Smith v Interlink Express Parcels Ltd

In these proceedings the Claimant suffered an accident at work on 19 October 2005 when he sustained an injury to his back when lifting a parcel from a conveyer belt. The matter was settled before the issue of proceedings on 4 October 2006 on the basis that the Defendant would pay the Claimant £1,700 together with his reasonable costs.

The parties were unable to agree the costs, accordingly Part 8 proceedings were commenced in the Chester County Court on 26 October 2006. The only matter in dispute was the level of the ATE premium incurred by the Claimant under a Temple policy with staged premiums. On 16 March 2007 District Judge Wallace directed that the matter should be transferred to the Supreme Court Costs Office to be dealt with.

The Claimant’s policy of insurance is dated 7 November 2005, and is with Temple Legal Protection Ltd. The policy covers Mr Smith in respect of his claim against Interlink Express Parcels Ltd “or any other party subsequently found liable for damages resulting from negligence”. The period of insurance is from 7 November 2005 to the conclusion of the legal action. The limit of indemnity is £25,000. The premium is in three stages as follows: (a) £750; (b) £1,200; (c) £2,700, plus insurance premium tax at 5% in each case. The certificate of insurance states:

“Premium

The amount specified in the schedule which is payable by the insured at the conclusion of the legal action. The amount specified in (a) shall be payable if the legal action is settled prior to the issue of proceedings; the amount specified in (b) shall be payable if the legal action is settled after proceedings have been issued but more than 45 days before the date listed by the court for the commencement of the trial: the amount specified in (c) shall be payable if the case is settled 45 days or less before the beginning of the trial as listed by the court or is heard at trial.”

The Defendant asserts that the amount of the ATE premium sought is unreasonable and disproportionate.

The policy provides cover in respect of own disbursements and other side’s costs. Since no proceedings were issued, Temple were never at risk of having to pay the Defendant’s costs.

The Defendant relies on the decision of the Court of Appeal in Rogers v Merthyr Tydfil County Borough Council [2006] EWCA Civ 1134; [2007] 1 WLR 808, which was the first occasion on which the reasonableness of an ATE premium had been considered authoratively by the Court, since its landmark decisions in Callery v Gray (Nos.1 & 2) [2001] 1 WLR 2112 and [2001] 1 WLR 2142. Lord Justice Brooke stated:

“In those two judgments the court was principally concerned to decide whether an ATE premium was reasonable when ATE cover was taken out by a claimant before the first letter of claim was made, and when the defendant’s reaction to the claim was still unknown. On the present appeal [Rogers], three main issues arise for decision:

(i)

What is the proper approach to proportionality in a small personal injury case where the ATE premium may appear large in comparison with the amount of damages reasonably claimed?

(ii)

What is the proper approach to evidence of reasonableness of the choice and of the amount of the ATE premium in such cases?

(iii)

Are both staged (or stepped) premiums and single premiums for ATE insurance legitimate for the purposes of the recoverability of an ATE premium by a successful claimant, and is it reasonable that such premiums should be wholly or partially block-rated?” (paragraph 96)

In the present case the Temple policy is block rated and the solicitors have delegated authority to issue policies.

The Defendant submits that doubt arises as to whether the premium is reasonable and proportionate when one considers the sums of money involved in this case. They argue that the premium covers disbursements only, which in this case amount to less than £500. On that basis it is argued that the premium of £750 insuring a risk of not recovering £483, is, on its face, to use Mr Williams’ words, “out of kilter” with the amount at risk.

At paragraph 15 of the Points of Dispute the Defendant states:

“The premium in this case is a block rated stepped policy. The paying party assumes that Temple undertook actuarial studies of likely costs before setting the amounts of the premium, and submits that the likely amount of disbursements in abandoned claims which they would be asked to pay under the stage 2 policy would have been considered. With that in mind, the paying party does not see how so high a premium was arrived at. In the circumstances, the receiving party is requested to provide the relevant information in order to assist the court.”

In the event no information or evidence from underwriters was produced by the Claimant.

The Defendant draws attention to the fact that the DAS 80e policy, which was the subject of the discussion in Rogers, had a first stage premium of £450. The evidence in that case indicated that 63% of cases settled before issue, of which 21 were lost or discontinued. The stage 1 premium produced a profit (see Rogers paragraphs 39 and 51). On this basis the Defendant submits that a first stage premium higher than or uncompetitive with the cost of a single stage policy that indemnifies a claimant all the way to trial does not spread the risk in a way that is fair and equitable to the paying parties who are to pay the premium. It is evident from the judgment in Rogers that the premium charged by Temple at the first stage is higher than that of DAS 80e £450 and Keystone £550 - £750 (paragraphs 39 and 68). Mr Williams refers to the single stage policy of Allianz Cornhill, which provides cover up to £100,000 for the whole of the proceedings at a premium of £725.

The Court of Appeal in Rogers considered the experiences of Temple and Keystone (who were represented by Mr Drabble QC) at paragraphs 61 and following of the judgment. At paragraph 64 the current rates are set out and include the premiums for fast track accident at work, which covered the present case. The judgment states “the figures are not cumulative”. It is not now clear whether this is an indication that the court has not totalled the staged premiums (which would produce a total for the three stages of £4,650), or whether the words are intended to indicate that the figures increase by £450 and £1,500 for the next two stages, giving an overall total of £2,700. The wording in the certificate of insurance, which I have quoted above, is, according to Mr Williams, capable of interpretation either way, although I have to say that the sense both of paragraph 64 of the judgment, and of the certificate of insurance, seem to me to indicate that the overall total of the premium would not exceed £2,700.

Mr Williams also referred me to paragraph 71 of the judgment, where the court records that Temple’s experience has been that 20% to 30% of the cases which they insure are abandoned or discontinued (excluding those that fail at trial or where a Part 36 offer is not bettered). For Keystone the equivalent figure was 40%. At paragraph 73 the court notes:

“Temple and Keystone take the view that 25% (of net written premiums) is a minimum allowance for overheads. A more realistic allowance would be closer to 50%. The cost of dealing with premium challenges and dealing with reductions in premiums is an important factor here. ...”

Mr Williams puts his case in this way. He suggests that Temple’s exposure in respect of the stage 1 premium would be likely to be somewhere between £400 and £800. He points out that in Rogers it was said that the average pre- issue disbursements for DAS 80e were £833, but this policy covered counsels’ fees which the Temple policy does not.

In respect of the actual risk, Mr Williams points to the research carried out by Messrs Fenn & Rickman, which was used to obtain agreement on the level of success fee in low value road traffic accident claims, and which suggested a fall out rate of 20%. The 20% to 30% failure rate before trial in Temple cases includes those which fail at stage 2, as well as at stage 1.

Taking Temple’s own evidence in Rogers, as to the level of overheads, Mr Williams proposes a minimum and maximum model for the appropriate premium. His minimum model is as follows: £500 x 20% = £100 plus 25% uplift for overheads = £125. Add an allowance to cover the premium itself: a 20% chance of paying £125 = an additional £25 giving £150. Add 20% for profit and 5% for tax gives an inclusive total of £189.

His maximum model is as follows: £800 x 25% = £200 50% uplift for overheads = £300. Add an allowance to cover the premium itself: a 25% chance of paying £300 equals an additional £75 giving £375. Add 20% for profit and 5% for tax gives a total of £472.50.

With regard to the Allianz Cornhill policy, the Court in Rogers accepted that this was not available, since the insurer required the solicitor to insure at least 100 cases, which in the case of Rogers was not a feasible proposition. In Mr Williams’ submission the Claimant’s solicitors in this case would have no difficulty fulfilling that requirement.

I specifically asked Mr Williams about the observation of Lord Justice Brooke at paragraph 117 of Rogers:

“District judges and costs judges do not … 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.”

Mr Williams’ response was that the premium is, on its face, unreasonable and disproportionate, and that in furthering his arguments he is entitled to rely on the Temple evidence recorded in the Rogers judgment, and on the research done by Fenn & Rickman, which has been accepted by both sides of the industry. He points out that although the Claimant was invited to put relevant material before the court, there is nothing at all from the underwriters to assist the court.

In response Mr Kimber pointed out that the premium of the Temple policy is capped at £2,700, whereas that of the DAS 80e policy is bespoke at the third stage and calculated on the facts as known at that time. He also pointed out that the third stage premium in Rogers proved to be too low. He suggests that Mr Williams, in his argument, has not taken into account the whole of the premium, nor the whole of the book run by Temple. He was however without any evidence from the insurers or underwriters to support this contention. Mr Kimber referred to paragraphs 50 to 54 of the Rogers judgments, dealing with the evidence of Mr Bellamy of DAS, and the way in which he responded to a suggestion that the DAS 80e premium was unreasonable in the way it was staged, since it did not reflect the way that the risk of liability for costs was incurred throughout the claim process. In a sense Mr Bellamy was facing a similar argument to that faced by Mr Kimber. The difference is that Mr Bellamy was giving evidence, and produced a schedule that showed six recently lost cases for each of the three stages of premium, giving the figures paid out in each case in respect of own side’s disbursements, other side’s costs and premium. Mr Kimber, however, is without evidence of any sort.

Mr Kimber next referred to paragraph 83 of the Rogers judgment, dealing with the written submissions from Allianz, from which the Court quoted:

“Only then can any true judgment be made. With respect, it is questionable whether a judge can make an adequate assessment given the complexities.

The case serves to highlight the difficulty faced by ATE insurers and helps to explain why in actuality there are few underwriters of [ATE] insurance. The uncertainty of securing a recovery of the full premium some years down the line is very difficult to actuarially model. The judiciary applying hindsight underwriting is likely to arrive at a very different view of the suitability of a given premium. These decisions can drastically alter the actuarial model and make the difference between underwriting at an acceptable profit and making a loss. Additionally this uncertainty increases the amount of capital an underwriter needs from its shareholder (the more risk equates to a greater need for capital). This leads to margins being harder to achieve, risk appetite diminishes, and underwriters become more selective.”

Mr Kimber went on to argue that the Allianz Cornhill policy was very much more restrictive than the Temple policy, which is fully delegated. Mr Williams subsequently countered that argument by a detailed analysis of the terms of the Allianz policy. No useful purpose would be served by comparing the terms of the Temple policy with those of the Allianz. Whilst each advocate urged me to find that the policy he was championing was superior to the other, one is not in fact comparing like with like, and it is only possible to say that neither is any worse or better than the other. Having said that it is necessary to bear in mind that the Allianz policy covers the whole of the proceedings, with a higher limit of indemnity for a premium very similar to the Temple stage 1 premium.

Mr Kimber pointed to the still delicate state of the ATE market, and, relying on paragraph 38 of the Rogers judgment, pointed out that a large number of insurers had left the market. He submitted that if I were to interfere with the level of the premium in this case, it might set a precedent, further undermine the ATE market, and effectively hinder access to justice.

CPR 44.4(1) states:

“Where the court is to assess the amount of costs (whether by summary or detailed assessment) it will assess those costs

(a)

on the standard basis; or

(b)

on the indemnity basis

but the court will not in either case allow costs which have been unreasonably incurred or are unreasonable in amount.

(2)

Where the amount of costs is to be assessed on the standard basis the court will

(a)

only allow costs which are proportionate to the matters in issue; and

(b)

resolve any doubt which it may have as to whether costs were reasonably incurred or reasonable and proportionate in amount in favour of the paying party.”

Paragraph 11.10 of the Costs Practice Direction states:

“In deciding whether the cost of insurance cover is reasonable relevant factors to be taken into account include:

(1)

where the insurance cover is not purchased in support of a conditional fee agreement with a success fee how its cost compares with the likely cost of funding the case with a conditional fee agreement with a success fee and supporting insurance cover;

(2)

the level and extent of the cover provided;

(3)

the availability of 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.”

This case is unsatisfactory, in that I am being asked on the one side to decide an amount for a premium which is reasonable and proportionate, and on the other side to leave the premium as claimed untouched, but without any evidence from insurers or underwriters as to how the premium came to be calculated at its present levels. It may well be that had that evidence been available I should have been persuaded that the premium claimed was reasonable and proportionate.

I accept Mr Williams’ submission that the Temple stage 1 premium is, on its face, on the facts of this case, disproportionate and unreasonable. I refer to the evidence of Christopher Cater, the Claimant’s solicitor in Rogers, at paragraph 22:

“He was also attracted to the three-stage premium He thought that this could operate as an incentive to defendants and their solicitors to settle claims early, once they realised that the first stage premium was going to be low. He also hoped that it would dissuade insurers from denying liability in cases where, in reality, his client’s claim should be accepted. He did have concerns that the third stage premium would inevitably be “quite high”, but he countered this with the thought that relatively few cases go to trial. ...”

On the face of it the Temple first stage premium is high given the level of exposure and risk at that stage. Curiously it rises by only £450 at stage 2, when both the exposure and the risk increase significantly. It may well be that there is some inter-relationship between the level of the three stages of premium, but I have no information about it. I accordingly have no alternative but to find the first stage premium claimed in this case disproportionate and unreasonable.

The available comparables are: the Allianz Cornhill policy which would have insured the whole action to the end at a lower premium than the Temple stage 1 premium; and the DAS 80e policy, discussed in Rogers, in respect of which the stage 1 premium was £450. The justification for a staged premium policy is that it starts low and then increases significantly. The Temple policy starts at what appears to be an unjustifiably high level and rises from there.

Doing the best I can, having regard to those comparables and assisted by Mr Williams’ worked examples, but applying a broad brush, I allow a figure of £450 plus 5% IPT, total £472.50. I wish to make it clear that this decision should not be taken as any indication that the Temple policy is in any way flawed or over priced. The decision is based entirely on the information put before me, which was extremely limited. The decision is dependent entirely on the facts of this particular case.