Now both the Callery v Gray and Sarwar v Alam court actions are over, it is time to step back and ask what the implications are for the insurance industry as a whole. Whatever liability insurers do in relation to appealing to the House of Lords, the Court of Appeal has handed down judgments that represent good law and give useful guidelines for both sides of the industry.
One should bear in mind that the cases concerned, and the guidance given, are generally limited to claims arising from modest, straightforward road traffic accidents.
Bearing the burden
The overall message is perhaps that liability insurers must bear the burden of the claimant's reasonably incurred additional liabilities. These can include after the event (ATE) insurance premiums and success fees, in the event they lose the case or if they settle on such terms that the defendant pay the claimant's costs.
Lord Chief Justice Woolf intended the new system to replace legal aid and facilitate access to justice to those who cannot afford the costs, or risk of the costs, of litigation. A claimant is entitled to know at the outset that arrangements are in place to protect them against adverse costs. The courts now intend to implement those intentions.
An ATE premium is potentially recoverable if it was taken out in contemplation of proceedings. The word “proceedings” in section 29 of the Access to Justice Act 1999 means proceedings advancing a claim for substantive relief. There is no need for there to be actual court proceedings.
If legal expenses insurance does exist, the policy must be transparent and truly available for the claimant and their solicitor to use. Before the event (BTE) policies issued just to defeat a potential ATE claim may not be available. Solicitors must be in a position, at the initial interview, to decide on the funding arrangement. If there is no BTE policy available then it is appropriate to enter into a conditional fee agreement and an ATE policy there and then.
There is no need for the claimant's solicitor to defer calculating the success fee until the defendant has had the opportunity to respond to the claim. Also, the claimant's solicitor should not be expected to spend months on a treasure hunt looking for BTE policies.There is no such thing as risk-free litigation. There is always a risk, so unless a reasonable and available BTE policy exists, a success fee and ATE policy are appropriate.
There is plenty of room for BTE and ATE to exist side by side. Attempts by liability insurers to strangle the ATE market in its infancy will not be tolerated.
Liability insurers, with the assistance of the courts, will be able to restrict success fees and ATE premiums to amounts that are reasonable in the circumstances of the case.
This envisages the courts having sufficient data in order to come to an informed decision on the subject. If this position has not yet been reached, the judiciary must do their best on whatever material is available.
Callery and Sarwar have saved the fledgling ATE industry and undoubtedly promoted access to justice for the man in the street, at a cost to be paid by the insurance industry.
There remain, however, one or two nagging questions. Liability insurers have known this has been coming for many years – they were fully involved in the consultation process and they assisted in the drafting of the Access to Justice Act.
They must have put aside reserves to meet these additional liabilities, so why do they now not want to pay? And if they did not put aside such reserves, are they not the authors of their own misfortune?