questionnaire reinforced the accuracy of the figure quoted by the Defendants. When the various phases within the budget document (e.g. trial preparation, trial etc) were disregarded, the budget actually showed that for the phases which had been completed, about £9000 worth of costs were claimed. The Claimant was reminded that this was the budget of the party not of the particular Solicitor. Thus, their belief that there were further costs which had to be taken into account was misconceived. That point was stronger still in circumstances where the former representatives had been found not to be Solicitors and therefore it was highly unlikely that the Defendants would have any liability to those former representatives for costs, given the blatant misrepresentation which they had suffered.

After further argument, the Judge indicated that he would be very reluctant to find that a Solicitor, an Officer of the Court, had deliberately misled the opposing Solicitor in correspondence. That would be a serious allegation and would need evidence, which was conspicuously lacking in this case.

Thus, it was held that the Insurer had been wrong to disregard the indication of costs given by the Defendants and that it was those figures which should have been used rather than the Claimant’s own costs (which in any event included a success fee, which the Defendants’ costs did not). When taking the Defendants’ costs figure, adding in own disbursements and applying the Premium Rate, the resultant proper premium payable between the parties was just over £10,700.

Therefore, despite the problem in challenging premiums as outlined in Kris Motor Spares and notwithstanding the very significant resources thrown at the assessment by the Claimant and his insurer, justice prevailed and a reasonable, proportionate outcome was achieved.