Other Areas of Law
Kelly v Black Horse - reasonableness of ATE premiums in PPI litigation

Another recent example of the courts’ more robust approach to costs (as to which, see also my earlier posting on Willis v MRJ Rundell & Associates Ltd) is found in Kelly v Black Horse [2013] EWHC B17 (Costs).

Kelly was a fully-contested PPI claim which the claimants won. The district judge ordered that the balance of their outstanding loan (£5,200) be written off, that the defendant should re-pay the claimants the sum of £6,000 and that the claimants should receive 70% of their costs, to be subject to detailed assessment if not agreed.

Senior Costs Judge Hurst conducted the assessment. One issue for him to decide was whether the claimants were entitled to recover in full their ATE premium, which had cost them £15,900. On any analysis the premium paid was high when compared to both parties’ costs – the claimants’ base costs were in the region of £14,000 whereas the defendant’s costs were £5,837.10.

The judge decided that it was not reasonable for the defendant to have to pay the full ATE premium and he set out his reasons for reaching that decision in a written judgment ‘in the hope that this may assist in resolving future disputes in this area’.

As part of his decision, he rejected the claimants’ risk assessment as being ‘entirely meaningless’ and substituted a success fee of 53.85% (based on a 65% chance of success) in place of the 100% originally claimed.

He then analysed the reasonableness of the ATE premium by first calculating the so-called ‘burn premium’ (i.e. the risk of paying out multiplied by the claimants’ estimated maximum liability) and then increasing that figure by an appropriate percentage to reflect brokerage and profit. The judge found that the claimants’ maximum liability was £7,243.30 (i.e. claimants’ disbursements of £1,406.20 plus defendant’s costs of £5,837.10) and that they had a 35% chance of being liable for this sum. Thus the burn premium was £2,535.16 (0.35 x £7,243.30), which when uplifted by 25% to reflect brokerage and profit, produced an appropriate figure of only £3,168.95. Even if the potential costs exposure had been anticipated in the region of £8,500, the appropriate figure to pay by way of ATE premium would have been no more than £3,677.63.

The judge therefore concluded as follows: ‘There is no doubt that the ATE premium sought in this case is wholly disproportionate… I have been given no evidence as to the information which was given to the ATE insurers to enable them to rate the policy, but, given the risk assessment completed for the purpose of the CFA, which was entirely meaningless, it is safe to assume that the insurers were not given accurate information.’

In those circumstances the judge decided that it was only reasonable to expect the defendant to pay 25% of the premium claimed of £15,000, which produced a figure of £3,750. This figure compared favourably with the earlier figures calculated by reference to the burn premium.

It is suggested that this decision reflects a greater willingness on the part of the courts to analyse the reasonableness of ATE premiums, without recourse to expert evidence. Potentially also, it heralds a significant reductions in the level of legal costs that the defendants are required to pay to successful PPI claimants.


[View All News]

Subscribe for our newsletters, updates and seminars