Insurers will be forced to repay claimants for after-the-event insurance policies in cases where the claims have been settled before court proceedings, following the Court of Appeal ruling in the landmark Callery vs Gray case.

But there is yet to be a decision on what premium may be charged. This will be decided by a costs judge who will also determine at which point in the case claimants can take out insurance.

Lord Woolf made the decision last month in the case of Manchester law firm Amelans vs Norwich Union.

On the matter of success fees, the Appeal Court confirmed that a two-stage fee will be introduced.

The decision is likely to hit motor and liability insurers hard, as thousands of personal injury cases are currently held up in the courts.

As part of the Access to Justice Act, insurance premiums can be recovered from the losing defendant. It is argued, however, that they can only be recovered after proceedings are issued.