Wigg & Co - The battle between the liability insurers and the ATE
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The battle between the liability insurers and the ATE insurance providers through five test cases concerning a policy underwritten by Royal and Sun Alliance (RSA) providing a bespoke After The Event (ATE) insurance policy known as "Pursuit" to Claimants. A policy aimed at Claimants whose claims render them unsuitable for "mass market" or "delegated" ATE policies. RSA Pursuit test cases before Senior Costs Judge Hurst, Judgement dated 27th May 2005.
(i) Is the contract of insurance void for uncertainty because at the time the contract is made the amount of the premium is insufficiently certain and is the contract accordingly unenforceable by RSA against the Claimant, and if so, what is the consequence?
(ii) Is the insurance arrangement between the client, the insurer and/or the solicitors unlawful in the grounds of Champerty and if so, what is the consequence?
(iii) Is the method of calculation of the premium inherently flawed, and if so, what is the consequence?
(iv) What commissions if any are payable to the Claimant's legal representatives and/or any other agents of the insurers and if there are any when and in what circumstances are they payable?
(v) Should the amount of the recoverable premium be reduced on the grounds that an insurance policy ought reasonably have been taken out at an earlier stage in the proceedings?
(vi) Has the Claimant acted reasonably in taking out the RAC Pursuit policy and if not what are the consequences?
(vii) What, if anything is the recoverable amount of the premium against the Defendant pursuant to Section 29 of The Access to Justice Act 1999.
(viii) Does the Claimant's claim for the RSA Pursuit premium breach the Indemnity Principle because the Claimant's purported liability to pay the premium is not a genuine liability, but purely a device to enable recovery oof the premium between the parties?
(ix) Assuming the method of calculation is not inherently flawed, (issue iii), what is the relevance, if any, to the calculation of the RSA Pursuit premium of any pre-existing Legal Expenses insurance cover incepted and/or in existence prior to the Claimant's agreement to enter into the Pursuit Policy?
The issues fell into two categories, the first relating to enforceability and the second to reasonableness.
It was common ground that the Court when considering whether to award an insurance premium by way of costs has to consider whether the premium is reasonable. It was also common ground that in so far as the Court finds that the premium is not reasonable, it can and should reduce it.
The answers to the issues were as follows:-
(i) The contract of insurance is not void for uncertainty
(ii) The insurance arrangement between the client and/or the solicitors and the insurer is not unlawful on the grounds of Champerty.
(iii) The premium rating methodology is inherently and seriously fundamentally flawed, in that it assumed a constant relationship between costs at risk and own costs and depends too heavily on relative sizes of the estimate of own costs and Defendant costs, which are very likely to be inaccurate. The estimates for success, adopted by First Assist may be too low in that they do not accurately reflect the likelihood of the insurers actually having to pay out and the final premium is calculated by reference to the Claimant's costs as claimed however unreasonable or disproportionate they may be. In consequence, the recoverable premium in each test case, will be such sum as is reasonable and proportionate to expect the Paying Party to pay having regard to all the circumstances of each case, and the factor set out in CPR 44.5.
(iv) The issue of commissions was not pursued.
(v) The individual Claimants acted reasonably in taking out insurance when they did.
(vi) Each Claimant, except Baker acted reasonably in taking out the RSA Pursuit policy.
(vii) Amounts are set out as representing reasonable and proportionate amounts in respect of ATE premiums, recoverable from the Defendants.
(viii) There is no breach of the Indemnity Principle.
(ix) The issue for pre-existing Legal Expenses Insurance was not pursued.
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