In the joint appeals of West v Stockport NHS Foundation Trust and Demouilpied v Stockport NHS Foundation Trust, the Court of Appeal has provided some general guidance on the proportionality test introduced in April 2013, as well as dealing with quantum of clinical negligence ATE policy premiums taken out after April 2013.
The Jackson reforms in 2013 led to the removal of the recoverability of ATE premiums in the majority of personal injury cases. However, in clinical negligence cases, limited recovery of the part of the premium that related to the cost of expert evidence on liability or causation remained.
These cases follow on from McMenemy and Reynolds  EWCA Civ 1941 (see our newsflash here) where the principle issue was the timing of taking out clinical negligence ATE policies. It was held that such an ATE policy can be taken out at an early stage. In West and Demouilpied both claimants had succeeded in their clinical negligence claims but their ATE policy premiums (ARAG premiums of £5,088) were both reduced initially after the application of the reasonableness test only in West and also the new proportionality test in Demouilpied. After the successful joint appeal they have both succeeded in securing the full ATE policy premiums.
The background of the cases
Both cases were clinical negligence claims against the NHS Trust and they had been settled before any proceedings were issued. The claim for Demouilpied settled at £4,500 with a bill of costs served for the amount of £18,376. The claim for West settled at £10,000 with a bill of costs at £31,714. It was initially held that the premiums claimed at £5,088 each would be reduced to £2,500 and £650. Both of the claimants had taken out block-rated ATE insurance with ARAG. Block-rated policies cover a wide ‘basket’ of cases and are not calculated by reference to the risk of the particular case being insured.
The basis of the decision in West was that the premium was unreasonable. The case was not complex and the recoverability of the ATE premium was initially limited to the costs of medical reports only. The basis of the decision in Demouilpied was that the ATE policy was reasonable in amount but after the proportionality test was applied it had to be reduced. It was held that the policy was disproportionate in light of the compensation targeted and the limited amount of risk involved.
The County Court appeal decision
Both first appeals were dismissed. It was held that the judges had taken the correct approach when assessing the ATE premiums when applying the principles of reasonableness and proportionality. The decisions were both made within the judges’ discretion.
It was held in West that although the previous judge was not entitled to make an instinctive view that the premium was unreasonable, the reduction was also based on evidence of other cheaper premiums provided by LAMP. Despite the acknowledgment that this evidence was fairly vague, the reduction was upheld.
It was held in Demouilpied that the ATE premium was reasonably and necessarily incurred but it was then reduced due to the proportionality test. It was upheld that the proportionality of the ATE premium had been correctly considered in isolation.
The assessor's report
An assessor’s report was ordered by the Court of Appeal to assist with the determination of the appeals. Kerr J and Master Leonard recorded their conclusions after a five day hearing covering the origin and characteristics of the policies, the approach to setting the premiums, market considerations and any relevant factual matters.
- The assessor’s report covered a number of issues:
- The ARAG scheme contractually compelled the solicitors to always recommend its policy.
- The cost of the ARAG premium was fairly ‘typical’ across the market.
- It was noted that LAMP policies are so-often used as cheaper comparators when challenging ATE premiums that they are described as a ‘pregnant albatross’.
- Usually the LAMP policies adduced as evidence of cheaper comparators would not in fact have been available in specific cases.
- The burden of proof and defendants’ approach of not adducing specific expert evidence but relying upon comparators on a broad-brush basis was highlighted.
The Court of Appeal decision
The claimants both succeeded in their appeals and the ATE policy premiums were both awarded as claimed at £5,088.
It was held that the district judges had erred in their approach to the assessment of the ATE premiums when applying the principles of reasonableness and proportionality. It was wrong to base an assessment on an instinctive or subjective reaction without reference to comparable premiums. Such an approach would lead to inconsistent, unexplained results with a direct impact on the claimant’s access to justice. The emphasis being that the exception for clinical negligence ATE premiums was meant to protect the right to recover the premium.
In West there was no evidence to suggest the ATE policy premium was unreasonable. The other LAMP policies that were referred to as evidence of cheaper alternatives could not be fully comparable as it was not clear if they were even block-rated premiums and in any event they were contractually unavailable due to the arrangement the claimant’s solicitor had with ARAG. The District Judge undertook his own calculation based on his own figures which was wrong in principle.
In Demouilpied it was held that there should have been no reduction on proportionality grounds as the premium was reasonable and was an unavoidable cost of the litigation.
Guidance and principles
In four key areas, guidance and principles that should be followed in future cases were set-out as follows:
- Reasonableness of ATE premiums
- Disputes about the reasonableness and recoverability of the ATE insurance premiums are not to be decided on the usual case-by-case basis. Questions of reasonableness are settled at a macro level by reference to the general run of cases and the macro-economics of the ATE insurance market, and not by reference to the facts in any specific case
- District judges and cost 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.
- It is for the paying party to raise a substantive issue as to the reasonableness of the premium which will generally only be capable of being resolved by way of expert evidence
- How to challenge ATE policies
For bespoke policies the grounds will be wide as they could be challenged on risk assessment. However, challenging block-rates policies will be difficult as noted below:
- Block-rated policy challenges will be more restricted as the challenge will relate back to the market and expert evidence would be required
- There may not have been another block-rated policy available due to the contract terms between insurers and solicitors
- A comparison between value of the claim and amount of premium is not a reliable measure of reasonableness as block-rated policies take into account a wide range of cases
- The judge should only require the claimant to address evidence if there is a genuine point of substance, usually with expert evidence from the paying party
- Proportionality – macro or micro?
Significantly, it has been held that proportionality would be considered by reference to specific matters in 44.3(5) and also wider circumstances (‘all the circumstances’) if applicable as stipulated in CPR 44.4(1). This means that the new proportionality test is not just confined to the individual circumstances of the proceedings in which the assessment takes place.
Where a block-rated ATE policy is assessed as reasonable the premium cannot then be reduced as disproportionate as it would be inappropriate for the following reasons:
- The amount of reasonable premium has no relationship to the value of the claim or the amount it was settled for.
- ATE insurance is critical to access to justice in clinical negligence claims.
- Approach to costs assessment
It was stressed that whilst there was no wish to restrict judges, there was the need for a consistent approach to costs assessment. The following guidance was provided:
- The judge shall carry out a line-by-line assessment, assessing reasonableness of each item and may address proportionality at the same time where appropriate. Reasonableness and proportionality are conceptually distinct, but there can be overlap; reasonableness may be a necessary condition of proportionalityConclusion of the line-by-line assessment will lead to a total reasonable figure which will have included assessment of court fees and insurance premiums
- Proportionality of the total figure must be assessed with reference to CPR 44.3(5) and CPR 44.4(1). Only if that figure is disproportionate will a further assessment be needed. This should be an assessment of various categories of costs (not line-by-line) such as disclosure, specific periods where particular costs were incurred
- Further reductions for proportionality should exclude ‘unavoidable’ elements of costs such as ATE premium in clinical negligence cases or court fees
What this means for you
For clinical negligence premiums, it is now established that:
- They can be taken out at an early stage; and
- To challenge the amount, specific expert evidence must be adduced (beyond examples of cheaper policies)
It was stressed that this was no endorsement of the ‘extreme’ submission from the claimants that whatever is charged must be allowed and that future challenges to the amount of block-rated policies should be grouped together in test cases. As far as any after assessment proportionality reduction is concerned, such premiums are an unavoidable cost and are therefore ring-fenced from any further reduction.
As for the wider guidance on proportionality, there are three key impacts on future cases:
- Proportionality does not ‘trump all’. By permitting a wide-scoping consideration of proportionality by taking into account ‘all circumstances’ it restricts the impact that proportionality can have in a specific case.
- The concept of ‘unavoidable costs’ has been introduced. These include court fees and insurance premiums and are ring-fenced from any assessment secondary proportionality reduction.
- The customary post assessment proportionality re-consideration has been reined in and should be specifically aimed only at ‘categories’ of costs. Presumably this is aimed at phases that apply in budgeted cases but it is not entirely clear how this would be carried out.
It is rather ironic that the ‘pregnant albatross’ approach of adducing comparator premiums has been criticised. This very practice was adopted in response to criticism that the quantum of such premiums were being challenged without such evidence. McMenemy and West uphold the position at common-law that applied to insurance premiums before April 2013 to clinical negligence insurance premiums taken out after April 2013. It remains to be seen what impact such a position might have on the continued recovery of such premiums, as the last time such difficulty in challenging insurance premiums was established at common-law their abolition followed not so long after.
Alex Buchanan, Head of Legal at the National Pharmacy Association Insurance Ltd commented “This decision fails to consider low value dispensing error claims, where breach of duty is rarely an issue and medical evidence rarely has to be obtained, as economic settlements can be reached. If the decision is allowed to stand, there is the risk that claims settlements will become delayed over issues of causation and may ultimately have an impact on the professional indemnity insurance premiums paid by pharmacies, in a market where margins are already being stretched.”
It is disappointing that proportionality has been restricted and surprising that the concept of ‘unavoidable costs’ has been introduced. Time will tell (through further satellite litigation) what else will be included as an ‘unavoidable’ cost and how the proportionality ‘category’ reduction might work in practice. It is our understanding that an application for permission to appeal to the Supreme Court has been made.
Written by Adam Burrell, partner and head of costs and Marie Ingoe, professional support lawyer.