Peterborough & Stamford Hospitals NHS Trust v McMenemy; Reynolds v Nottingham University Hospitals NHS Foundation Trust  EWCA Civ 1941
The Court of Appeal held that it was reasonable for ATE policies to be taken out in clinical negligence cases at the outset.
The question of whether the ATE premium was reasonable in amount and/or proportionate was not dealt with by the Court of Appeal in this case, but is due to be dealt with in the Court of Appeal in another test case.
Two appeals were brought before the Court of Appeal concerning the recovery of After the Event ("ATE") insurance premiums in clinical negligence cases. In each case the Claimant took out ATE insurance as soon as solicitors were instructed. In both cases the Claimants reached a settlement with the Defendants before any proceedings were issued and before any expert report was commissioned.
Case 1 Facts - McMenemy v Peterborough & Stamford NHS Trust
The bill was provisionally assessed by DDJ Davies on 30 March 2015 with the premium allowed in full. The Trust requested an oral hearing solely in respect of the premium. On 17 July 2015 the matter came before DDJ Holligan who found in favour of the Trust finding that it was unreasonable for the policy to have been taken out when it was, before Ms McMenemy's solicitors had seen her medical records to confirm the facts, and therefore before there could be any assessment of risk.
On 15 October 2015 Ms McMenemy was given permission to appeal.
HHJ Pearce heard the appeal on 15 February 2015 and allowed it. He held that the premium was recoverable in principle and remitted the case to a regional costs judge for consideration of the amount recoverable.
Case 2 Facts - Reynolds v Nottingham University Hospitals Foundation Trust
The Bill was provisionally assessed on 24 November 2015 with the premium allowed in full.
On 17 December 2015 the Trust requested an oral hearing to address the premium and other aspects. On 15 February 2016 DJ Rogers held that it was unreasonable to have insured against the cost of expert reports on the question of liability but that it would have been reasonable to insure against the cost of reports on causation. However, he declined to attempt to apportion the premium and disallowed the whole of it.
HHJ Moloney QC granted permission to appeal on 22 June 2016 on the basis that Mr Reynolds would either apply for the appeal to be heard by the Court of Appeal or that it would be stayed pending the disposal of the appeal in McMenemy.
Court of Appeal
The question before the Court of Appeal was whether ATE insurance could be taken out at all at the outset.
In arriving at their Judgment, the Court of Appeal considered three issues:
- Does the recoverability of ATE premiums engage the CPR
- Does the new test of proportionality apply to clinical negligence premiums
- Does the policy choice in Callery v Gray still apply
The Court of Appeal held that the CPR is engaged when assessing the recoverability of ATE premiums and that ATE premiums are subject to the scrutiny of the court. The Court of Appeal provided 5 reasons to support this finding which included:
- The court's power to make an order for costs is contained in section 51 of the Senior Courts Act 1981 which says that "subject to rules of court" costs are in the discretion of the court.
- Regulation 3 does not say that ATE insurance premiums are recoverable. It merely says that a costs order may include them. Clearly, then, the court has a discretion.
- Parliament must be taken to know that a "costs order" is an order made under the CPR.
The Court of Appeal held that the new test of proportionality does apply to post-April 2013 clinical negligence premiums.
The Court of Appeal considered whether they should now depart from the policy choice made in Callery v Gray in the light of the changed legal landscape; and in particular (a) the introduction of QOCS, (b) the restrictions on recoverability of ATE premiums limited to certain expert reports and (c) the new test of proportionality.
The Court of Appeal was not persuaded that they should depart from the policy decision taken in Callery v Gray and thus examine the reasonableness of taking out ATE insurance on a case by case basis. The Court of Appeal was neither persuaded that the new proportionality test requires a case by case approach.
The Court of Appeal recognised that case law has emphasised that costs judges do not have the expertise to second guess the insurance market, still less to deconstruct a policy that is offered as a package into its constituent parts (Rogers v Merthyr Tydfil).
The Court of Appeal held that it was still permissible for ATE insurance to be taken out as soon as a claimant enters into a CFA.
The Court of Appeal dismissed the appeal of Peterborough & Stamford NHS Trust and allowed that of Mr Reynolds.
It is evident that there is a gap in the CPR and Practice Directions in dealing with the recoverability of ATE insurance premiums in clinical negligence cases. The Court of Appeal recognised this and invited the Rules Committee to reconsider this.
The Court of Appeal has now provided a ruling on the principle of whether ATE policies can be taken out at the outset. In terms of quantum, the Court of Appeal recognised that it may well be open to Defendants to challenge the reasonableness or proportionality of ATE premiums, but that was not something which was to be decided in this case. The Court of Appeal said that questions relating to quantum are due to be considered by this court in another test case.