On 23 February 2016 the Court of Appeal handed down a judgment in the case of Legg & Ors v. Aviva  EWCA Civ 97. The case concerned the scope and application of the rule relating to a party’s ability to secure an adverse costs order against a third party who funded the unsuccessful claim by a claimant /defence of a defendant. Additionally it concerned the proper interpretation of a “costs” term in the Defendant’s “Public Liability” policy.
In upholding the decision below to order that Aviva should pay the Claimants’ costs of pursuing the Aviva’s assured to judgment, both (i) on the ground that Aviva was a third party funder of the Assured’s unsuccessful defence of the Claimants’ claims and (ii) on the ground that the terms of the Assured’s policy obliged Aviva to meet such costs, the Court of Appeal clarified and explained the existing authorities on the liability of third party funders to adverse costs consequences when they choose to intervene in litigation and to support an unsuccessful defence of a legitimate claim. The relevant test is whether the insurers were “motivated either exclusively or at least predominantly, by a consideration of its own interest in the manner in which it conducted the defence of the litigation.”
Additionally the Court explained how policy terms relating to costs coverage should be interpreted, namely by reference to whether or not the Insurer’s proposed construction of the policy wording would produce “an extraordinary result”. If so, although the lay-out of definition clause was supportive, the extraordinary result of the Insurer’s proposition rendered it “highly unlikely, looking at the matter objectively, that the parties could have intended this result. It is not the result, if the words at the end of the definition are read as qualifying the entire definition, rather than just paragraph 3. This consideration is, in my judgment, more than sufficient to displace any weight that may be placed on the lay-out of the definition. Accordingly, the closing words also qualify paragraph 1, which encompass the costs order made in favour of the claimants and against Sterte [the Assured] in this case”.
It followed that Sterte, the Assured, was entitled to be indemnified by its Insurers against the costs order in favour of the Claimants and, by reason of the [Third Party (Rights Against Insurers)] 1930 Act, that right vested in the Claimants.
Permission to appeal to the Supreme Court was refused.
The successful Claimants/Respondents were represented by John Ross QC and Geoffrey Weddell.