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Recovering Single Premium Policies

Still no call from the Ministry of Justice.....  I shall therefore continue with my day job.

A solicitor has asked me to write something about recovering After the Event Insurance premiums from defendant insurers. Apparantly, some insurers are mixing things up a little when it comes to the RTA Portal. I shall explain.

It used to be the norm (following Callery v Gray) that a single ATE Premium was recoverable from the losing party. That premium did not need to be the cheapest but had to be reasonable taking into account the risk, level of indemnity etc. Now Callery v Gray remains the key case with regard to ATE policies yet, with the advent of the RTA Portal, some insurers are arguing that claimants should be taking out staged and not fixed premiums. A staged policy is one where the premium starts off low but then gets increasingly more expensive as the case progresses to trial. The stages often involve being in the portal (which is the cheapest), dropping out, proceedings issued and trial. The premiums for the latter stages are very high with some insurers quoting over £3,000 when it gets to trial. Now that is a lot of money for an RTA claim you could have insured with a fixed premium of £371.00 at the start.

And so you see this is the problem. Defendant insurers are trying to have their cake and eat it. They are arguing cases in the portal should have low staged premiums (normally around £100) but they then argue against the higher premiums charged for those cases they settle or lose later on - saying in those cases the claimant should have bought a £371 fixed policy.

So how do you tackle this? Well, we have some bullet points for you to use in your replies:

  1. At the time the case commenced, the claimant did not know if the case would settle within the RTA portal process or not. The defendant is assessing the premium with the benefit of hindsight but at the time the policy was purchased, it was reasonable.

  2. Out of 31 brokers who offer ATE policies, only 8 offer staged policies. The vast majority therefore use fixed premiums. Claimants are entitled to recover 'reasonable' premiums and so it follows that 'reasonable' must include those offered by the majority of After the Event insurance brokers.

  3. The lower premiums for cases within the portal are not finite products. The policies are staged and you have to buy the whole product not just cover for the portal part of the claim. This means that the premium is not the £80 or £100 quoted but an amalgum average for all stages of a case. For example, a DAS 80e policy has 4 stages:  £79.80 if settled within the RTA portal; £397.50 if it drops out but proceedings are not issued; £848.00 when proceedings are issued; An additional open ended premium due 14 days before trial (individually assessed). Claimants cannot pick and choose different stages of the policy as they wish but must purchase the policy in its entirety before it is know at what stage the case will reach. This means they may be committing themselves to paying a premium of £848 or even several thousand pounds if the case gets close to trial. To work out an average, you need to apply some percentages to the various stages. Naturally, the portal won't help with this - we wrote to them and they replied that they don't keep this information - so we rely on our own experiences below.

  4. Assuming the best scenario is 70% of cases settle within the portal, 10% after, 15% after proceedings and 5% at trial, the DAS 80e average would be: 70% x £79.80 + 10% x £397.50 + 15% x £848 + 5% x £3500 (this is estimated for the final DAS premium) = £397.81. So basically more expensive than our single fixed premium of £371.00. If the settlement profile is worse (and we are hearing numbers of about 50% settling within the portal, not 70%) then the 'average' gets a lot worse for these staged policies - more like £450.

  5. There are of course many court decisions approving fixed policies, indeed in a 2005 case of J Tyndall v Battersea Dogs Home, the claimant took out a staged premium and the defendants then argused it should have been fixed! The court confirmed it was ok to have a staged policy but that the norm was for fixed premiums.

  6. Nothing in the rules which set up the RTA portal process said that only staged policies would be recoverable. Indeed, the Government specifically preserved the ATE market as it existed before the rule change.

  7. This argument has already been before a court. The defendant insurer argued that the claimant should be using a staged policy in the Wrexham County Court case of Watson v Johnson. They lost. The Judge ruled that it had not been established that staged premiums were cheaper and indeed were likely to be more expensive.

  8. Finally of course, nothing has really changed with the RTA portal process. The cases settling within the process would have been the ones settling before the rules came in anyway. The creation of the portal has not suddenly made wise old insurers throw up their hands and cave in on liability on cases which they could have won.  The chances of those cases being lost were always very low but the principle set out in Callery v Gray - that the 'many pay for the few' remains.  

So there you go. 8 paragraphs of wisdom should do it (thank you to Simon and Jon at this end who helped me with this).

As usual, the defendant insurers are using smoke and mirrors to try to save money. Don't be fooled.

Box Legal Limited: After the Event Insurance Providers
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