Litigants have always been able to buy after-the-event cover (insurance cover in respect of their costs exposure), but it has always been perceived as expensive. Suddenly, however, such cover has become much more attractive. For conditional fee agreements (CFAs) signed on or after 1 April, after-the-event insurance premiums (as well as success fees) are, in principle, recoverable from the loser.
Section 29 of the Access to Justice Act (AJA) 1999 states: “Where in any proceedings a costs order is made in favour of any party who has taken out an insurance policy against the risk of incurring a liability in those proceedings, the costs payable to him, may, subject in the case of court proceedings to rules of court, include costs in respect of the premium of the policy.”
Doubtless, insurers’ marketing copy will now say that not only can litigation be risk-free, it can be relatively inexpensive – if the litigation is lost, the claimant pays only the premium; if it is won, the claimant pays nothing at all. (The premium is recovered under s.29 of the AJA, the success fee under s.27.) There are, however, some catches:
* recoverability of premium under s.29 is discretionary – “may”;
* there would seem to be scope for argument as to whether s.29 applies only to cover relating to adverse costs (the other side’s costs) or encompasses own costs as well;
* a premium (as with a success fee) may not be recoverable to the extent that it is assessed not to be reasonable. The relevant draft practice direction allows scope for argument as to the criteria for ‘taxing down’ a premium. Until case law has built up in this area, there is some uncertainty as to whether all of a premium will be recoverable.
