Adding Insult To Injury - Costs Orders Against Non-Party Insurers

Costs orders against non-party insurers are not common in Australia. However, the English authorities highlight the risk of direct cost orders against insurers whose insureds cannot satisfy a successful claimant's costs. Plymouth & South West Co-Operative Society Ltd v Architecture Structure & Management Ltd1 demonstrates that insurers may not be protected by the fact that the policy limit of indemnity has been exhausted.

The plaintiff in Plymouth sued the defendant for negligent architectural services. The defendant insured had ceased trading and was facing liquidation. The insured's professional indemnity insurers defended the plaintiff's claim. The plaintiff succeeded and was awarded damages of ?2.07 million plus costs of around ?1 million.

The insured's professional indemnity policy was subject to a ?2 million limit of liability. Insurers paid out the full limit of liability which effectively left the insured responsible for the plaintiff's costs. With the insured declared insolvent following judgment...