Under existing rules, the ATE premium arranged to cover unrecovered disbursements (medical reports) is theoretically recoverable from the unsuccessful defendant (normally the NHS). However, as we have seen many times before, Judges are not insurance underwriters and the relationship between required risk premiums and “proportionality” can be a difficult subject for them.
Here we review the case from a legal prospective, an underwriting risk management perspective and raise questions about the viability of ATE clinical negligence insurance in the current regime.
Mr Rezek-Clarke had a fairly routine clinical negligence claim against the NHS. His solicitors had correctly estimated that the quantum would be less than £5,000. In the event the award to Mr Rezek-Clarke was £3,250, plus costs on the standard basis.
On 29 October 2015, the Claimant’s solicitors served their Bill of Costs in the sum of £72,320.85, including medical reports totalling £18,036.00 and an ATE premium of £31,976.49 and therefore the question arose as to whether these costs were proportionate to the value of the claim.
The costs case was heard by Master Simons, Costs Judge, who raised three distinct concerns: the confusion caused by the incorrect premium being claimed in the Bill of Costs; the methodology of calculation of the ATE premium by the Insurer; and whether the costs were proportionate to the value of the claim.
Firstly, there was some confusion as to the correct premium charged by the ATE Insurer. The claimants conceded that the premium claimed at £31,976.49 in the Bill of Costs had been incorrectly calculated and that the correct premium was the lower figure of £22,255.23. The claimant could provide no explanation as to why the certified Bill of Costs contained such a substantial error.
In response Master Simons pointed out that “A major difficulty that the Claimants have is that they cannot tell me what the insurance premium is. The amount claimed in the bill is £31,976.49 (including IPT) and a certificate has been produced identifying this amount. The Bill of Costs has been certified as being true and accurate. I am now told that the amount of the insurance premium is wrong and that the correct premium is £22,225.23. In these circumstances I would be justified in disallowing the premium in its entirety”.
Master Simons then questioned both the methodology of calculation of the premium and the corresponding proportionality of the claim. “I also question the methodology of calculation of the premium. This is based on the cost of the medical reports whether or not the costs of those reports are reasonable. Where, as in this case, I have considered that the cost of the medical reports is unreasonable and disproportionate in amount, the Claimant is seeking to recover part of a premium that includes an uplift of 200% of those parts of the fees that are unreasonable. As the premium is deferred, surely the basis of calculation should be on the reasonable amount of the fees for the medical reports”.
In the event, Master Simons assessed the bill in the sum of £24,604.40, including amounts claimed for medical reports (reduced from £18,036 to £9,000). Master Simons also reduced the ATE premium from £31,976.49 to just £2,120.00.
Our view on the ATE insurance arrangements
It is unclear why the premium was initially miscalculated. However, looking at the facts of the case, one does wonder why a case, with such a glaring premium miscalculation at the outset was pursued to the SCCO. Of all the numerous challenged clinical negligence cases, this was not the case to run.
Secondly, the policy in this case was block-rated which meant that the method of calculating the premium did not relate to the facts of the individual case but instead to the basket of risks that the ATE Insurer holds for cases across its book. On behalf of the ATE Insurer, David Brown an ATE Underwriting Manager, stated that that the recoverable element of premium for clinical negligence cases is rated at 200% of the estimated costs of liability plus IPT at the prevailing rate. Mr Brown said that the use of a 200% rating factor flows from the company’s historical experience that there is a failure rate of 75% on insured pre-issue cases.
With regard to the calculation of the premium, while we support the method of calculation i.e. a basket of risks, which has been approved by the Court of Appeal in Rogers ( a landmark ATE case), we struggle to reconcile the actual rates used within the calculation. We believe that in order to insure a risk with a 75% failure rate, the premium required to cover just the burning cost of claims is 300% of the risk, not 200%. Add to this the reasonable cost of expenses – say 15% – and a profit margin of 10% and the premium required is nearly 400% of the sum insured. So, on the face of it, the ATE insurer is charging a premium roughly half of what they need in order to make a profit based upon an expected loss rate of 75%. However, it may be that the insurer was prepared to suffer losses on pre-issue business, in the hope of making these up on post-issue business where the failure rate is much lower.
This then leads to the next point which is proportionality. It should be obvious to any insurer that a court is not going to allow a premium as claimed of £31,976.49 + IPT in a small claim worth just £3,250. In the event, the judge allowed £2,120, which represents 65% of the claim value and this gives us a clue as to what might be regarded as a proportionate premium.
The future for ATE Clinical Negligence insurance?
Recent underwriting and cash flow results from companies with significant Clinical Negligence ATE books clearly support the conclusion that this type of ATE business is generally unprofitable.
As from October 2018 there will be a major shake-up in the costs regime for personal injury cases generally and it is almost inconceivable that Clinical Negligence ATE premiums will continue to be partly recoverable after this date.
This should herald a new beginning for Clinical Negligence ATE and companies such as Legal Protection Group, without the burden of under-priced legacy risks, will be at the forefront of the new era requiring much tighter selection of cases and in which ATE premiums will be deducted from damages.
For further information, please contact our Director of Underwriting, Phil Bellamy, on 0333 700 1040.