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Are in house legal costs recoverable under a liability policy?

9 September 2015

Charles Dougherty QC sitting as an arbitrator handed down his award this week in an arbitration brought by a police authority against their insurer in which he ruled that the costs incurred by an in-house legal team did not fall to be indemnified under a policy of liability insurance.

The claimant’s in-house legal team had unsuccessfully defended a claim for malicious prosecution and sought an indemnity in respect of the award of damages and legal costs which the insurer paid. They then submitted a claim for the legal costs their in house legal team had incurred. The claim was rejected as in house legal costs were not covered by the indemnity policy as they were not a liability to a third party. This decision was upheld in the arbitration award.

With increasing numbers of public sector organisations seeking to handle their own legal claims in house this is a salutary lesson to check what cover is afforded by insurance policies to see whether in house legal costs are covered. Where defence costs are covered this will often be where the insurer has appointed lawyers to act on behalf of the insured. Where in house legal departments wish to retain conduct of any litigation, costs will often only be covered with the prior written consent of the insurer. The lesson is to check your policy wording.

Steven Conway acted for the successful defendant insurer.

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