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Susan Levingstone v Arthur O'Leary, Aidan Kenny and
Paddy Kelly [2019] IEHC 550 (High Court, Barrett J, 17 July
2019)
A recent decision of the High Court provides some insight as to
the extent to which an insurer may be liable to pay costs when it
instructs its solicitors to come off record for an insured in legal
proceedings, on the basis that they are refusing to provide
indemnity/cover in respect of the proceedings.
Background
LK Shields applied for an order to come off record for Mr.
O'Leary, the first named defendant, in circumstances where
Liberty Insurance, Mr. O'Leary's insurer, had refused to
provide indemnity/cover as a result of the failure by him to
respond to correspondence from LK Shields about the case.
Coming off record
The court noted that since the Supreme Court decision in
O'Fearail v. McManus, the general view is that the
courts should not place a solicitor and a client into a
"forced form of liaison". The court also noted the
comments made by the judge in Moloney v Malhas & Ors
that "in deciding an application to come off record in ...
insurance cases, it is no function of the court to decide whether
the insurer was or was not entitled to repudiate
liability". However, while an insurer is entitled to come
off record, there can be consequences from a costs perspective if
they do.
Costs
The court noted that the position with costs had been
comprehensively dealt with in Moloney. The court said it
was free to make three types of orders relating to costs: (i) no
order as to costs; (ii) an order for the costs of the motion; and
(iii) an order for costs beyond the costs of the motion. LK Shields
argued, as the court had found in Moloney, that a
plaintiff would have to show that there was an "unusual
feature" to a case to lead the court to depart from the
standard award of the costs of the motion only.
In this case, the court was of the view that an "unusual
feature" did exist in circumstances where, in the face of the
persistent failure by Mr. O'Leary to respond, it did not see
that it should have taken close on six years for the insurer to
decide that he was in breach of condition 7(a)(iv) of the policy
(which required Mr. O'Leary to give any information and
assistance as the insurer required).
The court was of the view that by the time the second batch of
reminder letters were sent to Mr. O'Leary, close to three years
after the initial letter was sent, and with LK Shields (and the
insurer) being no further down the road in terms of getting him to
provide the necessary information and assistance, the insurer was
in a position to decline cover on the basis eventually proceeded
with.
The court emphasised that its comments in this regard were not
to determine whether the insurer's decision to decline cover
was valid or not - but rather to determine when the court
considered the handling of matters strayed into such an
extraordinary level of delay as to constitute an "unusual
feature". The court was of the view that the insurer had
been responsible for an extraordinary level of delay.
Conclusion
The court allowed LK Shields to come off record, subject to the
condition that Liberty must bear the costs of the application and
also any costs borne by the plaintiff in processing her claim
against Mr. O'Leary from 5 February 2015, the date on which the
court was of the view that Liberty was in a position to decline
cover on the basis eventually proceeded with, to the date of the
application. The court held that if the insurer was prepared to
give an undertaking to the court to discharge the costs as
outlined, the matter would be dealt with on that basis, otherwise,
it would have to be joined as a party to the proceedings for the
purposes of ensuring recovery of those costs.
Comment
Where an insured is being uncooperative, an insurer will be
required to give enough time to allow the insured the opportunity
to engage with them. In such circumstances, the insurer will have
to take care, however, not to allow for more time than may be
deemed necessary to establish that cover is being declined. If a
court feels that there has been excessive delay in making a
decision to decline, the insurer will be liable not only for the
costs of an application to come off record but also any costs
incurred by the plaintiff in pursuing a defendant for any period
after which the insurer could be considered to have delayed in
making its decision.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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