Where the defence of a claim is pursued solely or predominantly in a professional indemnity insurer’s interest, the court will order the insurer to pay the costs of the successful claimant under s51 Supreme Court Act 1981. Such an order was appropriate in this case where the insured, ASM, was insolvent and had no commercial interest in defending the case, nor did it have a professional reputation to protect. Comment: this decision does not change the law but provides a useful reminder of the risks insurers face if they pursue litigation in their own interests. Previous case law, culminating in Cormack v Excess Insurance Co Ltd, identified the following factors which must be present before it will be appropriate to order the defendant’s insurers to pay the claimant's costs:
- The insurers funded the defence.
- The defence failed in its entirety.
- The insurers, rather than the defendant, determined to defend the claim.
- The insurers had the conduct and control of the litigation.
- The insurers fought the claim exclusively (or predominantly) to defend their own interests.
These factors are only likely to be present in a relatively rare class of cases in the context of liability insurance. Firstly, the policy must contain a limit and secondly, either because the insured has no assets or the claim is thought to be well within the policy limit, the litigation is controlled by the insurers and not jointly by them and the insured. In cases of professional indemnity, it is generally less likely to be appropriate to make an order for costs against the insurers. Concern about the insured’s reputation will usually indicate that the insurers were also acting in the insured's interest. This case is unusual, therefore, since the insured’s reputation was no longer a relevant concern.