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Liability of third party funders / coverage re. costs in PL policies

News | Thu 25th Feb, 2016

The Court of Appeal handed down a judgment in the case of Legg & Ors v. Aviva [2016] EWCA Civ 97 yesterday. The case concerned the scope and application of the rule relating to a party’s ability to secure an adverse costs order against a third party who funded the unsuccessful claim by a claimant /defence of a defendant.  Additionally it concerned the proper approach to the interpretation of a “costs” term in the Defendant’s “Public Liability” policy.   

The short message in relation to the first issue is that Insurers cannot choose to inter-meddle in litigation against their Assured without facing the costs consequences when the claim against the Assured is ultimately successful.  The choice for the Insurer is to decide whether or not the claim brought against its Assured falls within or outwith the cover afforded by the policy and to act consistently with that decision.  If the decision reached is that the claim is not covered by the policy terms then it should stay out of the litigation against its Assured and await any subsequent claim that may be brought against it under the provisions of the Third Party (Rights against Insurers) Act 1930, which it can then contest on that very ground.  If, on the other hand, the Insurer chooses to become involved in supporting its Assured in seeking to defeat the claim against the Assured it will probably be found to have chosen to become a third party funder in that litigation and, so, be at risk of an application under s.51 of the Superior Courts Act 1981. 

The second message for Insurers is that, if they consent to the incurring of costs by an Assured in defending a claim, they will only avoid liability to meet the costs of the party which succeeds in its claim against the Assured if its policy wording quite specifically excludes liability for such costs.  Whether such an exclusion of liability for costs incurred with Insurers’ consent is a readily marketable product is another matter altogether.    

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