Can my insurer insist that I use its panel lawyers?

It depends on the wording. Some policies give the insurer control of the defence and the right to appoint solicitors. Others let the insured choose, subject to the insurer's consent, which cannot be unreasonably withheld. A conflict of interest, for example over a coverage question, may justify separate representation. The answer turns on the specific clause and the circumstances.

What happens if the insurer reserves its rights but pays my costs?

A reservation of rights keeps the insurer's coverage defences open while it funds the defence. It may later argue that cover does not exist and, if the policy allows, seek repayment. It is important to respond to each reserved ground in writing and to keep the insurer informed, because conduct during this period can affect later arguments about waiver, estoppel and prejudice.

How are defence costs split when only part of a claim is covered?

Many policies contain an allocation clause setting out how costs are divided between covered and uncovered matters or parties, sometimes with a referral to an independent senior counsel if agreement cannot be reached. Where there is no clause, the question depends on how the policy is construed and whether the costs were reasonably incurred in defending the covered part of the claim.

Defence Costs Disputes Lawyers | GopherWood Lawyers

In this practice area

Disputes over whether a liability insurer must fund the defence of a claim, how much it must pay, and how costs are allocated between covered and uncovered matters.

What these disputes are about

For many insureds the most valuable part of a liability policy is not the indemnity for damages at the end of a case but the payment of legal costs along the way. Defence costs can exceed the amount eventually paid to the claimant. When an insurer refuses to fund a defence, funds it only in part, or insists on its own choice of lawyers, the insured bears the cost and the risk while the coverage argument is unresolved.

These disputes arise under professional indemnity, directors and officers, management liability, public liability and statutory liability policies. Common triggers are a declinature based on an exclusion, a reservation of rights, and disputes about consent and allocation.

The legal framework

The starting point is the policy. Some policies give the insurer the right and duty to defend. Others provide that the insurer will pay defence costs incurred with its written consent, not to be unreasonably withheld. Many directors and officers policies contain an advancement clause, requiring the insurer to pay costs as they are incurred until it establishes that an exclusion applies, often with a right to repayment if cover is later found not to exist.

Where a claim includes covered and uncovered allegations, or covered and uncovered defendants, the policy may contain an allocation clause. Absent a clause, the question is one of construction, and the courts have looked at whether costs were reasonably incurred in defending the covered claim. The insurer's duty of utmost good faith under section 13 of the Insurance Contracts Act 1984 (Cth) applies to how it handles the claim, including the time it takes to decide and pay. Section 57 entitles the insured to interest on a claim that has been unreasonably withheld.

How these matters run

Time pressure is usually acute because the underlying proceedings do not wait. Defences must be filed and evidence prepared while the coverage position is still being argued. Early steps include confirming notification, requesting consent to the insured's chosen solicitors and counsel, providing costs estimates, and responding in writing to each ground in a reservation of rights so that the record is clear.

If the insurer will not move, the insured may seek urgent declaratory relief that the insurer is obliged to advance costs, which the courts can hear on an expedited basis. Where the claim has already been defended at the insured's expense, the dispute becomes a claim for reimbursement with interest.

How GopherWood Lawyers acts

We review the policy wording, the claim documents and the insurer's correspondence together, and advise quickly on whether the insurer's position on costs is open to it. We prepare notification and consent requests so they meet the policy's conditions, negotiate allocation where a claim is only partly covered, and where needed commence proceedings for declarations and reimbursement.

Defence Costs & Indemnity Disputes