Plymouth & South West Co-Operative Society Ltd v Architecture, Structure & Management Ltd (No 2)

On an application for a non-party costs order against professional indemnity insurers, the court may exercise its discretion under Supreme Court Act 1981, section 51, where the insured is liable for costs, cannot pay them, and exceptional circumstances make an order fair and reasonable.

Relevant circumstances include that the insurers decided the claim should be defended, funded and controlled the defence, pursued it predominantly to protect their own indemnity interests, and thereby caused the claimant to incur costs which would otherwise have been avoided or recovered. Each insurer’s liability may be limited to its contractual share of the indemnity liability. The insurers may be permitted to intervene in the detailed assessment of costs.

The claimant had obtained judgment for damages and interest against an incorporated architectural practice following a professional negligence claim. The defendant had ceased trading and could not satisfy the judgment or the associated costs order.

Five insurers had provided professional indemnity cover and had instructed solicitors and funded the defence. The claimant therefore applied under section 51 of the Supreme Court Act 1981 and CPR 48.2 to join the insurers as non-parties for costs and require them to pay the unrecovered costs directly.

The central issues were whether the circumstances were exceptional and whether the insurers’ conduct had caused the claimant’s unrecovered costs.

1. Application granted. The claimant was permitted to join each insurer as a non-party solely for the purpose of claiming costs under section 51 of the Supreme Court Act 1981.
2. The court accepted the established factors for a non-party costs order against insurers: indemnity of the insured’s liability, a costs liability in favour of the claimant, inability of the insured to pay, exceptional circumstances, and causation of the claimant’s loss. The relevant exceptional circumstances included the insurers deciding that the claim would be fought, funding and controlling the defence, pursuing it predominantly in their own interests, and failing completely on liability.
3. Those circumstances were established. The insurers alone had decided that the claim should be defended after the defendant had ceased trading and was insolvent or effectively insolvent. They funded the entire defence and had conduct of it. The defendant’s representatives had supplied information and assistance, but the defence was pursued principally to protect the insurers’ liability under the policy and the Third Parties (Rights Against Insurers) Act 1930.
4. The defence was treated as having failed in its entirety. The reduction in damages compared with the sum claimed resulted from the assessment of loss, not from any material failure on liability or the basis of the claimant’s claim.
5. The insurers’ conduct caused the loss. Without the funded defence, the claimant could have obtained judgment with modest costs and then proceeded directly against the insurers within the indemnity limit. The costs incurred in the defended action were therefore occasioned or increased by the insurers’ conduct.
6. Each insurer was liable for 20 per cent of the recoverable costs because each had accepted 20 per cent of the overall indemnity liability. The insurers were given permission to intervene in the detailed assessment. The court declined to reduce the liability for alleged unreasonable conduct by the claimant, since any unreasonably incurred costs could be addressed on detailed assessment.

This was a first-instance application in the High Court. The judgment records that permission to appeal the underlying judgment had been refused on paper and was not renewed to the full court.