Insurers entitled to reimbursement of defence costs where claim not covered
The claimant notified his professional indemnity insurers of a claim against him. The insurer was obliged under clause C10.2 of the ICAEW's Minimum Terms to advance defence costs in relation to that claim "in the event of any dispute concerning liability to indemnify the insured...pending resolution of any such dispute". The insurer separately disputed cover under the policy and referred the matter to arbitration. The arbitrator held that there was no cover under the policy and the claimant was ordered to pay the arbitration costs. The claimant was given a number of extensions to respond but before expiry of the last deadline, the arbitrator found that the insurer was entitled to reimbursement of the defence costs and the claimant was ordered to make a payment on account of costs within 28 days of the award. The claimant appealed/challenged the award under sections 69 and 68 of the Arbitration Act 1996 and Popplewell J has now held as follows:
- The arbitrator had not erred in finding that the insurer was entitled to reimbursement of the defence costs. It would "have the effect of altering the scope of cover" to allow defence costs to be covered so long as they were incurred at a time when coverage was still in dispute. The judge rejected an argument that "pending" in clause C10.2 meant "until": "It is absurd to suppose that...[there is] no right of reimbursement to insurers if coverage were held not to exist".
- However, the court agreed that the claimant, a litigant in person, had been deprived of a fair opportunity to advance his arguments in relation to the award to pay the insurer's costs and to make a payment on account. That had breached the arbitrator's duty under section 33 of the 1996 Act and so these matters were remitted to the arbitrator for reconsideration.
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