Recovery of premium by way of costs

The massive changes to the funding of civil litigation introduced by the Access to Justice Act 1999 have been the subject of numerous important decisions throughout the judicial hierarchy. The most important changes have been the introduction of conditional fee agreements for lawyers, and the development of ‘after the event’ insurance by which a claimant can insure himself against the risks of losing his action and being faced with having to pay both his own costs and those of the defendant. To that end, s29 of the 1999 Act provides that if a claimant does take out ATE insurance, and is successful in his action, any costs order in his favour against the defendant may include the insurance premium. In Callery v Gray (No 2) [2001] Lloyd’s Rep IR 765 the House of Lords held that the test for recoverability of the insurance premium by way of costs was whether the claimant had acted reasonably in taking out the premium and whether the amount of the premium was reasonable and proportionate. Section 11, para 10 of the CPR Costs Direction states that in deciding whether a premium is reasonable, it is necessary to have regard to: the level and extent of the cover provided; the availability of any pre-existing insurance cover; whether any part of the premium is to be rebated in the event of early settlement; and the amount of commission payable to the claimant and his legal representatives or other agents. Callery was concerned with assessing the reasonableness of mass market policies issued to claimants whose prospects of success were 50% or more and in respect of which there was no individual premium rating. The policies under consideration by Senior Costs Judge, Master Hurst in RSA Pursuit Test Cases , 27 May 2005 (unreported) were rather more specialised, and were aimed at claimants who were, for whatever reason, unable to obtain standard cover. In RSA Master Hurst laid down guidelines for the recoverability of individually calculated insurance premiums by way of costs under s29.