In D Sousa v London Borough of Waltham Forest Council [2011] EWCA Civ 194 the Court of Appeal upheld an insurer’s right to recover a success fee paid under a Conditional Fee Agreement (CFA) as part of the recovery of its costs. The local authority (WFC) brought this appeal after the decision at first instance provided judgment for the claimant (S) [previously blogged at https://www.insurereinsure.com/blog.aspx?entry=2497].
The main argument in WFC’s appeal was that it would be unreasonable for S to be entitled to recover a success fee when he had already been fully indemnified for his legal costs by his insurer. However, the Court of Appeal dismissed the claim giving the following reasons:
- It was clear law that the insured was entitled to recover not only his costs but the success fee as well. The doctrine of subrogation does not affect this position. The fact that S had ratified the acts of the solicitors in acting as his solicitors on the instructions of his insurer, meant that S had also ratified whatever instructions the insurer had given the solicitors in pursuing the claim in S’s name. Therefore in relation to the CFA, as the solicitors had been acting pursuant to it and S could be taken as instructing them on the same basis as the insurer had (on CFA terms) it was consequently S’s CFA.
- It was necessary for the court, by virtue of CPR 44.3(4), to have regard to the particular circumstances of the case, including the reasonableness of the insurer entering into the CFA. Despite widespread concern about the practice of insurers using CFAs which essentially doubled the burden on local authority resources, the law as it stood was presently in the insurers’ favour. As the ability to enter into a CFA is not limited to disadvantaged or vulnerable parties, it was reasonable for insurance companies to seek to benefit from what was legally permitted. Accordingly the insurer was entitled to recover the success fee arising from the CFA.