PROPORTIONALITY AND PREMIUMS IN CLINICAL NEGLIGENCE CASES: COURT OF APPEAL JUDGMENT TODAY

In West -v- Stockport NHS Foundation Trust [2019] EWCA Civ 1220 the Court of Appeal considered the question of proportionality in relation to clinical negligence actions and the “recoverable” element of ATE insurance.  I am grateful to Sean Linley for sending me a copy of the judgment.

“The respondent’s submissions then suggested that Ms West’s prospects of losing the case were very low (which obviously raised the question of why the claim had not been admitted from the outset”

“… a simple comparison between the value of the claim (either the claim made or the settlement sum) and the amount of the premium paid is not a reliable measure of the reasonableness of the ATE insurance premium”

THE CASE

The Court was considering the issue of whether, and how, ATE premiums in clinical negligence cases should be subject to the test of proportionality on assessment.

GENERIC AND REPETITIVE OBJECTIONS TO BILLS OF COSTS

The court had considerable reservations about the generic and repetitive points of dispute which, as it observed, are a common feature of cost assessments.

“15. The draft bill of costs was the subject of lengthy Points of Dispute served by the respondent. A similar document was served in the Demouilpied case. It is clear that these documents are generic and repetitive, with numerous references to authorities and requests for further information. We set out our observations on the utility of such documents in Section 8 below, when dealing with the question of reasonableness.”

THE ISSUES RELATING TO RECOVERABILITY

28. First, there is a clear risk that an issue (such as the recoverability of a fixed premium), which ought to be the subject of clear guidance with minimal room for debate, is being decided on an ad hoc, case-by-case basis. So, in the present appeals, involving as they do the same fixed premium of £5,088, the respondent put forward its own calculations of £834.75 and £175, or alternatively the higher figures derived from the LAMP policies of between £1,802 and £1,982. Further, there have been a wide range of answers from the judges, running from disallowance of the premium altogether (paragraph 19 above), increasing to the freestanding figure of £650 (paragraph 25 above), and up to the £1,982 referable to the LAMP policies (paragraph 24 above) and the calculation of £2,500 said to be based upon those same policies (paragraph 20 above). In this way, four different assessments of the same figure by three different district judges produced four different results.

29. Secondly, linked to that first point, some of those assessments appear to have been the result of the instinctive or subjective reaction of the judge undertaking the costs assessment without reference to objectively ascertained comparable policies and premiums. As Judge Smith correctly observed, that is impermissible. Not only does that approach increase the risk of inconsistent results which are unclear and unexplained but, even more important, it has a direct impact on the claimant’s access to justice noted in paragraphs 10-12 above. If a claimant’s right to recover the ATE insurance premium in clinical negligence cases is the subject of a capricious system of cost assessment, then a claimant may be denied the very access to justice which the exception at s.58C and the Regulations were designed to protect.

30. Thirdly, there are concerns about the respondent’s repeated reliance on the burden of proof. This can be seen in their Points of Dispute documents and other written submissions, and it was noted unfavourably in the Assessors’ Report (see paragraphs 42 and 45 below). The respondent’s strategy appears to be to offer something minimal to put the reasonableness or proportionality of the ATE premium in issue, and then assert that the burden of proof falls upon the individual claimant, who will usually be unable to deal with the wider questions that might be raised concerning the insurance market. On this aspect of the case at least, the respondent has access to much more information than an individual claimant, so that the respondent’s reliance on the burden of proof has potentially a distorting effect on the costs assessment.

31. Fourthly, and related to the previous point, we note the respondent’s use of so-called comparables. We consider that, when dealing with reasonableness, detailed evidence about unarguably comparable insurance policies and premiums would be admissible. What is not permissible is reliance on the production of a few photocopied pages of another policy which, taken as a whole, is not in fact comparable.

32. In the present cases (which are doubtless mirrored in many other clinical negligence cases) the insurers behind the appellants, on the one hand, and the respondent, on the other, are advancing two extreme positions. The effect of the appellants’ submissions is that an ATE insurance premium, certainly if it is a block-rated policy, is essentially inviolable and should always be regarded as reasonable and proportionate. On the other hand, the respondent says that each case is different and that each district judge or costs judge should be left to work out the answer to the questions of reasonableness and proportionality in each case, producing a range of different results.

33. The Assessors’ Report has enabled us to steer a course between those two extremes. The report has resolved various issues of fact concerning block-rated ATE insurance premiums which allows us to formulate guidance in a way that was not open to the first instance judges in the present cases.

THE PRINCIPLES

The Court of Appeal set out the general principles derived from the cases.

56. We derive the following principles from these authorities:

i) Disputes about the reasonableness and recoverability of the ATE insurance premium 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 [McMenemy].

ii) Issues of reasonableness go beyond the dictates of a particular case and include the unavoidable characteristics of the ATE insurance market [Rogers].

iii) 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 [Rogers].

iv) 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 [Kris].

59. In particular, we do not agree with the suggestion of Foskett J in Surrey v Barnet and Chase Farm Hospitals NHS Trust [2016] EWHC 1598 (QB), [2018] 1WLR 499, at paragraph 116, that Rogers is in some way out of date, and that costs judges can consider ATE insurance premiums by engaging in a robust analysis and entering the arena (paragraph 118). That significantly overstates the legitimate role of the costs judge in dealing with such premiums, and is contrary to the principles that we have identified in paragraph 56. To that extent, therefore, we endorse the observations of Langstaff J in Pollard v University Hospitals of North Midlands NHS Trust [2017] 1 Costs LR 45, where, at paragraph 40, he expressed reservations about Foskett J’s approach and said, at paragraph 41, that, when dealing with a block-rated policy, “a judge should be very hesitant before concluding that the premium is in error, and should have good reasons for doing so”.

CHALLENGING THE REASONABLENESS OF A POLICY

None of this is to say that a paying party (which in clinical negligence cases will usually be the respondent) is automatically bound to accept the reasonableness of whatever premium has been paid. The fact that ATE insurance provides access to justice does not mean that the relevant premium must automatically be regarded as reasonable.

63. The practical issue is how and in what sorts of cases can the reasonableness of the premium be challenged. We set out our guidance below.

64. The first point to make is that, if the ATE policy is a bespoke policy, then the grounds of challenge of the amount of the premium are relatively wide. For example, it would

be open to the respondent to challenge the bespoke policy premium on the basis that the risk had been wrongly assessed.

65. As regards a block-rated policy, such as the policies in the present appeals, the ability of the paying party to mount a sustainable challenge will be much more restricted. The majority of challenges to block-rated premiums must relate back to the market in one way or another, and would therefore require expert evidence to resolve. In particular, it will not usually be enough for the paying party simply to give evidence that another policy was cheaper. It is not for district judges or costs judges to have to plough through the detail of allegedly comparable policies, still less to be required to assess the effect of any differences in content. An expert’s report would be required to the effect that the other policy was directly comparable to the policy under review.

66. Moreover, by reason of the contract terms commonly agreed between insurers and solicitors, an alternative block-rated policy may not in fact have been available to the receiving party in any event. That may not of itself rule out consideration of that policy as a comparable, but the challenge would involve difficult issues as to reasonableness to be resolved on the facts of the particular case.

67. Finally, a simple comparison between the value of the claim (either the claim made or the settlement sum) and the amount of the premium paid is not a reliable measure of the reasonableness of the ATE insurance premium. That would ignore the way in which the premium payable for a block-rated policy is fixed taking into account a basket of a wide range of cases. It is similar to the “swings and roundabouts” comments associated with fixed costs. In Sharp v Leeds City Council [2017] EWCA Civ 33, [2017] 4 WLR 98, for example, Briggs LJ (as he then was) said:

“41. … The fixed costs regime inevitably contains swings and roundabouts, and lawyers who assist claimants by participating in it are accustomed to taking the rough with the smooth, in pursuing legal business which is profitable overall.”

68. If the district judge or costs judge decides that there is substantive evidence which genuinely puts in issue the reasonableness of a premium, then he or she can require the claimant to address that evidence and decide the resulting debate on the evidence in the usual way. We stress, however, that that should only happen if the judge considers that a genuine point of substance, usually requiring expert evidence, has been raised by the paying party and not otherwise.

PROPORTIONALITY AND THE PREMIUM

9.2 Is Proportionality Applicable At All?

79. We consider, first, proportionality and the recoverable part of a block-rated ATE insurance premium which has been assessed as reasonable, either because there was no challenge to it or, where there has been a challenge, the paying party has not demonstrated a sustainable challenge in view of the nature of the threshold addressed at Section 8.3 above.

80. Such a premium cannot, in our judgment, then be assessed as disproportionate. Any attack on proportionality would be, as it was in the Demouilpied appeal, based on the difference between the amount recovered and the amount of the recoverable element of the premium, when considered as part of the overall costs. There are two reasons why a discount for proportionality is inappropriate. Firstly, being a block-rated policy, the amount of the reasonable premium bears no relationship to the value of the claim, much less the amount for which the claim was settled. Secondly, ATE insurance is critical to access to justice in clinical negligence claims, as was made clear by the Court of Appeal in Rogers and by the Government both in its formal response to Sir Rupert Jacksons’s recommendations and in the Explanatory Memorandum accompanying the Regulations (see paragraphs 5 and 10 above).

81. This last point raises the wider issue as to whether, when considering proportionality, the judge needs to have regard to every item of cost, or whether there are some costs which ought to be removed from that part of the assessment. We consider that, when the judge comes to consider proportionality, there are some elements of costs which should be left out of account.

82. The exceptions are those items of cost which are fixed and unavoidable, or which have an irreducible minimum, without which the litigation could not have been progressed. Court fees are perhaps the best example.

83. We note that this approach is commonly adopted in costs assessments.

THE CORRECT APPROACH TO COSTS ASSESSMENTS

10) The Right Approach To Costs Assessment

87. We are anxious not to restrict judges or force them, when assessing a bill of costs, to follow inflexible or overly-complex rules. One of the matters, however, which is apparent from the many cases cited to us, and from the submissions of counsel on the hearing of these appeals, is that there is an absence of consistency in the way in which

costs bills are assessed. Taking the various points made above and drawing them together, we give the following guidance on an appropriate approach.

88. First, the judge should go through the bill line-by-line, assessing the reasonableness of each item of cost. If the judge considers it possible, appropriate and convenient when undertaking that exercise, he or she may also address the proportionality of any particular item at the same time. That is because, although reasonableness and proportionality are conceptually distinct, there can be an overlap between them, not least because reasonableness may be a necessary condition of proportionality: see Rogers at paragraph 104. This will be a matter for the judge. It will apply, for example, when the judge considers an item to be clearly disproportionate, irrespective of the final figures.

89. At the conclusion of the line-by-line exercise, there will be a total figure which the judge considers to be reasonable (and which may, as indicated, also take into account at least some aspects of proportionality). That total figure will have involved an assessment of every item of cost, including court fees, the ATE premium and the like.

90. The proportionality of that total figure must be assessed by reference to both r.44.3(5) and r.44.4(1). If that total figure is found to be proportionate, then no further assessment is required. If the judge regards the overall figure as disproportionate, then a further assessment is required. That should not be line-by-line, but should instead consider various categories of cost, such as disclosure or expert’s reports, or specific periods where particular costs were incurred, or particular parts of the profit costs.

91. At that stage, however, any reductions for proportionality should exclude those elements of costs which are properly regarded as unavoidable, such as court fees, the reasonable element of the ATE premium in clinical negligence cases, and the like. Specifically, therefore, if the ATE premium is assessed as reasonable, it will not fall to be reduced by any further assessment of proportionality.

92. The judge will undertake the proportionality assessment by looking at the different categories of costs (excluding the unavoidable items noted above) and considering, in respect of each such category, whether the costs incurred were disproportionate. If yes, then the judge will make such reduction as is appropriate. In that way, reductions for proportionality will be clear and transparent for both sides.

93. Once any further reductions have been made, the resulting figure will be the final amount of the costs assessment. There would be no further stage of standing back and, if necessary, undertaking a yet further review by reference to proportionality. That would introduce the risk of double-counting.

THE WAY FORWARD

13) The Way Forward

99. Subject to any points which do not arise from the Assessment, or are not addressed in this judgment, the position in respect of the recoverability of block-rated ATE insurance policy premiums is settled, at least until there are identifiable changes affecting the matters considered.

100. We recognise, of course, that in the future points may arise as to the reasonableness of such premiums as they and the market change. If and when they do, they ought to be addressed by way of a group of test cases. This imposes no burden on the respondent, since it is usually the paying party in clinical negligence cases. There can be a cost-sharing agreement organised between the relevant claimants so as to ease the burden on them. In that way, there will be a control mechanism exercisable by the court in respect of the ongoing amounts of such premiums, but any future debate will not be dealt with in an uncontrolled and unmanageable way.

101. This will also allow the court to deal with and resolve real disputes. Experience shows that this is more helpful to the court user than rules or guidance given in the abstract. As we understand it, it was precisely for that reason that the Civil Procedure Rule Committee declined to set up a regulatory mechanism to monitor and review the amount of ATE insurance premiums.