Liability insurers are expected to pounce on a County Court ruling this week that could jeopardise the flourishing after-the-event (ATE) legal expenses insurance market, writes Paddy Gourlay.

Judge Halbert ruled that the defendant did not have to pay the costs of ATE insurance and the solicitor's success fee at Chester County Court last Thursday because the successful claimant unwittingly had before-the-event insurance in place.

Lawyers acting for the claimant fear insurers could now flood the market with free before-the-event cover to squeeze the ATE market, dominated by Claims Direct, The Accident Group and Abbey Legal Protection, and remove the need to pay success fees altogether.

Already, Co-Operative Insurance Services (CIS) has given away more than two million before-the-event policies free to its customers in 2000.

Imran Sarwar was a passenger in a car accident and suffered whiplash. He successfully claimed about £2,500 in damages after acquiring after-the-event insurance. Temple Legal Protection, which sold the cover, and his solicitors, Amelans, then took CIS to court to recover their fees.

But Halbert ruled Sarwar should not have been sold ATE insurance, because the driver was insured through DAS with adequate before-the-event cover.

Andrew Twambley, a partner at Alemans, said the decision was potentially bigger than Callery vs Gray, the controversial test case which is currently attempting to decide the appropriate sum for ATE premiums and level of success fees.

“The liability insurers will issue, en masse, free before-the-event cover now in order to completely scupper success fees and the ATE market,” he said.

ATE insurers said the case was likely to be appealed.

Chris Ward, managing director of Abbey Legal Protection, added that the case lifted the lid on several issues. “There is the question of what is the appropriate level of indemnity provided by the before-the event cover, who has control in bringing a case (the solicitor or the claimant), the conflict of interest when an insurer provides both after-the-event and before-the-event cover, and freedom of choice, because many before-the-event providers have a restricted panel of solicitors.”

Claims Direct was unable to comment.