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Claimant’s costs can be claimed despite having insurance in place

Many readers may be unaware of the general methods by which an employment tribunal case might be funded against an employer, something which ultimately affects how the case might proceed for both parties.

One of the main funding options available to would be claimants is via their house contents insurance (should they have such), which often has a clause confirming that the insured has legal expenses cover for employment disputes. The average indemnity limit is £50,000 – a legal ‘war chest’ big enough to cover all but the most complex and elaborate of claims.

The way this works is that if the case has sufficiently good prospects the insurer will pay the legal fees of the claimant’s solicitors, which can either be appointed by the insurer or picked by the claimant themselves.

Assuming that 1) the case is successful and 2) the employer has put forward a misconceived defence or otherwise acted vexatiously or unreasonably during the course of the litigation, when it comes to making an award the claimant could look to apply for their costs in bringing the action.

The rub comes via the fact that in bringing the action the claimant has not personally incurred any expense; the insurer has footed the bill.

In this context the question recently put before the Employment Appeals Tribunal (“EAT”) in the rather amusingly mnemonic case of Mardner v Gardner, was when making a decision as to whether to award a claimant’s costs, does the fact that such costs have been met by an insurer mean they are not recoverable?

A firm ‘no’ was the response of the EAT. 

The decision of the original Employment Tribunal (“ET”) had been that the employer respondent had put forward a misconceived defence and acted unreasonably in clinging to the same; the threshold for awarding costs had therefore been crossed. The ET however refused to award the Claimant costs as they were not personally out of pocket, the case having been funded by their insurers.

The EAT on the other hand in remitting the point on costs back to original ET for further consideration, held the ET’s decision was an error as public policy dictates that the respondent should not escape the ramifications of its unreasonable conduct owing to the fact that the claimant had taken the shrewd measure of having their legal expenses insurance in place.

Conclusion

A very logical and sensible approach by the EAT here we believe, as to allow any party to escape a properly applicable sanction of costs on the basis that the other party had insurance cover would be plainly wrong.

A practical consideration with this is that it would mean that such costs, up to a maximum of £20,000, would be repayable directly to a claimant, effectively as further compensation. The insurance company has already had its premium from the claimant when they purchased the cover and the claimant’s lawyers will be paid by the insurer. 

Despite the fact that such costs will be based on the work carried out by the lawyers, the claimant should receive the funds directly.

One can be fairly certain that insurance companies up and down the country will be scrambling to amend their policies to include a claw-back provision should such an order be made in future.

As always if I can provide you with any further assistance on queries relating to legal expenses insurance for employment matters or any other issues, please do not hesitate to contact me for a free consultation on 0113 350 4030 or samira.cakali@scesolicitors.co.uk


Please note that the information in this blog is to provide information of general interest in a summary manner and should not be construed as individual legal advice. Readers should consult with SCE Solicitors or other professional counsel before acting on the information contained here. 

Samira Cakali

Samira Cakali is a pragmatic and approachable solicitor advocate with extensive contentious and non-contentious experience in the fields of employment law as well as civil litigation, within a range of commercial businesses from SME’s to multinationals as well as senior executives.

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