In Legg & Ors v Sterte Garage Ltd and Aviva UK Limited [2016] EWCA Civ 97, the Court of Appeal upheld the first instance decision that a third party costs order made against the defendant insurer was justified in circumstances where there was ample evidence that the insurer had acted exclusively or predominantly in its own interests in defending claims brought against its insured.

Proceedings had been brought against Sterte Garage Ltd (Sterte) for negligence (among other things) relating to a leak of diesel from its premises. The defence was, initially, conducted by Aviva UK Limited (Aviva), Sterte’s public liability insurers. A defence to the claim was filed denying liability by solicitors jointly instructed by Sterte and Aviva, with Aviva funding the defence costs. As proceedings progressed, it became apparent that there were two possible sources of the leak of diesel, one of which may have been covered by the policy and one which was not. On the basis of this information, the solicitors instructed by Aviva came off the record on behalf of Sterte. Sterte was subsequently wound up and judgment was entered against it, including an order for the claimant’s costs in the amount of £84,450. The claimant then sought to obtain a third party costs order against Aviva pursuant to s51(3) of the Senior Courts Act.

The Court of Appeal, agreeing with the first instance judge, held that a third party costs order against Aviva was appropriate. The decision was made principally on the grounds that there was sufficient evidence before the first instance judge to find that in taking over the defence of the claim against Sterte and funding that defence, Aviva was acting exclusively or predominantly in its own interests. Aviva’s purpose in defending the claim was to seek to defeat the claim against Sterte which would have been covered by the relevant policy; it had no interest in defending the claim to the extent that it was caused by other (non-covered) polluting factors. The evidence strongly suggested that had Aviva not funded the defence of the claim, Sterte would not have done so, and the claimants would have avoided incurring the costs in question. This conduct justified the making of a third party costs order under s51(3) of the Senior Courts Act.