Last month saw the judgment in the Court of Appeal case of Sarwar v Alam, originally heard on September 10 and 11. The decision on this case has been eagerly awaited by both insurers and after the event (ATE) organisations, who hoped it would clarify the position on whether the cost of ATE insurance premiums could be recovered following the award of damages. This is particularly important given that the significant Callery v Gray decision was far from conclusive.
This particular case revolved around the issue of whether the costs of ATE insurance premiums could be recovered from the negligent party's liability insurer following the award of damages, even though the claimant had before the event (BTE) legal expenses cover.
Sticking to the basics
The Co-operative Insurance Society (CIS) believes if the insurance industry is to continue to thrive, it must adhere to the fundamental reason for its existence – to provide appropriate cover for the risks relevant to an individual's circumstances at an affordable cost. Insurers and organisations that facilitate compensation for people after accidents stray from this at their peril, with the risk of discrediting both their business practices and the industry as a whole if they are seen to be profiting unnecessarily from people who have experienced misfortune.
Wise insurers stay ahead of the market by remaining responsive to the ever-changing needs of people, assessing the new risks as lifestyles and circumstances change and offering the cover needed to protect against this. This may appear to be stating the obvious, but this is precisely the message that has been sent to the insurance industry in the Court of Appeal's ruling on the Sarwar v Alam case.
The court ruled, in effect, that for claims for compensation under £5,000, which constitute the vast majority of compensation cases, BTE cover provided the most suitable way for such cases to be pursued.
The court also expressed concern over the “disproportionate” level of cost in bringing many of these compensation cases and explicitly criticised the “less than savoury” practices that have been used by conditional fee agreement (CFA) and ATE organisations.
CIS's commitment to providing products to meet individual's financial needs, a fundamental consequence of its co-operative status, resulted in it identifying customers' needs for an appropriate funding mechanism for the pursuit of such compensation claims. This prompted CIS to incorporate BTE cover, at no extra cost to the customer, as standard across its entire portfolio of motor car/motorcycle and home contents policies more than 12 months ago.
By offering BTE cover in this way, policyholders benefit from wider, more affordable cover compared to buying the cover on an optional basis. In addition to this, BTE cover provides a way for insurers to benefit from a reduction in overall claims costs, which ultimately feeds through into future premiums and the demand for insurance.
But while CIS, and a number of other leading insurers, have taken the lead by incorporating automatic BTE cover into their products, the rest of the market seems to have been very slow in following this example.
This situation has left many customers search-ing for alternative ways to fund their compensation claims, turning to the more costly CFA and ATE organisations to support their actions. The cost of the work these organisations carry out results in one of two consequences:
In both cases the industry loses – the public perception of the industry falls and customers are less likely to take out extra cover from the industry, but more likely to push for increased sums in compensation so they can “get their fair share” back from insurers. The judgment in the Sarwar v Alam case has sent a wake-up call to those sectors of the industry that are dragging their feet over BTE cover.
Of course, BTE cover is not the complete remedy for the issue of funding compensation cases – in fact, the court made it clear there were circumstances where BTE may not be suitable. The most telling example is in the circumstances of this case itself, where there could be a perceived conflict of interest if the BTE provider was deemed to be the same organisation as the liability insurer. The issue of how compensation claims of more than £5,000 are funded has still to be resolved.
The ruling appears to be a well reasoned judgment that is clear and constructive and will help move matters forward. The court has given helpful guidance for the future, on the conduct of both solicitors and BTE insurers. Although the decision itself is disappointing from the liability insurers' perspective, CIS takes the view this is a positive judgment in wider terms and should be welcomed.
Most importantly, the court felt, in the vast majority of cases, BTE cover was an effective, economical and, most of all, appropriate method of funding compensation claims of less than £5,000. The message is clear – it is time for insurers to sit up and listen.