Unsuccessful defendants in Employment Tribunal cases obliged to pay costs funded by legal expenses insurers
Published 2 September 2014
The Employment Appeal Tribunal ("EAT") issued important guidance on 25 July 2014 when it considered the matter of costs paid by a legal expenses insurer. The EAT considered whether, in deciding to award costs, the fact that a successful claimant, as the receiving party, had had their legal expenses paid by an insurer was relevant.
The EAT decided that it was not. In summary, despite the costs threshold having been crossed, one of the reasons the Employment Tribunal (at first instance) refused to award the Claimant her costs was that she was not out of pocket; the case had been funded by legal expenses insurers.
The EAT held that this was an error, because as a matter of public policy, the paying party should not avoid the costs consequences of their unreasonable conduct, merely because the receiving party prudently entered into an insurance contract. If that were the case, the paying party would wrongly benefit from the receiving party's contract.
For D&O insurers providing EPL cover, this means two things:
- Whilst costs awards are generally only made by the Employment Tribunal where the behaviour of a party is deemed to be unreasonable, fees will generally be reimbursed to the successful party. Insurers should therefore expect to reimburse Tribunal fees on behalf of insureds who are unsuccessful at Tribunal, even if they know that the claimant is funded by legal expenses insurers, and set reserves accordingly; and
- The judgment is a helpful one as it removes a previous area of doubt about the right for insurers to recover costs in such situations. It is important that policy wording is drafted to ensure that, where reasonable to do so, insureds will seek to recover costs expended by insurers and reimburse them in full if recovered.