Morris v Papapetrou

This is my judgment in two cases, Morris v Papapetrou and Koca v Lobb. In each case the claimants have been represented by Mr James of counsel and the defendants have been represented by Mr Simpson of counsel. Each counsel has prepared a helpful skeleton argument and each has spoken at length on the issues involved.

The issues concern payment of insurance premiums. The premium costs are comparatively small, £375 plus 5% insurance premium tax, and it is plain that there is more at stake here than the actual results of these two cases. These two cases may perhaps be taken on appeal as test cases.

Morris v Papapetrou case concerned a passenger injured whilst travelling in a friend’s car. The car collided with a car driven by the defendant, which car did not stop. That claim began as a claim to the MIB as an untraced drivers case, but the driver was later traced and, being insured, the defence case was conducted by the insurers.

Koca v Lobb was a rear end shunt case. The claimant was travelling in the car which was not responsible for the rear end shunt.

Both cases seemed straightforward on their facts and in both cases, once the insurers were acting for the defendants, liability was admitted. In Koca’s case the admission was expressed to be based on limited investigation only and on the assumption that it was a fast-track case only.

In both cases the solicitors (the same firm of solicitors in each case) did not sign up the claimant to a CFA with insurance at the outset but did so later, after the admission of liability had been made.

The challenge is whether this Court should allow the claimants the cost of the insurance premiums they have paid.

There are several cases on this point already. The earliest in time was Master Hurst’s decision in the Claims Direct case. He was looking at the matter in general terms only. He thought that, as a matter of principle, if liability is admitted before the client sees the solicitor it may well be unreasonable and disproportionate for that solicitor to recommend taking out after the event insurance.

Master Hurst’s decision was followed in Dhanoia v Mehmi which was heard by Deputy District Judge Batstone sitting in Bristol County Court in October 2008. The Deputy District Judge’s decision simply recites Master Hurst’s case and then applies it without further debate.

Master Hurst’s decision has been challenged in two ways. First of all, it is now accepted that it is wrong to talk about the costs of insurance being disproportionate if that expense is a necessary expense. A recent Court of Appeal case, Rogers v Merthyr Tydfil, shows that it is hard to attack insurance on the basis of being disproportionate because, on the current definition of proportionality, everything which is necessary is deemed to be proportionate.

In the second challenge to Master Hurst’s decision it is said that he was speaking in principle only. Of course, once you descend to the particulars of a case, things may change. In Avril v Boultby Judge Inglis said if Master Hurst had had to look at the circumstances of the particular case it may be that he would have found that insurance was reasonable in that case.

In Avril v Boultby it was held that, even though liability had been admitted before the insurance was incepted, nevertheless there were still insurance benefits available to the claimant which were real and not fanciful or illusory, and so the premium was allowed in that case.

Avril v Boultby was followed by Burgess v J Brehini Contracts Limited which is a recent decision of Master Haworth, sitting in the Costs Office. Master Haworth’s case was simpler because causation in that case was still in doubt. The admission of liability was not an admission of causation and therefore causation was a real issue in that case.

The last case I must mention is Costello v Green, a decision of a District Judge Baker sitting in Liverpool in April 2009. In that case the District Judge had the benefit of full and proper argument on these issues and he took the view that the burden was on the claimant to show that the insurance was reasonable. He thought there was no evidence that the claimant’s purchase of insurance was reasonable and therefore he disallowed the premium.

On the basis of these principles the matter was argued before me in relation to two key issues:

On the first point (are there real as opposed to only illusory benefits in this insurance) the claimant relies on five examples of benefits:

Mr Simpson for the defendants went through each of those examples and submitted that, properly understood, all of them are illusory. Admissions which were made in fast-track cases cannot be withdrawn without a court order and such an order is unlikely to be made. Most of the other benefits are based on the assumption that the claimant is insuring himself against the bad conduct of himself or those advising him and it is said a reasonable person would not want insurance for those things. He would not expect to be suffering adverse orders for costs, would not expect to be rejecting a good Part 36 offer and would not expect to be recovering only part of his costs.

I find against Mr Simpson on those points. I think that the first four benefits listed are real benefits. They are all prospective and they are all quite slight. How slight they are would obviously have a bearing on what the premium would be in any effective market for ATE premiums. The premium in this case is not much different from the premiums upheld in the Court of Appeal cases Callery v Gray (£367.50) and these cases are not any less risky or any safer than those cases. I hesitate though to say that insurance against failing to recover the insurance premium itself is always a real benefit. The reason is that insurance against failure to recover the premium in full is always going to be circular. How much of the premium is attributable to that part which insures against not recovering an unreasonable sum? Presumably the more unreasonable a premium is, the more expensive the insurance would be. I think the law would pull itself away from allowing any premium for agreeing to pay too much. But in the nature of things that benefit (protection against paying too much in a smaller number of cases) is such a trivial benefit it will not add significantly to the premium cost. The premium, whatever is a fair premium, can be calculated by reference to the other more substantial points.

The second issue is whether the claimant in these cases was unreasonable in taking out insurance only once the case seemed to be settled. Without doubt, taking out insurance only once the case was won would be unreasonable, but that is not what happened here. Taking out insurance solely in order to receive commissions would not be reasonable as that would be corruptly increasing costs. But Mr Simpson for the defendants submitted that, in all low- value cases where an admission is made, the claimant ought to treat that admission with respect and should investigate it before rushing to increase the costs. If an admission is made before any court fees have been paid, one should not incur those fees. Because one ought to negotiate, why rush to take out insurance? The answer offered by Mr James for the claimants is to deny that it is unreasonable. Callery v Gray decided that in low-value cases it is appropriate to take out insurance at the outset without conducting any substantial investigation of the facts of the claim. Why should there be a greater investigation of facts once an admission is made?

In the Morris case there is an additional reason why the insurance was not taken out immediately: that case began as an MIB untraced drivers case and, in such cases, neither the success fee nor the insurance premium is recoverable and that is why the solicitor’s normal paperwork would be delayed in that case.

The defence case is that the making of an admission does change the position. If the client is taking the uninsured risk of litigation up to that point then, from that point, on this case seems easier and not more difficult. That is an attractive argument which was very well expressed but in the end it did not persuade me. I do not think that an admission of liability does change the position. There are many reasons why solicitors might delay the completion of their standard paperwork and most of those reasons will be advantageous to the insurer because sometimes it will avoid the cost of any insurance at all. If I thought this insurance was taken out spitefully or deliberately and unnecessarily simply to increase costs, then of course that motive would make it unreasonable, but there is no suggestion of that motive here.

I think it would be an unnecessary complication in a great many cases if the Court had to see whether an admission had been made before the insurance was bought and then consider why the insurance was bought nevertheless. I think the simpler rule is the rule already expressed in Callery v Gray which is that insurance can be taken out at an early stage. I say that because the earlier it is taken out the cheaper it is likely to be. (In this particular case I am told it would not have been any cheaper even if taken out earlier.) Also, there are real risks here and a claimant is entitled to insure himself against them as long as his motive is insurance and not wasting money.

The claimants had a secondary argument. They said on the facts of these particular cases the purchase of insurance after an admission was made was justified in any case. That is because, in the Morris case the claim had got up close to the limitation period and, in the Koca case it is said that insurance was only taken out after a warning had been given to the defendant, “Settle this case or we will issue proceedings within two weeks.” I am bound to say if I had found against the claimants on the general principle, these additional facts would not have made me change my mind. It seems to me that the long delay which brought the case up to the limitation period in Morris would not be justification for insurance if insurance was not otherwise justified. I think the solicitors or their client (it is immaterial which) were unusually slow in the Morris case. In the Koca case it seemed to me the solicitors (or perhaps their client) were unduly hasty by only giving the insurers two weeks’ notice. Whether that is the solicitors being too aggressive or because the client is being is too aggressive is immaterial to say but in neither case would those circumstances render reasonable what I might otherwise have said was an unreasonable premium. But, as it happens, I find that as a matter of general principle these insured premiums are reasonable and that is why I would allow them.

There are three other points I want to make. One I should have made earlier and that was in answer to Mr Simpson’s complaints that a lot of the risks are risks against the claimant’s own bad conduct. I think that argument has been held unsuccessful in several Court of Appeal cases. The purpose of insurance is to give the insured peace of mind. Insurance protects someone who honestly believed another driver damaged him but it turns out he was wrong, the accident was caused by somebody else altogether. One can insure against the risk of making major mistakes about the basic facts. One can simply insure against the risk of there being mistakes in the course of the litigation. The only risk which ought not to be covered is the risk of incurring over-expensive insurance.

The other two points I wanted to make, one concerns Mr Simpson’s argument about Jackson LJ’s final report saying that that shows more clearly than the Court of Appeal could see in earlier cases what the insurance position is. He submits that, without having to rely on the recommendations of that report, I can take into account those extra facts in coming to my decision. Of course there is nothing to suggest that those extra facts were available to the solicitors at the time they first met these clients or at the time they first bought this insurance.

I am bound to say, even if that had been available, I would still have found against applying Jackson as that would amount to implementing recommendations that had not been implemented authoritatively.

The other point I wanted to make concerned the judgment of District Judge Baker who said the burden of proof is on the claimant to show that the premium was reasonable and it was the lack of evidence in that case which brought about the claimant’s loss.

I do not know the exact circumstances of District Judge Baker’s case. I take the view that when I look at the facts of this case I am entitled to take into account the ordinary circumstances and the way general principles should ordinarily be applied in low value cases. I would suggest that spending any significant time on fact investigation would be disproportionate as a way of deciding these issues.

For those reasons I think the insurance premiums claimed by the claimants in these two cases ought to be allowed.