John M Hayes are always thorough and meticulous in the preparation of bills but more importantly than that they are very approachable and willing to help. Dealing with them is a pleasure.
Brendan McNeany, Partner, Samuel Phillips
It is often said by receiving parties that the only way in which an after the event legal insurance premium ("ATE premium") can be challenged is if the paying party is able to adduce evidence from an expert insurance underwriter that the premium was unreasonably high.
Receiving parties take succour from cases such as Callery v Grey in which the House of Lords held that a "costs judge is wholly unequipped to perform [the] function" of a regulator of the insurance industry; and Rogers v Merthyr Tydfil in which the Court of Appeal held that "the viability of the ATE market will be imperilled if [judges] regard themselves (without the assistance of expert evidence) as better qualified than the underwriter to rate the financial risk the insurer faces".
In practice, it is all but impossible to obtain such expert evidence. The only people with sufficient expertise of rating ATE premiums are those who work in the industry. Those who work in the industry are hardly likely to volunteer to provide evidence that the premiums which they sell – and which therefore sustain their employers' profitability – are too expensive.
For this reason, successful challenges to the level of ATE premiums have, until now, been rare.
The question of the reasonableness of an ATE premium raised its head recently in Kelly v Black Horse – a case in which John M Hayes acted for the Defendant in the detailed assessment proceedings.
Kelly was a relatively unremarkable PPI misselling claim. The matter proceeded to a trial at which the Claimants were only partially successful and were awarded damages reduced to £6,000 along with 75% of their costs. Part of the Claimants' costs included the cost of an ATE policy purchased from Templeton which provided an indemnity for the Defendant's costs and the Claimant's disbursements.
The Defendant's costs at the date of the trial stood at £5,837.10; and the Claimants' disbursements stood at £1,406.20. It followed that the maximum amount that Templeton could have paid out stood at £7,243.30.
Notwithstanding this, the cost of the ATE premium was an eye watering £15,900.
The Defendant raised a challenge to the cost of the ATE premium within its Points of Dispute and presented calculations based on a 'burn' premium - adjusted to account for brokerage and profit – in support of its position that the premium should be reduced. These calculations had been based on those used in Motto & Others v Trafigura, Rogers v Merthyr Tydfil CBC and the 'corrected' version of those used in the RSA Pursuit Test Cases.
The Claimants offered no evidence in support of the level of the premium claimed, save to produce a copy of their solicitors' risk assessment which they said demonstrated that this was a '50:50' case.
The Senior Costs Judge considered that the premium was "wholly disproportionate" and that the risk assessment provided by the Claimants was "entirely meaningless". It was held that it would have been reasonable for Templeton to price their premium on the basis that the Defendant's likely costs to trial would be no more than £7,000.
The principle of the Defendant's calculations was accepted and the premium was reduced to £3,750 plus IPT.
Many lenders which are in the throes of PPI mis-selling litigation will find Kelly to be a very useful case. Claimant firms of solicitors frequently purchase disproportionately expensive ATE premiums and, to date, challenging the reasonableness of the same has proven all but impossible. Now that the Senior Costs Judge has delivered such a robust judgment, lenders may start to see significant reductions in the level of legal costs that they are required to pay to successful PPI Claimants.
Monday 30th September 2013