Callery v Gray (No 2)

An after-the-event insurance premium may be recovered under section 29 of the Access to Justice Act 1999 where the policy insures against a costs liability that cannot be passed to the opposing party. This can include reasonable cover for the insured’s own costs and disbursements.

Reasonableness depends on the contractual cover purchased, the relationship between the premium and the risk, and the cost of available alternatives. There is no presumption that the premium charged is reasonable. The costs judge should make a broad assessment rather than audit the insurer’s business. A decision that a particular premium is reasonable does not establish a fixed benchmark for later cases.

The defendant appealed from a costs order made in costs-only proceedings in Chester County Court. The claimant had settled a personal injury claim and sought to recover the £350 premium, together with insurance premium tax, for an after-the-event insurance policy.

In its earlier judgment in the same appeal, the Court of Appeal held that section 29 of the Access to Justice Act 1999 conferred jurisdiction to recover a premium paid for contemplated proceedings, even though the claim settled before proceedings began. It also held that taking out cover at an early stage could be reasonable. The court deferred the question whether the amount of the premium was reasonable and obtained a report from Master O’Hare.

The remaining issues were whether section 29 covered insurance against failure to recover the claimant’s own costs and whether the £350 premium was reasonable.

1. Appeal dismissed. Lord Phillips MR and Brooke LJ, giving the joint judgment of the court, held that the whole £350 premium and the £7.50 insurance premium tax were recoverable. The policy’s cover fell within section 29 of the Access to Justice Act 1999, and the premium was reasonable.

2. The words “insurance against the risk of incurring a costs liability” in section 29 mean insurance against the risk of incurring a costs liability that cannot be passed to the opposing party. That construction accords with the meaning a reasonable litigant would give the words, the legislative intention and the overall scheme for funding legal costs. It permits reasonable insurance against failure to recover the insured’s own costs or disbursements.

3. All four identified categories of adverse-costs risk fell within section 29. They comprised costs following defeat on liability, failure to beat a Part 36 offer, defeat on a particular issue and another discretionary costs order. The possibility that such liability resulted from the claimant’s conduct did not place the insurance outside the statutory language.

4. The court must distinguish between the contractual benefits bought by the premium and the insurer’s use of premium income. Cover conferring collateral, non-insurance benefits may fall outside section 29 to that extent, but the court did not decide that issue. Expenditure on administration, reasonable profit, reinsurance, marketing and commission is not objectionable in principle. Its effect is relevant only to whether the price paid for the cover was reasonable.

5. There is no starting presumption that an ATE premium is reasonable. The court must consider available evidence and experience concerning the relationship between the premium and the risk, together with the cost of alternative cover. A costs assessment should involve a broad evaluation and not an audit of the insurer’s business.

6. The claimant’s cover was tailored to the risk, suitable for his needs and near the lower end of the available range. The £350 premium was not manifestly disproportionate. The conclusion did not establish that £350 would invariably be reasonable in a similar case, since developing market evidence could support a different assessment.

1. Court of Appeal: By [2001] EWCA Civ 1246, the court dismissed the appeal concerning recovery of the whole ATE insurance premium and upheld its reasonableness.
2. Court of Appeal, earlier judgment in the same appeal: The court held that section 29 of the Access to Justice Act 1999 permitted recovery of a premium for contemplated proceedings which settled before issue. It also held that early purchase of ATE cover could be reasonable, but deferred the amount of the premium.
3. Chester County Court: The county court included the claimant’s ATE insurance premium in the costs recoverable from the defendant.