Citibank NA v Excess Insurance Company Ltd [QBD]
| Jurisdiction | England & Wales |
| Judge | Thomas J. |
| Judgment Date | 07 August 1998 |
| Court | Queen's Bench Division |
| Date | 07 August 1998 |
Queen's Bench Division.
Thomas J.
Adrian Brunner QC (instructed by Hextall Erskine) for the first plaintiff (by Dibb Lupton) for the second plaintiff and (by Watmores) for the third plaintiff.
Peter Coulson (instructed by Lloyd Cooper) for the defendants.
The following cases were referred to in the judgment:
Aiden Shipping Co Ltd v Interbulk LtdELR [1986] AC 965
Australia & New Zealand Bank v Colonial & Eagle Wharves LtdUNK [1960] 2 Ll Rep 241
Bahai v RashidianWLR [1985] 1 WLR 1337
Haydon v Lo & Lo (a firm) [1997] CLC 626; [1997] 1 WLR 198
Murphy v Young & Co's Brewery plc [1997] CLC 469; [1997] 1 WLR 1591
Symphony Group plc v HodgsonELR [1994] QB 179
TGA Chapman Ltd v Christopher [1997] CLC 1306; [1998] 1 WLR 12
West Wake Price & Co v ChingWLR [1957] 1 WLR 45
Insurance — Costs — Limit of liability under public liability policy — Whether there was one claim or series of claims arising out of one cause — Whether limit of liability inclusive of costs of defending claim — Whether parties entitled to costs order against insurers after policy limit reached — Supreme Court Act 1981, s. 51.
These were applications to determine issues of construction of a public liability insurance policy and an application for the insurers to pay the plaintiff's costs after the limit of liability under the policy had been reached.
An underground cable fire at the premises of the plaintiff, Citibank, caused considerable damage and Citibank took proceedings against the company which installed the cable, Lebihan, and two other companies which had worked on the power supply system, Anton Piller (AP) and Thames, claiming substantial damages. Langley J found that Lebihan was solely responsible for the cable fault that caused the fire and that all three parties were liable for installation of the wrong fuses which was the major cause of the actual damage. The judge apportioned responsibility 60 per cent to Lebihan, 30 per cent to AP and ten per cent to Thames. After a further trial on quantum the judge gave judgment for Citibank against those three parties jointly in the sum of £2.5m and costs. The apportionment of damages and costs was in the same proportion as the apportionment of liability.
Lebihan was insured by Excess up to a limit of £2m in respect of any one claim or series of claims arising out of any one original cause. Excess paid some £1.68m to Citibank, which was 60 per cent of the judgment against Lebihan excluding costs, and applied the balance of the £2m limit to the costs of defending the action. Lebihan's uninsured liability for its proportion of Citibank's costs was then estimated at about £460,000 and it became insolvent. Because the order for costs was made against Lebihan, AP and Thames jointly, AP and Thames were at risk of having to pay the whole of Citibank's costs between them. Following the decision of the Court of Appeal in TGA Chapman Ltd v Christopher [1997] CLC 1306; [1998] 1 WLR 12, AP and Thames sought an order for Excess to pay to Citibank the proportion of the costs which Lebihan could not pay. Citibank subsequently issued its own application for an order under s. 51 of the Supreme Court Act 1981 for Excess to pay Lebihan's proportion of Citibank's costs. Those proceedings were consolidated with proceedings to determine two issues on the meaning of the limit of indemnity clause in the policy. Those questions were whether there was an applicable limit of £2m or £4m under the policy and whether the limit of liability was inclusive of the costs of defending the claim. Citibank argued that although there was only one claim there were two original causes of the fire, namely faulty cable laying and incorrect fusing, both giving rise to separate causes of action. Alternatively Citibank argued that there were two claims, one in respect of damage to the cabling and one in respect of other damage.
Held making an order under s. 51 against Excess in respect of the costs incurred by Citibank in relation to the hearing on quantum:
1. The applicable policy limit was £2m. There was only one claim. The question of claims arising out of one original cause was only relevant if there was a series of claims. If there was only one claim it did not matter how many causes there were of the claim. Considering the letter before action, the statement of claim and the annexed schedule of damages, there was only one claim by Citibank for the damage caused by the fire.
2. As a matter of construction the limit of indemnity under the policy was exclusive of the costs and expenses incurred in defending the claim. The policy drew a distinction between what was “payable” by the insured to a claimant and the costs incurred in defending a claim. The limit of indemnity applied only to costs and expenses payable by the insured. The costs of defending the claim would in the majority of cases not be payable by the insured but would be paid by the underwriters direct. If that was wrong, the costs of defending the claim were not in fact “payable” by Lebihan save for the VAT element, and it was only that amount and not the full amount of costs which would fall within the limit of indemnity if it covered defence costs.
3. The factors relevant to the application for a costs order under s. 51, in addition to the funding by insurers of a defence that failed, were whether it was the insurers who determined to defend the claim, whether the insurers had the conduct and control of the litigation, and whether the insurers fought the claim exclusively to defend their own interests. (Murphy v Young & Co's Brewery plc[1997] CLC 469; [1997] 1 WLR 1591andTGA Chapman Ltd v Christopher[1997] CLC 1306; [1998] 1 WLR 12applied.)
4. Excess should be ordered to pay Lebihan's costs under s. 51 but only from the time after the judgment on liability was given. The decision to defend the proceedings was taken primarily by Excess but until liability was determined Lebihan had an interest in the claim being defended. The conduct, control and direction of the litigation was effectively in the hands of Excess and that position was clearer after the trial on liability. After liability was determined the case was defended solely for the benefit of Excess. In the circumstances it would not be appropriate to impose a s. 51 costs order for the period prior to the judgment on liability, in that respect the case was not exceptional across the spectrum of litigation. After judgment on liability the case was exceptional and it was appropriate to make an order under s. 51 against Excess in respect of the costs incurred by Citibank in relation to the hearing on quantum. AP and Thames were entitled to bring applications for an order against Excess under s. 51 but once Citibank had made its own application it did not follow that they were thereafter entitled to incur costs in maintaining their own application.
Thomas J:
On the early evening of Sunday, 7 July 1991, a fault in the uninterruptable power supply (UPS) system at the first plaintiff's (Citibank) premises at Lewisham House, London caused an underground cable fire and a fire in the battery room. Very considerable damage was caused and Citibank claimed that it cost £2.29m to rectify.
The cable had been installed by Lebihan Contracts Ltd (Lebihan) and work had been done on the UPS system by the second plaintiff (Anton Piller) and the third plaintiff (Thames).
Citibank brought proceedings against those three parties. After separate trials on quantum and liability which concluded with the judgment on quantum in July 1996, Langley J held them liable to Citibank for over £2.5m and costs; the judgment was (forall but a relatively small part) in effect given jointly against all three parties and Lebihan's apportionment as between the defendants in that action was 60 per cent.
Lebihan were insured by the defendants to these proceedings (Excess). The relevant section of the insurance policy issued by Excess to Lebihan contained a limit of liability of £2m in respect of any one claim or series of claims arising out of any one original cause. The scope of that limit of liability is in issue in these proceedings, but it became clear to Excess and Lebihan in August 1996 that the policy would not cover the 60 per cent of the apportionment of liability Lebihan would be under for the amount of damages payable to Citibank and the costs which were payable to Citibank and, if they were within the limit of liability, the costs incurred in the defence of the claim.
On 23 August 1996, Citibank were paid £1,681,546.20 which was the whole amount of Lebihan's apportionment of 60 per cent due under the judgment by way of principal and interest (save for about £10,000 which was due by way of further interest). They were paid nothing by way of costs. The balance between the amount paid to Citibank and the limit of £2m was applied towards the costs of £314,436.96 that had been incurred in defending the claim on Lebihan's behalf and towards a small retention for VAT. As the payment to Citibank and the payment of the defence costs had exhausted, in Excess's view, the policy limit, and as it had become clear by October 1996 that Lebihan were insolvent, the solicitors appointed by Excess to conduct the defence of the claim ceased to act for Lebihan on 19 December 1996; the solicitors continued to act for Excess and have, with the consent of Lebihan, acted for Excess in these proceedings.
On 7 November 1996, Lebihan were put into a creditors” voluntary liquidation and thereafter creditors” meetings were held; it is clear that the reason for their insolvency was the uninsured liability for their proportion of Citibank's costs (then estimated at about £460,000) which Lebihan had to meet entirely themselves, as Excess maintained that the policy limit had been exhausted by the application of about £314,000 of defence costs against that limit. Had Lebihan not...
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