The English Court of Appeal has Forced an Insurer to Pay the Opposing Parties’ Costs Personally

In the case of Kylie Palmer v Estate of Kevin Palmer (deceased) and others [2008] EWCA Civ 46, the Court of Appeal has refused to overturn a decision forcing Royal Sun Alliance (RSA) to pay the opposing parties’ costs personally. The claim arose after a six year old girl was severely injured in an automobile accident. The parties involved eventually brought proceedings against PZ Products Limited, the manufacturer of the “Klunk-Klip” a product fitted to the girl’s seat belt. It was alleged that the product was defective and that the girl suffered her injuries as a result.

RSA provided product liability cover to PZ Products Limited, the limit of which was £500,000. It was common ground at trial that if the claim succeeded this amount would be surpassed. RSA instructed the law firm Berrymans Lace Mawer (BLM) to represent its insured, PZ Products. RSA and PZ Products Limited were both in contact with BLM and BLM together with counsel advised that PZ Products Limited had a good defence to the claim against it.  In January 2006 the claimant made a Part 36 offer to settle the matter for £300,000. At this point, PZ Products Limited was in danger of becoming insolvent and its Klunk-Klip business was all but extinct. BLM was informed of these facts and the judge ruled that BLM would not have kept such facts from RSA. Despite the financial condition of the company the offer was rejected by BLM on the instructions of RSA. Crucially, neither BLM or RSA consulted PZ Products Limited before rejecting the offer once PZ Products learned of the rejection three days later and it agreed with the decision. It is important to note that at this point PZ Products may have been saved financially if it had accepted this offer. The matter eventually went to hearing and the judge ruled that PZ Products Limited was liable and the company subsequently closed.

His Honour Judge McKenna found that, given the state of PZ Products’ finances and the collapse of the Klunk-Klip business, the real interest being protected in the litigation was RSA’s. Consequently, RSA was ordered to personally pay the opposing parties’ costs.  The judge based this finding on the way the litigation had been managed and the fact that RSA/BLM had not sought to include PZ Products in the rejection of the Part 36 offer.  The Court of Appeal ruled that the evidence before the judge was amply sufficient for him to make such a ruling.