Insurers personal liability for costs


08 February, 2008

Kylie Palmer v Estate of Kevin Palmer (deceased) & MIB & PZ Products Ltd & Royal And Sun Alliance Insurance Plc

The Court of Appeal on the 6th February 2008 delivered a judgment where an insurance company had funded, controlled and directed in its own interest the defence of a personal injury claim against its insured, and in those circumstances it had been appropriate to order it personally to pay costs incurred in the claim pursuant to the Supreme Court Act 1981 s.51.

The Act allows an applicant to join a non party to proceedings and that the non party to pay the costs of those proceedings in exceptional circumstances.

RSA were the insurers of PZP, the manufacturers of a device which had been fitted to a seat belt, which the Court had found was unsafe and defective and contributed to the Claimant's injuries in a car accident. RSA had financed PZP's unsuccessful defence of the claim.

Damages were likely to exceed £2 million but the product liability insurance with RSA was limited to £500,000 for damages and costs. The co-defendants had put forward a £300,000 Part 36 offer with the offer being rejected on the basis the claim was defendable but without reference to PZP.

The Court of Appeal concluded that "to all intents and purposes RSA were the relevant defendant in all but name" and that PZP had no commercial interest in pursuing its defence and RSA should have recognised that given the financial position of PZP who were close to insolvent.

Based on the evidence there was a finding that the defence of the claim was throughout conducted on the basis that the only real interest being protected was RSA.


The Court's powers to order that the insurers could be personally liable for costs where they have a vested interest in the outcome is chiefly to ensure that the winning party in litigation is not deprived of his costs through the insolvency of the losing party.

In another context, Defendants may be able to use the jurisdiction in seeking a third party costs order against an ATE insurer where they refuse to indemnify an unsuccessful Claimant and where it can be established that they have ultimate control of the litigation.

For further information please contact Ridwaan Omar. Tel: 01254 222434, email Ridwaan Omar


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