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Recovering Legal Defence Costs

Posted 07 May 2014

Category: Strata Insurance


  1. The recovery of legal defence costs is something that is often overlooked because of the emphasis on dealing with the claim or defence rather than what happens afterwards. The right to recover costs arises when an insured (who is covered) wins its defence and the other party is ordered to pay its costs.
  1. The obligation to recover legal costs may or may not fall on the insured depending on what the policy says. Since legal costs can, and often do, run into the tens of thousands and even up to the limit of cover it makes great sense for insurers to take steps to recover such costs. The initial question is who should recover the costs, and then how to go about it.
  1. One of the difficulties faced by insurers, however, is that the insured may neglect to advise of the favourable costs order. Whilst one might expect that the policy would deal with this simply, by saying the insured should advise the outcome, it often does so somewhat opaquely by requiring an insured to provide “useful information” about the claim. It is suggested that these policies be amended to require the insured to advise of the outcome, and in particular any costs orders made once they are known.
Who has the obligation to recover? The insured must take reasonable steps to recover such fees see: Cl 10 The right to recover is assigned to the insurer and may choose whether to exercise it or not see: “General Claims Procedures Relating to All Sections”
What is required? Reasonable steps must be taken which in turn may depend on matters such as:-

* The terms of the costs order;* The amount to be spent on the recovery;

* The ability of the judgment debtor to satisfy judgment.

The insured needs to advise of the outcome and, and then it is up to the insurer.
Can the insurer subrogate? Yes, see: Cl 12 Yes, see: “General Claims Procedures Relating to All Sections”
  1. Note that section 67 of the Insurance Contracts Act 1984 (Cth) sets out the rights with respect to monies recovered by the insurer / insured. The section contemplates that the recovery can be either by the insured or by the insurer and sets out how the amounts so recovered should be shared.
  1. The court usually orders costs to be agreed or assessed. The court may also order that the costs be assessed on one of three bases: indemnity; solicitor/client; and party/party.
  1. Where costs are ordered to be agreed or assessed, the process for recovering costs typically involves a negotiation with the other party. Where there parties are unable to agree on the amount of the legal costs to be paid an assessment is required. A table setting out the process for the assessment of costs can be viewed below.
  1. Sometimes but less often, the court may itself fix the amount of costs to be paid at the same time as making the costs order rather than order they be agreed or assessed.

***The information contained in this article is general information only and not legal advice. The currency, accuracy and completeness of this article (and its contents) should be checked by obtaining independent legal advice before you take any action or otherwise rely upon its contents in any way.

Bannermans Lawyers

Published 07 May 2014

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