The government has stepped into the row over the recoverability of after-the-event (ATE) legal expenses premiums and appeared to side with claimants who have taken out their policies before proceedings are issued.

Liability insurers have shown an increasing reluctance to settle cases when ATE premiums have been paid before proceedings have formally begun, according to the Forum of Insurance Lawyers. This has left many claimants in a legal limbo.

Manchester law firm Amelans has used new cost recovery procedures against liability insurers to force payment in contentious ATE cases.

It is preparing a test case to seek clarification on the issue of recoverability at the end of January, said Amelans' partner Martin Cockx.

Labour backbencher Andrew Dismore MP asked for clarification of the issue during parliamentary questions on the work of the Lord Chancellor's department on December 19, 2000.

He asked: “Does my honourable friend agree that an issue that arises from the financing of court cases in Colchester and elsewhere is the recoverability of conditional fee insurance, which urgently needs to be dealt with by the insurance industry?”

David Lock MP, parliamentary secretary to the Lord Chancellor, stated the government's position: “He is right. The government's policy is that the premium paid for cover against the risk of having to pay legal costs should be recoverable from the losing opponent.

“That ensures that damages paid to claimants are not unreasonably eroded.”

The minister, however, added: “Although the interpretation of individual agreements is a matter for the courts, the government believes that recoverability includes premiums on policies taken out before proceedings are issued in any
particular case.”