Claims Direct Test Cases, Re

A sum described contractually as an after-the-event insurance premium is recoverable under section 29 of the Access to Justice Act 1999 only to the extent that it is truly consideration for insurance against an otherwise irrecoverable costs liability. The parties’ label does not determine the legal character of the payment.

In an exceptional case, a costs judge may examine the constituent services and allocations. Claims handling, vetting and risk-control costs do not become insurance premiums merely because insurers require them before accepting the risk. On standard assessment, the recoverable premium must also be reasonable and proportionate. A uniform premium may appropriately be assessed across a sufficiently large class of comparable cases.

Sixteen personal injury claimants appealed from orders made by Master Hurst in costs-only proceedings concerning the Claims Direct Protect Scheme. Each claimant had paid £1,250 plus insurance premium tax for a package described as after-the-event insurance. Only part of that payment reached the underwriters; substantial sums funded Claims Direct and Medical Legal Support Services Ltd.

The Master determined that £621.13, inclusive of tax, was recoverable as a reasonable insurance premium. The claimants contended that the contractual description of the entire payment as premium was conclusive and that the whole sum was reasonable and proportionate.

The central questions were whether the whole payment constituted a premium within section 29 of the Access to Justice Act 1999, whether claims-handling services were collateral or extraneous benefits, and whether the claimed premium was reasonable and proportionate.

1. Appeal dismissed unanimously. Brooke LJ delivered the judgment, with which Laws LJ and Sir Anthony Evans agreed. Master Hurst was correct to limit the recoverable premium to £621.13 inclusive of insurance premium tax, although the Court of Appeal reached that conclusion by a somewhat different route.

2. Section 29 of the Access to Justice Act 1999 permits recovery only of payment for insurance against the risk of an otherwise irrecoverable costs liability. The contractual use of the word “premium” was not conclusive. As illustrated by Street v Mountford, the legal consequences of an agreement depend on its effect rather than the label chosen by the parties.

3. The insurance agreement was genuine rather than a sham. Nevertheless, the unusual structure of the scheme made it necessary to examine what was actually supplied for the sums allocated to Medical Legal Support Services Ltd. The substantial similarity between the earlier uninsured scheme and the later insured scheme itself justified inquiry into whether pre-existing claims-handling services had truly become insurance services.

4. The insurer’s obligation was to indemnify the claimant if the compensation claim failed or was discontinued. It was not an obligation to provide continuing claims-handling, vetting or risk-control services. Costs incurred in making the underlying claims operation acceptable to underwriters did not become recoverable premium merely because insurers required those arrangements before assuming the risk. Appropriate work performed by a claims manager in place of a solicitor might instead be recoverable as part of the solicitor’s bill.

5. A proportionality assessment remained necessary on a standard-basis assessment, but it did not answer the logically prior question of what constituted premium. For a scheme of this kind, a uniform allowance across cases was the appropriate method of assessing reasonableness, provided the sample was sufficiently large. The allowed sum of £621.13 was reasonable and proportionate; £1,250 plus tax was not.

6. Brooke LJ clarified, by way of guidance, that the 5% success-fee indication in Halloran v Delaney applied only to extremely simple claims, similar to Callery v Gray, whose prospects of success were virtually certain. It was not intended to have wider application.

1. Court of Appeal (Civil Division): By [2003] EWCA Civ 136, unanimously dismissed the claimants’ appeal and upheld the recoverable premium of £621.13 inclusive of insurance premium tax.

2. Supreme Court Costs Office: Master Hurst entered judgment in the costs-only proceedings for each claimant in respect of a recoverable premium of £621.13 inclusive of insurance premium tax.