Update on Recoverability. Are recent authorities showing a Judicial Sea Change?

During recent years, it has been very difficult for paying parties to mount any meaningful challenge to the reasonableness of a receiving party’s after the event insurance premium. Kris Motor Spares Ltd v Fox Williams LLP [2010] EWHC 1008 (QB) reminded us that 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” and such evidence has remained notoriously thin on the ground.

However, the announcement of the MOJ’s intention to implement the Jackson proposals may mark the beginning of a more general shift in the way in which the reasonableness of premiums is policed. In the immediate future, there is clearly a risk that paying parties will become more inclined to challenge the reasonableness of ATE premiums and this may translate into an increasing willingness by cost judges to apply discretion to reduce the recoverable after the event insurance premium where it is lacks viable market evidence to justify its competitiveness.

Redwing Construction Limited v Wishart [2011] EWHC 19 (TCC) suggests this might be right. In this case, Akenhead J reduced the Claimant’s ATE premium and CFA success fee by 80%, on the basis that case “was virtually bound substantially to ‘win’”, despite no admission of liability having been made when the arrangement was entered into. MGN Limited v United Kingdom (Application No. 39401/04) and Pankhurst v Lee White Motor Insurers Bureau [2010] EWHC Civ 1445 all highlight a potentially increasing trend in the judicial temperance towards additional liabilities. Therefore, now more than ever, it is prudent for all litigants seeking to recover ATE premiums to ensure that they have sufficient evidence available to justify the reasonableness should a challenge arise. This is a task that should take place prior to the inception of a policy to ensure the evidence is robust.

Whilst sufficient in years gone by, relying on past authorities such as Rogers v Merthyr Tydfil County Borough Council [2006] EWCA Civ 1134 (31 July 2006) may now no longer be sufficient to protect the client’s interests against the changing tide in the judicial attitude towards the assessment of additional liabilities. Ultimately, demonstrating that multiple insurance providers were approached remains the strongest argument to fend off any challenge by a paying party, unless there are very compelling reasons as to why this wasn’t the case.