Costs

Personal injury claim - after-the-event insurance premium - cost of insuring against failure to recover own costs recoverable when claim settlingCallery v Gray (No 2): CA (Lord Phillips of Worth Matravers Master of the Rolls and Lord Justice Brooke): 31 July 2001The claimant suffered minor injury in a road traffic accident and sought damages from the defendant after entering a conditional fee agreement with his solicitor and taking out after-the-event insurance to cover the costs he would have to pay if he lost.The claim settled without any need for proceedings to be issued and the defendant agreed to pay damages and reasonable costs.

In costs-only proceedings pursuant to Civil Procedure Rules 1998, rule 44.12A, the district judge held that a 40% success fee and the insurance premium of 350 were recoverable.

The judge upheld that decision.

The defendant appealed.On 17 July 2001 the Court of Appeal (Lord Woolf Chief Justice, Lord Phillips Master of the Rolls and Lord Justice Brooke) held, among other things, that under section 29 of the Access to Justice Act 1999, which provided for the recovery of insurance premiums by way of costs, a claimant could recover an insurance premium paid in respect of contemplated proceedings notwithstanding that the claim was then settled without proceedings being issued and that, in principle, it was reasonable for a claimant to take out such insurance at an early stage.The court directed costs master John O'Hare to conduct an inquiry into the reasonableness of the premium paid by the claimant and it then reconstituted as a two-judge court to deal with that issue.Peter Birts QC and David M Holland (instructed by Beachcroft Wansbroughs) for the defendant.

Geoffrey Nice QC and Nicholas Bacon (instructed by Amelans, Manchester) for the claimant.

Timothy Dutton QC (instructed by Rowe & Cohen, Manchester) for the After-the-Event Insurers' Group Forum.

Carine Patry (instructed by Solicitor, Law Society) for the Law Society.

Allan Gore (instructed by Pattinson & Brewer) for the Association of Personal Injury Lawyers.

John Leighton Williams QC (instructed by Barlow Lyde & Gilbert) for the Association of British Insurers.

Cyrus Katrak (instructed by Andrew Gardner Partnership, Maidstone) for the Motor Accident Solicitors Society.

William Norris QC (instructed by Colman Coyle) for Claims Direct.Held, dismissing the appeal against the inclusion of the whole of the claimant's insurance premium as an item of costs, that section 29 of the 1999 Act should be interpreted so as to treat the words 'insurance against the risk of incurring a costs liability' as meaning 'insurance against the risk of incurring a costs liability that could not be passed on to the opposing party'; that such an interpretation would give the words the meaning that would be attributed to them by a reasonable litigant and that accorded with the legislative intention and overall scheme for the funding of legal costs; that the circumstances in which and the terms on which own costs insurance would be reasonable, so that the whole premium could be recovered as costs, would have to be determined by the courts when dealing with individual cases, assisted, if appropriate, by the rules committee; that, in the case of the claimant's policy, the right to recover the costs of disburse-ments could be considered as falling within the description 'insurance against the risk of liability' within section 29; that cover against the risk of being unable to recover the premium as a consequence of losing the action could also form part of the cover provided under insurance that fell within section 29, provided always that any part of the premium attributable to it was reasonable in amount; that, on the information available to the court, the claimant's premium was not manifestly disproportionate to the risk; and that, in principle, the insurance premium tax was also recoverable (WLR).