CLINICAL NEGLIGENCE AND INSURANCE COSTS: POLICY OF £10,000 WAS BOTH REASONABLE AND PROPORTIONAL: HIGH COURT DECISION
In Mitchell v Gilling-Smith  EWHC B18 (Costs) Master Leonard held that a £10,000 premium incurred in a clinical negligence case was reasonable and proportional. It also highlights the importance of a paying party bringing actual evidence to court if they wish to dispute the reasonableness and proportionality of a premium.
“I do not accept the assertion in the Points of Dispute that “the risks being insured against are…controlled entirely by the solicitor (for it is the solicitor who decides if or when to instruct an expert to prepare a report)”. Any requirement for independent medical evidence is dictated by the needs of the case, not by the whim of the conducting solicitor. It is not suggested, nor could it realistically be suggested, that it was not necessary to obtain independent medical evidence in this case.”
The claimant brought an action claiming negligent treatment of an ovarian endometrioma. A consultant was instructed and a fomral letter of claim sent. The action was eventually settled for £200,000. A CFA was entered into in July 2014 and, at the same time, the claimant took out an ATE insurance policy. This was “split” with a “recoverable” premium of £10,000 and £3,500 for other disbursements and opponents’ legal costs.
THE RECOVERABLE COSTS ELEMENT
The Master set out the basis upon which the premium was recoverable.
“The Claimant seeks recovery under an exception provided for under section 58C of the Courts and Legal Services Act 1990 and Regulation 3 of the Recovery of Costs Insurance Premiums in Clinical Negligence Proceedings (No 2) Regulations 2013 (“the 2013 Regulations”).
3. The material provisions of section 58C are:
“Recovery of insurance premiums by way of costs
(1) A costs order made in favour of a party to proceedings who has taken out a costs insurance policy may not include provision requiring the payment of an amount in respect of all or part of the premium of the policy, unless such provision is permitted by regulations under subsection (2).
(2) The Lord Chancellor may by regulations provide that a costs order may include provision requiring the payment of such an amount where—
(a) the order is made in favour of a party to clinical negligence proceedings of a prescribed description,
(b) the party has taken out a costs insurance policy insuring against the risk of incurring a liability to pay for one or more expert reports in respect of clinical negligence in connection with the proceedings (or against that risk and other risks),
(c) the policy is of a prescribed description,
(d) the policy states how much of the premium relates to the liability to pay for an expert report or reports in respect of clinical negligence (“the relevant part of the premium”), and
(e) the amount is to be paid in respect of the relevant part of the premium…”
4. Regulation 3 of the 2013 Regulations says:
Costs order may require payment of an amount of the relevant part of the premium
(1) A costs order made in favour of a party to clinical negligence proceedings who has taken out a costs insurance policy may include provision requiring the payment of an amount in respect of all or part of the premium of that policy if—
(a) the financial value of the claim for damages in respect of clinical negligence is more than £1,000; and
(b) the costs insurance policy insures against the risk of incurring a liability to pay for an expert report or reports relating to liability or causation in respect of clinical negligence (or against that risk and other risks).
(2) The amount of the premium that may be required to be paid under the costs order shall not exceed that part of the premium which relates to the risk of incurring liability to pay for an expert report or reports relating to liability or causation in respect of clinical negligence in connection with the proceedings.”
5. It is not in issue, in this particular case, that the ATE premium incurred by the Claimant falls within the statutory provisions for recoverability. The Defendant takes issue with the premium that the Claimant seeks to recover, arguing that it is disproportionate, unreasonably incurred and unreasonable in amount.”
THE CHALLENGE UPON ASSESSMENT
34. In the Points of Dispute, the Defendant argues that the Claimant’s bill of costs includes only one fee for Professor Cheong for reporting on liability, totalling £1,750. Other reports, says the Defendant, were limited to comment upon condition and prognosis, and any further reports relating to breach of duty or causation were at the least highly unlikely.
35. The figure of £1,750 may not be correct; the bill seems to show Professor Cheong’s fee for his initial report at £2,000 (his fee for the condition and prognosis report is £1,650).
36. In any event the Defendant argues that there is, at the least, “very real doubt” that the ATE premium was reasonably incurred and challenges Irwin Mitchell to explain the advice given to the Claimant (who would have to pay a further substantial sum for the irrecoverable ATE premium). Irwin Mitchell is also challenged to state whether there was any financial benefit to the firm from selling or recommending the policy. In the absence of such evidence, the Defendant asks me to assume that the ATE insurance was purchased either as a matter of internal, routine procedure or simply because it was believed that most of the cost could be passed on to the Defendant.
37. I should perhaps say now that I regard the “financial benefit” challenge as beside the point and that it would be quite wrong for me to make any such assumption.
38. The Defendant relies upon Sarwar v Alam  EWCA Civ 1401 in arguing that the court must consider whether an ATE premium is reasonable and proportionate in the context of the individual circumstances of the case. The Defendant argues that the post-March 2013 statutory regime is intended to permit recovery for cases where expert reports relating to breach or causation are necessary to determine whether there was a case to bring, and that this is not one of those cases.
39. Further, says the Defendant, the risks being insured against are narrower than was the case under the pre-April 2013 costs regime and they are controlled entirely by the conducting solicitor, who decides whether and when to instruct an expert to prepare a report. The effect of Qualified One Way Costs Shifting means that there is no longer any need to ensure against adverse cost at the outset, nor is there any perceived benefit (as identified in Callery v Gray (No. 1)  EWCA Civ 1246) in premiums being purchased prematurely.
40. The Defendant also argues that the cost of the ATE premium is disproportionate. Given the low cost of expert reports relating to breach and causation and that any perceived risk was (says the Defendant) controlled entirely by the solicitor, and open to re-evaluation at a later point, it was not proportionate to purchase an ATE premium at all. In the circumstances the premium should be disallowed in its entirety. In a case with modest damages, says the Defendant, it was plainly disproportionate for the Claimant to incur a liability of £10,000 plus IPT to protect against the risk of not recovering a much smaller sum.
THE MASTER’S REJECTION OF THE DEFENDANT’S ARGUMENTS
The Master considered the defendant’s arguments that the policy was not proportional and costs should never have been incurred. The defendant’s arguments were not accepted.
We currently await guidance from the Court of Appeal on the application of the post-March 2013 proportionality test to additional liabilities. I do not in the meantime consider it necessary for the purposes of this judgment to follow in the footsteps of Masters Gordon-Saker, Rowley, Haworth and Brown in setting out a considered view of my own. I say that because it seems to me that, even if Mr Dunne is entirely correct and the insurance premium incurred by the Claimant can be considered in isolation in the way contended for it cannot be said to be disproportionate.
The post-March 2013 proportionality test is set out at CPR 44.3(5):
“Costs incurred are proportionate if they bear a reasonable relationship to –
(a) the sums in issue in the proceedings;
(b) the value of any non-monetary relief in issue in the proceedings;
(c) the complexity of the litigation;
(d) any additional work generated by the conduct of the paying party; and
(e) any wider factors involved in the proceedings, such as reputation or public importance”.
In applying that test, I am required by CPR 44.4 to have regard to all the circumstances, which would for example include what is available on the ATE market.
Notably, CPR 44.3(5) provides that costs are (my emphasis) proportionate if they bear a reasonable relationship to the specified factors. It seems to me that the wording of the rule leaves no room for the Defendant’s attempt to measure the proportionality of the Claimant’s ATE premium by reference to the amount ultimately paid for the expert evidence covered by it. That is not the test.
There are other objections to the Defendant’s approach, perhaps the most obvious being the application of hindsight, but given that I must apply CPR 44.3(5) it does not seem to me to be necessary to go further into the merits of a proposed proportionality test which is not consistent with it.
Applying the correct test, my conclusion is that even assuming that it stands to be considered in isolation, an ATE premium of £10,000 could not be characterised as disproportionate in the context of a Clinical Negligence claim that settled, in the circumstances I described above, for £200,000.
Conclusions: Whether the Premium was Reasonably Incurred
I do not accept the assertion in the Points of Dispute that “the risks being insured against are…controlled entirely by the solicitor (for it is the solicitor who decides if or when to instruct an expert to prepare a report)”. Any requirement for independent medical evidence is dictated by the needs of the case, not by the whim of the conducting solicitor. It is not suggested, nor could it realistically be suggested, that it was not necessary to obtain independent medical evidence in this case.
As for the level of risk, that will also be dictated by the facts of the case, not least by the Defendant’s response. At the time this ATE policy was taken out, the response of the Defendant to the claim was an unknown quantity. The argument that the Claimant and her solicitors should have understood that the case would ultimately settle is, again, based on hindsight and in any case is belied by the approach of the Defendant, which relied upon a robust case on causation.
As for the proposition that it was incumbent upon the Claimant’s solicitors to wait until a point at which they had a clear understanding of the level of recoverable ATE cover that was going to be required by the Claimant, I must bear in mind the evidence before me as to the way in which the Claimant’s block-rated policy worked.
The evidence of Ms Lyddon, to which the Defendant neither objects nor offers any evidence in response, confirms that the block-rating arrangement entered into between Irwin Mitchell and the Claimant requires that the ATE insurance policy is taken out when a CFA is signed. If a different, more selective model were to be adopted, cover for some cases would have to be refused and premiums for those that were accepted would be likely to increase. It would also, as she suggests, potentially result in a firm like Irwin Mitchell being unable to secure insurance cover for some clients and leave them open to criticism on the basis that they had denied their clients the opportunity to protect their position by insuring at the earliest stage.
Mr Dunne’s argument, accordingly, falls foul of the fact that the block-rated ATE policy taken out by the Claimant did not allow for the sort of individual approach for which he argues. I have heard no answer to the evidence of Ms Lyddon to the effect that attempting to introduce such an approach would be counter-productive.
The Defendant rather argues that the Claimant does not have any right to rely upon the fact that this was a block-rated policy. That in turn relies upon the argument that established judicial authority since Rogers, approving the practice of block rating, has no application after March 2013. I cannot accept that. Apart from the fact that I have seen no evidence to support the proposition that the underlying logic of block rating has changed in any way since 1 April 2013, the argument seems to me to run directly contrary to the conclusions drawn by Foskett J in Kai Surrey v Barnet And Chase Farm Hospitals NHS Trust  EWHC 1598 (QB) (at paragraph 105):
“… Rogers is very clear authority that the court should be slow to adjust block rate premiums in particular. There are inevitably swings and roundabouts with such premiums and it is not appropriate in my view to be trying to deconstruct the premium.… “
It is also contrary to the conclusions drawn by Langstaff J at paragraphs 41 and 42 of his judgment in Pollard v University Hospitals of North Midlands NHS Trust  1 Costs LR 45, referred to below.
Even if I were to accept that I should approach the Claimant’s ATE policy as if it was (or should have been) individually rated, it seems to me that the Defendant’s arguments would not stand up to analysis.
I say that first because Mr Dunne did not identify any particular point at which the Claimant’s solicitors might have been expected to have sufficient knowledge to know, with acceptable precision, what the prospective cost of expert evidence was likely to be. Nor did Mr Dunne suggest that if the Claimant had waited before taking out the ATE policy, she could have reduced the premium payable. That is not the Defendant’s case. Rather the Points of Dispute say that the policy should not have been taken out at all, without conceding when (if ever) it would have been reasonable to do so.
I do not regard the Defendant’s suggested approach as workable. The proposition that it is incumbent upon a claimant to refrain from taking out ATE insurance until some undefined point at which the level of risk to be insured has become entirely clear, seems to me rather to miss the point of taking out insurance at all.
In any event the policy, self-evidently, is not restricted to recoverable liabilities. It covers all disbursements as well as adverse costs (the risk of having to pay an opponent’s costs in a clinical negligence case has been reduced substantially by the QOCS regime but it still exists).
Mr Waszak has referred me to the judgment of His Honour Judge Pearce in McMenemy v Peterborough & Stamford Hospitals NHS Foundation Trust (Appeal Number 68/2015, Liverpool Civil and Family Justice Centre, 12 February 2016, unreported) in which the learned judge analysed and rejected similar arguments to those upon which the Defendant, in this case, attempts to rely.
HHJ Pearce’s key conclusions, with which I respectfully agree, are pertinent. They are set out at paragraphs 28 to 30:
“…it is wrong to focus on this issue without looking at the broader benefits to the Claimant of taking out the policy early stage, as the Court of Appeal in Callery v Gray considered reasonable. In particular… Any prospective Claimants approaching solicitors to investigate an allegation of clinical negligence is likely to want to be reassured that their exposure to any costs is minimised. Such a concern will be best met by a policy being taken out at an early stage of investigations…
In a case like this, disbursements will be incurred by the claimant’s solicitors and early stage… Policies such as the ARAG policy here will typically cover the claimant against liability for other disbursements. Since regulation 3(2) … Allows recovery only of “that part of the premium” which relates to expert reports on the issues of breach of duty and causation, it is clear that the legislature contemplated combined policies that covered other risks. It is understandable (and reasonable) that the claimant will want to obtain the protection offered in respect of other disbursements at the earliest stage-indeed solicitors might reasonably refuse to act for claimants if they were not reassured that cover was in place in respect disbursements that might not be recovered in the event of the claim being unsuccessful…
It is likely to be the case that, if the institution of the policies delayed until the Defendant’s position on liability is known, the premium will be higher… It seems to me that, as a matter of common sense, the crystallisation of the Defendant’s position that comes from a denial of liability would inevitably lead to higher premiums being charged. The position as identified in paragraph 99 (ix) of the judgment of the Court of Appeal in Callery v Gray is likely to be no less the case here…
it must have been contemplated that there would be cases where no expert’s report was obtained, yet this would not be a bar to recovery of the premium. This is not easily reconciled with a finding that it is unreasonable to take a policy until the expert report was about to be obtained.”
Notably in McMenemy, the defendant argued that it had been premature (and so unreasonable) for a claimant to incur the cost of an ATE policy because she did so before her solicitors had obtained her medical records. In this case I have rather been invited to conclude that it was unreasonable for her to incur the cost of an ATE policy after her solicitors had obtained medical records.
The latter argument is based upon the proposition that, in view of the long period that expired between initial instructions and the taking out of the ATE policy, there must have been no perceived need for such a policy at the outset. As Mr Waszak submits, there is no real basis for that conclusion. The fact that the policy was taken out at the same time as the Claimant entered into her CFA with her solicitors simply indicates that the policy was taken out when the merits of the case appeared sufficiently clear for it to be taken forward, at which point the Claimant entered into a formal CFA with a supporting ATE arrangement. In cases of clinical negligence it may take some time for a solicitor and a client to reach that point.
My conclusion is that it was reasonable for the Claimant to take out the policy in July 2014, as soon as it was clear that the case was going to proceed. The subsequent history of this case (in particular the firm line taken by the Defendant on causation) seems to me to demonstrate that it was prudent to do so.
Conclusions: Whether the Amount of the ATE Premium is Reasonable
The Defendant’s case in this respect rests on four propositions: that a premium of £10,000 to cover expert evidence costing no more than £2,000 is self-evidently unreasonable; that the level of cover, at £100,000, was excessive, so that the premium was excessive; and that it was unreasonable for the Claimant to enter into the block-rated scheme arranged between Irwin Mitchell and Allianz, suitable cover being available from other insurers at a lower cost.
I have already addressed the block-rating issue, but even on the basis that the block-listed policy taken out by the Claimant should be considered as if it were individually rated I do not accept that the arguments advanced by the Defendant raise any real doubt about the reasonableness of the amount of premium paid. I say so for these reasons.
The comparison between the premium paid by the Claimant and the cost of the expert evidence on liability and causation obtained by the Claimant prior to settlement falls foul of the observation I have already made: the Defendant is applying hindsight. There is really nothing to support the proposition that the Claimant’s solicitors must (or at least should) have known that the cost of the expert evidence covered by the recoverable part of her ATE premium would have been in the region of £2,000. On the contrary, if they had made that assumption they would probably have been wrong. If this case had not settled, it seems likely that there would have been a need for significant further expenditure on expert evidence in relation to causation.
As regards the overall level of cover, as Ms Lyddon has pointed out it is not limited to the cost of expert evidence. I have heard nothing to substantiate the suggestion that the policy limit is excessive for the overall cover offered.
Nor have I seen any evidence to justify the conclusion that there is any direct relationship between the level of cover offered by the Claimant’s ATE policy and the level of premium payable. It would clearly be wrong to assume that, particularly where the policy is block-rated: Mr Waszak has referred me to the judgment of Mr Justice Langstaff in Pollard v University Hospitals of North Midlands NHS Trust, in which (at paragraph 50) the learned judge concluded, on the evidence in that particular case, that there was no such relationship between the limit of indemnity and the policy premium.
In Pollard, at paragraphs 41 and 42, Langstaff J also offered some observations on the correct approach to a challenge to an ATE premium:
“41 … in dealing with the assessment of a premium when determining costs, especially where the policy is known to be block rated and is not a bespoke policy, a judge should be very hesitant before concluding that the premium is in error, and should have good reasons for doing so. Those good reasons are likely to include, though I do not suggest they are necessarily limited to, situations in which it is clear that the risk of failure has been overstated and the chance of success understated, those where the insurer has not been given proper information about the level of costs so that they have been overstated, or it may be where there is proper material to show that the product which has been chosen is a particularly and inappropriately expensive product…
42 The selection of the appropriate policy is a matter for the solicitor and it is in that context that Rogers suggests at para 117, as I have cited, that the solicitor concerned should make some note, or be prepared to give some evidence, as to why the particular product was chosen…”
I have such evidence in this case, albeit from the insurer rather than from a solicitor.
I turn to the handful of anonymized policy schedules offered to me by the Defendant as evidence of the existence of cheaper alternatives to the Claimant’s policy.
The Claimant in turn relies upon the judgment of Simon J in Kris Motor Spares Ltd v Fox Williams LLP  EWHC 1008 (QB). Simon J made this observation, at paragraph 44:
“I have concluded that in a case where the issue is raised as to the size of the premium there is an evidential burden on the paying party to advance at least some material in support of the contention that the premium is unreasonable. I have reached this conclusion in the light of the cases which I have cited, and in particular Rogers v Merthyr. Despite the doubts about the operation of the Market, the Court of Appeal was satisfied that it was not in the insurer’s interest to fix a premium at a level which would attract frequent challenges; and that a Master was not in a better position than the underwriter to rate the financial risk that the insurer faced. Where a real issue was raised the court envisaged the hearing of expert evidence as to the reasonableness of the charge. If an issue arises, it must be raised by the paying party. This is not to reverse the burden of proof. If, having heard the evidence and the argument, there is still a doubt about the reasonableness of the charge that doubt must be resolved in favour of the paying party.…”
I have no real evidence to support the proposition that suitable, less expensive alternative policies were available to the Claimant. The redacted policy schedules offered by the Defendant in support of that argument, entirely unsupported by witness evidence, are of very limited if any evidential value. They could at most be taken to demonstrate that some other insurers have offered cover for some other clinical negligence claims at lower cost. I have no evidence about the pertinent detail; whether for example the claims covered were Fast Track or Multi Track; the assessment of risk; the way in which the relevant premiums were calculated; or whether the relevant policies were individually rated or block-rated.
In summary it seems to me that the Defendant has failed to discharge the evidential burden identified in Kris Motor Spares, or to give me the sort of good reason for disallowing all or part of the ATE premium contemplated by Langstaff J in Pollard. I am, rather, invited on little or no relevant evidence, to conclude that some element of doubt has been established and to reduce or disallow the premium on the basis that it seems, in broad terms, to be too high. That seems to me to be precisely the approach against which Langstaff J warned.
For those reasons, the challenge to the ATE premium fails and it is allowed in full.