John Mowlem Construction Plc v Neil Jones & Co. Solicitors (a firm)

Under a professional indemnity policy, the insuring clause may cover the assured’s legal liability for a successful claimant’s costs arising from a claim. Those costs fall within the policy limit for sums payable under the insuring clause. A separate costs and expenses clause, expressed to operate in addition to that limit and referring to costs incurred with the underwriters’ consent in defending or settling a claim, covers the assured’s own defence or settlement costs. It does not extend to a claimant’s costs award.

The claimant brought a professional negligence action against the defendant solicitors, who had advised an insolvent subcontractor in an arbitration concerning engineering and construction works. The claimant claimed an assignment of the subcontractor’s rights and alleged that the solicitors should have advised the subcontractor to notify an earlier professional indemnity policy of the threatened counterclaim.

The parties agreed that the strike-out hearing should determine only the construction of the 1996/1997 policy. The central issue was whether costs awarded to a successful claimant in the arbitration were covered by the separate costs and expenses clause or constituted sums legally payable under the insuring clause.

1. Construction of the insuring clause. The words indemnifying the assured for sums which it might become legally liable to pay arising from a claim were sufficiently wide to include damages, compensatory awards or judgments, and the reasonable costs of a successful claimant in prosecuting the claim.
2. Construction of the costs and expenses clause. The clause operated in addition to the indemnity limit and referred to costs and expenses incurred with the underwriters’ written consent in the defence or settlement of a claim. It therefore covered costs incurred by the assured in defending or settling the claim, commonly described as defence costs.
3. The policy distinguished between the assured’s defence costs and a claimant’s costs awarded following successful prosecution of a claim. The latter were liabilities arising from the claim and fell within the limit of the insuring clause and the schedule.
4. The same conclusion applied where costs arose from successfully defending a counterclaim. Treating such costs as recoverable under the additional costs clause would require the underwriters to consent to costs incurred by the claimant’s solicitors, an unworkable result inconsistent with the wording of the policy.
5. The court accordingly determined that the additional costs and expenses clause covered only costs incurred with the underwriters’ written consent by the assured in defending or settling a claim, while a claimant’s prosecuting costs fell within the insuring limit.