Claimants should be able to take out – and subsequently recover – insurance premiums as soon as they enter a conditional fee agreement, the Court of Appeal has ruled.

Lord Justice Lewison rejected challenges from NHS trusts in two cases grouped together to test the principle of recoverability of after-the-event insurance premiums.

In Peterborough & Stamford Hospitals NHS Trust v McMenemy & Ors, the claimants had taken out insurance as soon as solicitors were instructed, then settled their cases by accepting compensation before proceedings were issued and before any expert report was commissioned.

In both cases, the claimants’ insurers tried to recover around £5,000 which they said was recoverable from their opponent. Lower courts had come to different decisions and both cases were referred to the Court of Appeal for a definitive ruling that has been widely anticipated by lawyers and insurers working in the personal injury sector.

Lewison acknowledged the heavy burden of clinical negligence costs on NHS trusts, but said that entering into a block-rated ATE policy at the same time as entering into a CFA was a reasonable way to conduct litigation.

The judge said the government had known, when it created the costs regime through the Legal Aid, Sentencing and Punishment of Offenders Act, that ATE policies were taken out at the same time as entering a CFA, and must have intended ‘not to disturb that practice’.

Lewison said the court had to decide whether the costs incurred were reasonable, asking how likely it was that the claimants would need to incur the cost of an expert’s report, and if so how much it would cost.

The judge said it was clear from the government’s formal response to the Jackson report that ministers had decided ATE insurance premiums relating to expert reports could be recovered. ‘The concern was that claimants might not be able to afford the ‘upfront’ costs of such reports, and thus that access to justice might be duly restricted,’ added Lewison.

Case law, he stressed, had emphasised that costs judges do not have the expertise to ‘second guess’ the insurance market and could not deconstruct a policy that is offered as a package.

Lewison added that it was ‘unfortunate’ that the rules committee had decided that there was no need for rules or practice directions dealing with the recovery of ATE in clinical negligence cases, and he invited the committee to reconsider this issue.