Liability Insurance - Defence costs

(Thornton Springer v NEM Insurance Co Ltd, March 2000, forthcoming in [2000] Lloyd’s Rep IR)

The basic obligations of a liability insurer are to indemnify the assured against any successful claim and also to indemnify the assured against defence costs. Those obligations are generally divisible, so that even if the claim against the assured fails, the insurers remain liable to meet defence costs. In principle, as liability insurers are not liable for any claim which falls outside the scope of the primary cover, they cannot be liable for the costs of defending a claim of this type. The difficulty in applying these principles is that an action against the assured might be based on a number of grounds, some within and some without the policy, and it may be unclear, until the claim against the assured is determined whether or not the insurers are liable to meet it. The question discussed by Mr Justice Colman in Thornton Springer v NEM Insurance Co Ltd , March 2000, forthcoming in Lloyd’s Rep IR, was whether insurers were liable for defence costs in proceedings in which the assured was found to be not liable to a third party for reasons which took the claim against the assured outside the scope of the policy. The case is significant, as the terms in question are standard in professional indemnity covers.