Problem:

My investigations have uncovered a pre-existing BTE legal expense insurance policy. What steps should I take next, and under what circumstances should I continue to purchase an After the Event Insurance policy, or cancel an ATE Insurance policy I have already purchased.

Solution:

If a pre-existing BTE policy is discovered then the first step which must be taken is an investigation to determine whether the BTE policy is a viable alternative to After the Event Insurance.

The Claimant is under a duty to mitigate its loss and using a pre-existing BTE insurance policy instead of purchasing a separate ATE insurance policy would clearly reduce the costs of litigation. NB. This duty is unaffected by Nizami v Butt (2006) or Kilby v Gawith (2008), However, whether the BTE policy is viable and suitable for funding the claim is a matter of reasonableness, and you should consider the terms and conditions of the BTE policy carefully before deciding whether to utilise the policy or make alternative insurance arrangements. Issues to consider include:

1. Are the terms of the BTE policy onerous


2. Will all the Claimant’s costs and disbursements be covered in the event that the claim fails


3. Was the Claimant made aware when taking out the BTE policy that their choice of solicitor might be limited to the insurer’s choice


4. Will a claim against the BTE policy increase the premiums the Claimant might be required to pay for any future policies with this insurer or another


5. Will the Claimant be required to pay any excess

In the circumstances, it would be advisable to immediately write to the BTE insurer to confirm whether they would be willing to fund the case, with the Claimant’s own choice of solicitor (ie. your firm), and if so under what terms and conditions.

The letter should deal with how disbursements will be treated if the case is lost. Under a normal CFA, if the case is lost, your disbursements are payable by your client (although you may not always seek to enforce this) - the ClaimSafe After the Event Insurance policy we offer covers your disbursements in this situation. The client is therefore fully entitled to seek the same benefit from their BTE policy.

The letter should also seek confirmation that your costs will be paid in full if the case is lost. Under a normal CFA, if the case is lost, your costs are not of course paid, but equally under a CFA, you are entitled to charge a Success Fee when you win, to compensate you for lost costs on unsuccessful claims run under a CFA. Where your client has the benefit of a BTE policy, you will not be entitled to charge a Success Fee and you will be acting under a normal private client retainer where your usual costs are to be paid irrespective of whether you win or lose. It is therefore entirely reasonable for your full costs to be paid by the BTE insurer.

Point a) - guidance given by the Financial Ombudsman Service (Ombudsman News March 2003 Issue 26) states:

"We expect insurers to agree the appointment of the policy holder’s preferred solicitors, in cases that involve large personal injury claims, or that are unnecessarily complex (such as those involving allegations of medical negligence).”  Point b) of this letter raises the question of whether the written terms of the BTE policy (at the time it was sold) made it clear to the client that their choice of solicitor would be restricted to the BTE insurer's panel solicitors. In fact the guidance given by the Financial Ombudsman Service (Mrs. A v. B Company Financial Ombudsman 10/1/03) is only partially helpful. It says:

• prospective policyholders cannot make a fair evaluation of the policy at the point of sale; and


• policyholders may be disadvantaged when making a claim.

For example, policyholders may go ahead and make arrangements with a solicitor of their choice, and incur costs, without knowing that the insurer is unlikely to fund the advice they get from that solicitor.

However, a poorly constructed policy will not always prejudice policyholders or give rise to unfairness. Indeed, in many ‘routine’ cases policyholders may well not be greatly disadvantaged or inconvenienced by any lack of clarity in the policy.

But in more complex cases, or in cases with other special features, it seems to us that the policyholder’s position is likely to have been prejudiced. In such instances, the fair resolution of the matter, reflecting good industry practice, will be for the insurer to fund the advice that the policyholder gets from his or her chosen solicitor.”

If it seems to you, on receiving the BTE insurer’s response, that the terms of the BTE policy are onerous and/or unreasonable then it may be arguable that the policy is not viable. In such circumstances, it would be appropriate to purchase an ATE insurance policy, or to not cancel one which had been purchased previously, e.g. when waiting for the BTE insurers reply.

So long as the CFA between you and your client is dated after 1 November 2005 then there is no risk that the CFA will be held unenforceable so your base costs are safe. Further if the matter falls within the RTA predictable fixed costs scheme then your prescribed success fee of 12.5% is also recoverable even where a BTE policy is in existence, Kilby –v- Gawith (2008).

Therefore the only likely risk of purchasing an After the Event Insurance policy after a Before the Event policy has been discovered is that you will be unable to recover the ATE Insurance premium if the Court does not agree with you and holds that the BTE policy was viable. But, please remember that under the Claimsafe scheme you are able to cancel a policy without charge or penalty within 2 months of discovering a suitable and adequate pre-existing BTE policy. In this scenario the BTE policy can only be treated as suitable and adequate after the Court had made its finding, so the policy could then be cancelled and any claim against the Defendant for an ATE Insurance premium be withdrawn.

NB. Enquiries by the Defendant

Incidentally - extensive requests by the other side for disclosure of information and documents in relation to your investigations of any pre-existing BTE insurance policy should be resisted. In Hutchings –v- British Transport Police Authority (2006), Senior Costs Judge Hurst held that the existing rule regarding discovery in costs proceedings should be followed, namely that the receiving party is not ordinarily compelled to disclose documentation (since it was likely to be privileged). Therefore the Claimant is only obliged to supply the following information:

• whether the Claimant had any kind of insurance policies


• who were the insurers, and


• whether those policies include BTE legal expenses cover

It should be noted that the CFA in question in the matter of Hutchings –v- British Transport Police Authority (2006) pre-dated 1 November 2005, and therefore the question as to what investigations had been carried out were extremely relevant and the amount of costs at stake were high. Therefore, should your CFA be signed after 1 November 2005 then any onerous requests for information from the other side should be resisted even more strongly, taking into account the fact that the sums at stake are likely to be moderate, i.e. the After the Event Insurance premium alone or the ATE Insurance premium and success fee.

Box Legal Limited: After the Event Insurance Providers
www.boxlegal.co.uk  | daniel@boxlegal.co.uk | 0870 766 9997