Recoverability of insurance premium

The recoverability of costs regime underwent a dramatic transformation from 1 April 2013. A new definition of proportionality was introduced so that costs claimed by a party which are disproportionate in amount may be disallowed or reduced by the Court even if they were reasonably or necessarily incurred. Furthermore, ATE insurance premiums ceased to be recoverable for policies entered into after 1 April 2013. An exception to this rule is in respect of the premium for expert reports relating to liability or causation in clinical negligence cases. Such an insurance premium and whether the amounts claimed were proportionate was at the heart of the costs dispute in Rezek-Clarke v Moorfields.

The parties had settled the claimant’s clinical negligence claim for £3,250. Following this, the Claimant’s solicitors served their Bill of Costs which amounted to £72,320.85. This included an ATE insurance premium of £31,976.49. The ATE policy was block-rated and the recoverable element of the premium was calculated by taking the actual costs of the expert reports obtained, multiplying that total by a percentage and adding IPT. The Judge found that while it was reasonable for the Claimant to have taken out an appropriate ATE insurance policy, the premium amount being claimed was disproportionate given that the claim was worth around £5,000, at best, and not complex. The Judge instead decided that £2,120 inclusive of IPT was proportionate, arriving at this figure by using his judicial experience and comparative premiums submitted by the Defendant. The total costs claimed were also found to be disproportionate.

This case does not directly seek to alter the way insurers calculate premium. The Judge stated that block-rating is a “clearly acceptable” methodology. The solicitors were however criticised for undertaking a mechanical exercise when choosing the policy and for not considering alternative available products as the costs of the policy chosen bore no reasonable relationship to the sums in issue in the proceedings. In light of this, solicitors choosing ATE insurance policies must always consider whether a policy is appropriate for a particular case before taking it out. The Judge also questioned the insurer’s methodology of calculating premiums, as it was based on the actual costs of the expert reports rather than the reasonable amount of fees for them. Where the costs of those reports are disproportionate, as they were in this case, the methodology will ultimately result in the premium also being disproportionate as this case restates that all costs claimed on a Bill of Costs, including ATE premiums, are not exempt from being examined for proportionality and that only a proportionate amount will be recoverable from the paying party.