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    UK: Court of Appeal: Approach to costs where Part 20 Defendant insurer found not liable

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    In United Marine Aggregates v GM Welding & Engineering Ltd and Novae Syndicates, the Court of Appeal overturned a costs award of a first instance judge which had unfairly penalised the Part 20 Defendant insurer in costs, despite it ultimately not being liable. An unsuccessful appeal was brought by GM Welding & Engineering Limited (GM) on the issues, but its insurer, Novae Syndicates Limited (Novae), filed a cross-appeal on costs.

    The claimant at first instance, United Marine Aggregates Limited (UMA), had engaged GM to carry out hot work at its processing plant. A fire broke out, causing extensive damage, which UMA claimed was caused by the works GM’s employees had been carrying out at the plant. UMA alleged breach of contractual and tortious duties against GM, which sought indemnity from its public liability insurer, Novae, through Part 20 proceedings.

    At first instance, Novae denied liability on the grounds that GM was in breach of a warranty in its insurance cover which required it to carry out work in accordance with the insurer’s safety requirements. In any event, Mr Justice Edwards-Stuart held that GM was not liable to UMA as it had taken the agreed precautions against fire and the fire was not reasonably foreseeable. No indemnity from Novae was therefore required; however, the circumstances which caused the fire proved that GM had breached the insurance policy warranty so that, had UMA’s claim succeeded, GM would not have been entitled to an indemnity. Even so, the judge limited Novae’s recovery of its costs to 50% on the basis that it had prolonged the trial and had been unsuccessful in respect of two further alleged breaches of warranty.

    Allowing Novae’s appeal, the Court of Appeal noted that neither UMA nor GM had suggested that Novae should be deprived of any of its costs. Edwards-Stuart J erred in principle in reflecting his concern regarding the level of costs incurred – this was a matter for assessment. In the face of a substantial claim, Novae was entitled to defend its refusal to indemnify and it should not have been penalised for having pursued some issues on which it lost. Since GM had been awarded all of its costs, it was only fair to award Novae (as Part 20 Defendant) all of its costs as well.

    The case highlights the potential unfairness of penalising the Part 20 Defendant insurer in costs, particularly in circumstances when none of the parties had actually suggested any reduction and any issues over the insurer’s conduct could have been dealt with on assessment.

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