Out-Law / Your Daily Need-To-Know

Supreme Court: legal expenses insurance premium could not be recovered with costs

Out-Law News | 30 Jan 2015 | 3:30 pm | 2 min. read

The successful party in a civil court case is not entitled to recover the cost of any 'after the event' (ATE) legal expenses insurance premium from an unsuccessful opponent, no mater how "reasonable" it was to have taken out the policy in the first place, the UK's highest court has ruled.

Although the Supreme Court unanimously awarded David McCraddie the costs of his successful appeal in a dispute with his son over the ownership of a house, it held that this did not extend to the £40,000 ATE premium. The policy would have covered McCraddie against expenses up to the value of £100,000 if he had lost his case.

Litigation expert Craig Connal QC of Pinsent Masons, the law firm behind Out-Law.com, said that the decision itself was unsurprising. However, the same could not be said of court president Lord Neuberger's comments that McCraddie had been left "out of pocket … given that he reasonably incurred that sum in connection with rightly seeking to challenge" a previous decision, he said.

"In Scotland, it has never been the general view that an ATE premium was recoverable," Connal said.

"It is sometimes thought that the Supreme Court is the place to go if what is said to be needed is a broader view. On that basis, the fact that Lord Neuberger said he regretted the conclusion is interesting: in part, because his 'regret' did not drive him to reach a different view; and in part, because the increase in costs caused by the addition of insurance premiums has been, to say the least, controversial in discussion of the so-called 'litigation culture'," he said.

Lord Neuberger said that if the ATE premium could have properly been considered part of McCraddie's legal expenses, there would have been no "good policy reason" not to reimburse him. However, the rules governing civil litigation in the UK Supreme Court limited judges to granting only the "costs of any appeal"; while those governing Scottish litigation covered only sums incurred "for conducting the cause", he said.

"The expression … does not naturally extend to the cost of an ATE premium, which appears to me to be extraneous to the costs of the appeal, even though it was plainly closely linked to the appeal itself, at least from [McCraddie's] financial perspective," he said.

"In the absence of any express provision permitting it, one would not expect an ATE premium, taken out to protect the person who turns out to be the successful party against liability for costs in case he loses, to be recoverable from the unsuccessful party. It is simply not part of the costs of the appeal, as a matter of ordinary language," he said.

Lord Neuberger said that this conclusion "seems to me unjust" as McCraddie had been challenging a "questionable appeal" by his son, which had only been brought because his son had received financial assistance from the Scottish Legal Aid Board (SLAB).

Parties to civil litigation in England and Wales had previously been entitled to recover the cost of ATE premiums from their unsuccessful opponents. However, the new civil court costs and funding regime, introduced on 1 April 2013 by the Legal Aid, Sentencing and Punishment of Offenders Act (LASPO) ended the practice as part of reforms aimed at making the costs of litigation reasonable and proportionate, save for limited exceptions in defamation, insolvency and mesothelioma-related damages cases.

"The judiciary, in particular English costs judges, never liked the cost of litigation between parties in England being disproportionate due to very high ATE legal expenses premiums," said litigation expert Keith Levene of Pinsent Masons. "Lord Neuberger's comments, however, appear to adopt a different view to the recoverability of ATE premiums in a between-the-parties assessment than that which led to the abolition of the recovery of such premiums in England for policies entered into from 1 April 2013."

"To have decided in favour of the appellant in this case would have opened the floodgates to parties taking ATE legal expenses insurance in Scottish proceedings, and then seeking recovery in between-the-parties assessments - precisely what had to be remedied by LASPO in England," he said.