Solicitors' PI and ATE Insurance: A Cautionary Tale

A recent decision in the Commercial Court is the latest chapter in the fallout from the "miners' claims" concerning wrongful deductions made from compensation awarded to them. The Judgment sheds light on several issues that may arise when an ATE backed claim does not go according to plan. The case concerned a failed application for a Group Litigation Order to facilitate claims being made by a group of miners against a trade union, its claims handling company, and various firms of solicitors who had allegedly made wrongful deductions from compensation received by the miners under British Coal Compensation Schemes. When a substantial costs order was made against the miners following the failed application, their ATE Insurer, Templeton Insurance Ltd, purported to avoid the policy and refused to indemnify the miners. The GLO application was the subject of savage criticism by the Judge, Sir Michael Turner, and wasted costs applications were pursued against GWM, solicitors for the miners. GWM had given the miners a guarantee, assuring them that they would incur "no fee, no risk, no cost." Accordingly, in the absence of any indemnity advanced by Templeton, GWM was "on the hook" and was obliged, through their PI insurer, QBE, to settle the costs claims made by the Respondents to the GLO application. This subsequent Commercial Court case saw QBE successfully bring a subrogated claim, in the name of GWM, against Templeton who was held liable, both under the Civil Liability (Contribution) Act 1978 and in restitution, to pay to GWM the full amount that the miners were entitled to under the ATE policy, up to the £1 million policy limit. The Judgment contains some important lessons and implications for both ATE insurers and solicitors.

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The decision of Cooke J handed down on 26 October 2010 brought to an end this protracted litigation, which had its origins in a seemingly routine application for a Group Litigation Order made in October 2005 by a number of former coal miners against a trade union, its claims handling company and various firms of solicitors. It represents the latest development in the long running saga concerning deductions made from the personal injury compensation of hundreds of thousands of miners.

The GLO application

The GLO arose out of the allegedly wrongful deductions made by the GLO Respondents from compensation paid to the miners under the British Coal Compensation Schemes. The GLO application was fiercely contested by all the Respondents and was ultimately dismissed by Sir Michael Turner in May 2006, but not before the Respondents had run up costs in excess of £1.2 million. The Claimant in the present action ("GWM") had acted on behalf of the miners in the GLO application under Conditional Fee Agreements backed by an ATE policy issued by Templeton (a company registered in the Isle of Man), which covered costs and disbursements with a policy limit of £1 million. In dismissing the GLO application the Judge was extremely critical of the manner in which it had been made and pursued, and indeed of the decision to make the application at all – which he described as "misconceived and...a gross abuse of the system which has been devised for the pursuit of group litigation where there is a valid group litigation issue". He therefore ordered the miners to pay the Respondents' costs on an indemnity basis, with an interim order in the sum of £600,000.

Templeton's response was to notify...