LEGAL EXPENSES INSURANCE (T9)

What is legal expenses insurance?

Insurance protecting against specified legal costs liabilities, potentially including the policyholder’s own costs, disbursements and the opponent’s costs, depending on the cover.

Example: A policy may cover an adverse costs order if the insured claim fails

What is before-the-event (BTE) insurance?

Cover arranged before the event giving rise to the dispute, often included in or added to home, motor or other insurance.

Example: A motor policy includes legal expenses cover before an accident occurs.

What is after-the-event (ATE) insurance?

Cover obtained after the event giving rise to the dispute, protecting against specified litigation costs risks.

Example:After an injury, the claimant obtains insurance covering adverse costs and specified disbursements.

Does legal expenses insurance necessarily cover every legal expense?

No. Check the policy’s risks covered, exclusions, indemnity limit, excess and conditions.

Example: ATE may cover expert expenses and adverse costs without covering the solicitor’s ordinary fees.

Why should existing BTE cover be investigated?

It may fund the claim without the need for additional ATE cover, or affect whether purchasing ATE was reasonable.

Example: The solicitor checks the client’s household policy before recommending a new premium.

What did Access to Justice Act 1999, s.29 permit?

Under the historical regime, a costs order could require the losing party to pay a recoverable costs insurance premium, subject to assessment.

Example: A successful claimant sought the reasonable ATE premium as part of the costs payable by the defendant.

What disputes commonly arose over ATE premiums under the historical regime?

Whether purchasing ATE was reasonable, whether existing BTE provided a suitable alternative, and whether the premium was reasonable in amount.

Example: The defendant argues that adequate existing insurance made the additional policy unnecessary.

What change did LASPO 2012, s.46 introduce?

It inserted CLSA 1990, s.58C, generally preventing costs orders from requiring payment of all or part of an insurance premium, subject to the statutory exception and commencement provisions.

Example: An ordinary modern PI claimant generally cannot recover their ATE premium from the defendant.

Why must the policy date and claim category be checked?

Transitional provisions and exceptions mean the general post-April 2013 restriction does not apply identically to every policy or claim.

Example: A qualifying policy taken out before the relevant commencement date may retain historical protection.

Are the exceptions for success fees and ATE premiums identical?

No. In particular, publication/privacy proceedings retained the ATE exception even when success-fee recoverability changed in April 2019. Diffuse mesothelioma also requires separate consideration.

Example: Do not apply the success-fee cutoff automatically to an ATE premium.

What clinical negligence exception does s.58C permit?

Regulations may allow recovery of the premium element covering the risk of liability for qualifying expert reports, rather than the whole policy merely because it concerns clinical negligence.

Example: The policy also covers adverse costs, but that does not make that element recoverable under this exception.

Which regulations govern the clinical negligence exception?

The Recovery of Costs Insurance Premiums in Clinical Negligence Proceedings (No. 2) Regulations 2013, SI 2013/739. They replaced the earlier 2013 Regulations, SI 2013/92.

Example: Cite the No. 2 Regulations when explaining the applicable exception.

What financial threshold applies under regulation 3?

The financial value of the clinical negligence damages claim must be more than £1,000.

Example: A claim valued at exactly £1,000 does not satisfy that threshold.

What expert-report risks qualify under regulation 3?

The policy must insure against liability for expert reports concerning liability or causation in clinical negligence.

Example: A report addressing whether treatment caused injury qualifies in principle; a report solely valuing future care does not qualify on that basis.

How much of the clinical negligence premium can be recovered?

No more than the part attributable to the qualifying liability or causation expert-report risk, subject to assessment.

Example: A policy covering several risks requires identification of the qualifying premium element.

What three broad grounds can be used to challenge a claimed ATE premium?

Recoverability: some of the sum is outside the permitted premium. Conduct: taking out the cover was unreasonable in the circumstances. Amount: the premium was unreasonably high.

Example: Identify whether the objection concerns the policy’s scope, its purchase or its price.

What is a challenge to the recoverable component of a premium?

An argument that some of the claimed amount does not fall within the applicable legal entitlement to recovery.

Example: A defendant challenges inclusion of non-qualifying cover in the clinical negligence premium claimed.

What is a conduct-based challenge to an ATE premium?

An argument concerning the reasonableness of obtaining the insurance, including timing and relevant investigations.

Example: The defendant questions why additional cover was purchased without considering existing suitable BTE insurance.

What is a challenge to the amount of an ATE premium?

An argument that the price was unreasonable for the relevant cover and market, supported by appropriate evidence.

Example: A genuinely comparable available policy may inform the challenge; a bare assertion that the premium “looks expensive” is insufficient.

Does a high indemnity limit automatically make the premium unreasonable?

No. Callery v Gray (No. 2) [2001] recognises that a high limit alone does not establish overpayment.

Example: A standard policy’s generous limit may have little effect on its price.

What is a block-rated ATE policy?

A policy priced across a category or portfolio of claims, rather than individually underwriting each claim. Such pricing is not inherently unreasonable.

Example: Similar claims receive a standard premium despite differing outcomes.

Is recovery confined to the insurer’s pure underwriting risk charge?

No. Subject to reasonableness and legal recoverability, the relevant figure is the total premium paid or payable, not merely its pure risk component.

Example: Ordinary insurer overheads and profit are not automatically stripped out.

Can assessment fees and policy-related legal work be recoverable?

Under the historical Callery guidance, reasonable assessment fees and profit costs for obtaining and complying with the policy may be recoverable.

Example: Necessary policy-related work is not automatically excluded.

Must the receiving party have chosen the cheapest or best policy?

No. A reasonable choice is sufficient.

Example: A suitable policy need not be rejected merely because another insurer offered a lower price.

Can it be reasonable to obtain ATE before sending the pre-action letter?

Yes. Early insurance is not inherently unreasonable; Callery supports obtaining cover before the opponent responds.

Example: Cover is arranged when the client first instructs the solicitor.

Can it also be reasonable to wait for the defendant’s response?

Yes. Reasonableness depends on the circumstances; there is no universal requirement to insure at one particular stage.

Example: The solicitor considers the response before arranging suitable cover, while accounting for the risks of delay.

What if the premium is at the top of the available range?

The purchaser should explain why that policy was reasonably selected, considering cover and available alternatives.

Example: Broader protection or different terms may explain a higher price, but the explanation must fit the evidence.

What is the main reasonableness principle from West and Demouilpied v Stockport NHS Foundation Trust [2019]?

Assess block-rated premiums against the wider ATE insurance market, rather than instinct about the individual case.

Example: A judge should not invent a lower premium without evidential support

What must a challenge to a block-rated premium demonstrate?

A genuine, properly supported basis for questioning it. Scope for challenge is restricted, and comparisons must account for policy comparability and market conditions.

Example: A cheaper policy with materially different cover may prove little.

Why is comparing a block-rated premium directly with damages unreliable?

Portfolio pricing spreads risk across cases with different outcomes—the “swings and roundabouts” of the market.

Example: A low settlement does not itself show that the standard premium was excessive.

What did West and Demouilpied establish about proportionality?

Reasonable, unavoidable block-rated ATE premiums should be excluded from a further proportionality reduction.

Example: A premium should not be cut again merely because it appears large beside the damages.

What is the difference between recoverability, reasonableness and proportionality?

Recoverability: is the item legally claimable?

Reasonableness: was its purchase and amount reasonable?

Proportionality: does the applicable proportionality test justify restriction? West protects reasonable, unavoidable premiums at the final stage.

Example: First identify the permitted premium element, then assess a properly supported price challenge.