Callery v. Gray
Case No. DMC/PI/02/01
Callery v. Gray and Russell v. Pal Pak Corrugated Ltd
PERSONAL INJURY CLAIMS IN ROAD TRAFFIC ACCIDENT CASES: CONDITIONAL FEE
AGREEMENTS: SUCCESS FEES: AFTER THE EVENT INSURANCE: SETTLEMENT PRIOR TO ISSUE
OF PROCEEDINGS: RECOVERABILITY FROM DEFENDANT: LEGALITY OF TWO-STAGE SUCCESS
Where straightforward personal injury claims, such as those arising from road traffic accidents, either succeed or are settled on terms that the defendant will pay the claimant’s costs, the claimant can recover from the defendant a reasonable success fee and a reasonable premium cost for After-the-Event (ATE) insurance, even if the case was settled before the issue of proceedings. The maximum success fee recoverable in such cases would be 20%.
1 can the premium for an ATE insurance be recovered in costs-only
The court found unattractive the argument that the only way in which ATE
premiums can be recovered is by first commencing proceedings claiming
substantive relief, because it would discourage those who had taken out the
insurance from settling claims before substantive proceedings had been
commenced. Instead, the court favoured the following approach:
Therefore the Circuit Judge had been correct in including the ATE premium in his costs award.
The next issue was whether the uplift and the ATE premium, agreed at the
outset of the case, were recoverable from the defendant. In deciding this point,
the court set out the following considerations:
On this basis, the court concluded that, where, at the outset, a reasonable uplift is agreed and ATE insurance at a reasonable premium is taken out, the costs of each are recoverable from the defendant in the event that the claim succeeds, or is settled on terms that the defendant pay the claimant’s costs.
Issue 3.1 – The Success Fee
In determining whether the success fee (uplift) was reasonable, the court specifically limited its guidance to the context of the type of claims before it – modest and straightforward claims for compensation for personal injuries resulting from traffic accidents. The court thought it reasonable to proceed on the basis that at least 90% of such claims will settle without the need for proceedings, or will succeed after proceedings have been commenced. The court concluded that, where a CFA is agreed at the outset in such cases, the maximum uplift that can be reasonably agreed is 20%. This conclusion assume that there is no special feature in the case, which raises apprehension that the claim may not prove to be sound. It was also based on very limited data and the court recognised the need to review its conclusion once sufficient data were available to make a fully informed assessment of the position.
The court drew attention under this heading to the possibility of using a ‘two-stage’ success fee. The court said that a success fee can be agreed which assumes that the case will not settle, at least until the end of the three-month protocol period, if at all, but which is subject to a rebate if it does in fact settle before the end of that period.
Issue 3.2 – the ATE Insurance Premium
The principal issue raised by the appeal was ‘whether the costs of failure to recover one’s own costs can be recovered under section 29 of the Access to Justice Act, 1999.’ The issue arose because the insurance policy bought by Mr.Callery included, in addition to cover for ‘Opponent’s Costs’, cover for the ‘Insured’s Disbursements’, including the policy premium itself. The court concluded that the words ‘ insurance against the risk of incurring a costs liability’ in section 29 of the Act should be interpreted as meaning ‘insurance against the risk of incurring a costs liability that cannot be passed on to the opposing party’. On this interpretation, insurance against own costs fell, in principle, within the section. The court added: ‘The circumstances in which and the terms on which own costs insurance will be reasonable, so that the whole premium can be recovered as costs, will have to be determined by the courts, when dealing with individual cases… ’ In the case of Mr. Callery, the court could see no objection to this cover ‘forming part of that afforded to him by his legal costs insurance’ and [considered] that the whole of the cover fell within the terms of section 29.
In determining the reasonableness of any premium, the court had also to look at the use made of the premium by the insurer. The court ‘will be concerned with the question whether the premium is a reasonable price to pay for the benefits that it purchases. Ultimately, this should be a question to be considered having regard to experience, or evidence, of the market…. Unfortunately Master O’Hare concluded that the market in ATE insurance was not yet sufficiently developed to enable him to identify standard or average rates of premium for different categories of ATE insurance…It is highly desirable in the interests of justice, that an effective and transparent market should develop in ATE insurance…..In the meantime, where an insurance premium is challenged, it must be open to the insurer… to place evidence before the court in an attempt to demonstrate that the premium is reasonable having regard to the costs that have to be covered….. The judge can only give broad consideration to such evidence, for it is not part of the function of a judge assessing costs to carry out an audit of an insurer’s business.’
The court, following Master O’Hare’s report, identified four elements within the costs and expenses of the insurer:
a) the burning cost or the cost of meeting claims under the policies issued. ATE insurers set out to cover this cost on two different bases – an individual assessment of premium for each risk (as happened in the case of Mr.Callery) or ‘block rating’ being a uniform premium charged for any claim with more than a 50% prospect of success;;
b) risk/profit cost, including the cost of reinsurance;
c) administrative costs;
d) distribution commission, including advertising costs.
The court held that, provided the amounts payable under items b), c), and d) were reasonable, the premium could reflect all four items.
The court further found that the premium of £350 paid by Mr.Callery in this case ‘does not strike us as manifestly unreasonable. We do not find it possible to be more precise than this…. The premium was one tailored to the risk and the cover was suitable for Mr.Callery’s needs. The policy terms also had the attractive feature that they gave his solicitors control over the conduct of the proceedings on his behalf, without any involvement by a claims manager until a settlement offer was made. We have concluded that the court below was right to find that the premium was reasonable’
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