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Caselaw Review: Callery v Gray: After Event Insurance Recovery

The Issues: The House of Lords considered at what stage in a personal injury claim is it appropriate for a solicitor to enter into a CFA and for an After the Event Insurance policy to be purchased. Additionally, was a 20% success fee (reduced from 60% at previous hearings) reasonable in the particular circumstances of this road traffic accident, where the Claimant was a passenger in a car which had been hit in the rear by the Defendant’s vehicle.

Held: Their Lordships refused to interfere with the findings of the Court of Appeal in Callery –v- Gray (No.1) (2001) and Callery –v- Gray (No.2) (2001), which had rejected a "wait and see” approach in relation to entering into a CFA. The Defendant’s suggestion that After the Event Insurance should be purchased only when proceedings were issued, was also rejected. The "basket” approach to After the Event Insurance was approved, so that the premiums recovered on straightforward cases with negligible risk of adverse costs, pay for lost cases. Where a reasonable uplift was agreed and After the Event Insurance at a reasonable premium was taken at the outset of a claim, the costs of each were recoverable from the Defendant.

Callery –v- Gray (No.1) : if a "wait and see” approach was adopted, liability for success fees would be borne in much larger amounts by those unsuccessful defendants who persisted in contesting liability. This would not result in an equitable sharing of costs between unsuccessful defendants. ATE Insurance premiums also benefited defendants as they ensured payment of the defendant's costs when a claimant was unsuccessful. Premiums taken out at an early stage were substantially cheaper than when it was known that the defendant was going to contest liability. Further, it would assist access to justice for solicitors to offer legal services where claimants will not pay costs whatever the circumstances. The success fee was reduced from 40% to 20%, which was reasonable taking into account the information known at the beginning of the claim.

Callery –v- Gray (No.2) : the court was only concerned with whether the premium was a reasonable price to pay for the benefits it purchased and the Court would take into account evidence of the current ATE Insurance market from sources such as "Litigation Funding” magazine, but satellite litigation on the subject would be unsatisfactory . Master O’Hare, considered the evidence of the relationship between the ATE Insurance premium, the risk and the cost of alternative cover, and assessed that a premium of £350 (exclusive of IPT) was reasonable.

Comment: The Court approved the purchase of an After the Event Insurance policy at the very beginning of a case even where the Claimant in this case had the least possible risk of adverse costs – the Claimant was a passenger in a car whose driver had been subject to a "rear shunt”.

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