The Tribune

By FAY SIMMINS

Tribune Business Reporter

jsimmons@tribunemedia.net

The Supreme Court has ruled that an insurer can be held liable for legal costs even when it is not a party to litigation, ordering CG Atlantic General Insurance to pay $10,000 after finding it effectively controlled a failed attempt to overturn a default judgment.

In a ruling delivered by Justice Loren Klein, the court concluded that CG Atlantic was, in substance, the “real party” behind an application to set aside a default judgment arising from a motor vehicle accident claim before later withdrawing when it determined the driver involved was not covered under its policy.

The judge found that the insurer's role extended beyond ordinary participation in the defence of an insured claim.

“On the facts asserted by the Claimants, the answer is the latter,” Justice Klein wrote, referring to whether CG Atlantic had merely participated as an insurer or had assumed practical control of the litigation and caused the costs claimed.

The dispute arose from a November 2024 motor vehicle accident. After the claimants secured a default judgment against the defendants, Baycourt Chambers, acting on instructions from CG Atlantic, applied to have that judgment set aside.

However, the insurer later determined that the driver allegedly did not have insurance coverage because he was operating the vehicle without a driver's licence at the time of the accident.

Justice Klein described the sequence of events as significant.

“Baycourt Chambers, acting on the instructions of CG Atlantic, initiated the application to set aside the default judgment,” he wrote.

“Thereafter, once it was realised that the Second Defendant was not covered under the relevant policy, the Insurer withdrew from acting... but only after the Claimants had incurred the cost of filing the necessary pleadings to oppose the application.”

The court said the central issue was whether CG Atlantic should bear responsibility for costs incurred by the claimants even though it was not formally a party to the proceedings.

Justice Klein relied on leading authorities from the Privy Council and UK Supreme Court, including Dymocks Franchise Systems v Todd and Travelers Insurance Company v XYZ, which establish that courts may order non-parties to pay costs where they have funded, controlled or effectively directed litigation.

The ruling noted that courts are entitled to look beyond the names on the record and examine who actually controlled proceedings.

“The Court may look beyond formal party status and examine the practical realities of who promoted, funded, controlled, and stood to benefit from the relevant litigation steps,” Justice Klein wrote.

The judge rejected arguments advanced on the insurer's behalf that it could not be subjected to a non-party costs order, finding that the court's jurisdiction stems from Section 30 of the Supreme Court Act, which gives judges broad discretion to determine “by whom and to what extent costs are to be paid”.

He also dismissed arguments that the claimants suffered no prejudice.

“The Claimants incurred costs in opposing an application caused by CG Atlantic, prepared for a hearing that did not proceed, and were delayed in enforcing a regularly entered default judgment,” Justice Klein found.

In deciding whether the order was justified, the court pointed to allegations that the insurer controlled the litigation strategy, directed the filing of the set-aside application and withdrew only after discovering the driver was not covered under the policy.

“The Set Aside Application is said to have been filed at its direction and has now been dismissed,” the ruling noted.

Justice Klein ultimately concluded that “it is just to make the order sought”.

While the claimants sought more than $20,000 and asked for indemnity costs, the court declined to award the higher amount, finding the circumstances did not justify the more punitive costs basis.

Instead, the court summarily assessed the claimants' recoverable costs at $10,000 and ordered CG Atlantic to pay that amount.

The ruling is likely to attract attention within the insurance and legal sectors because it reinforces that insurers may face non-party costs exposure where a court determines they exercised effective control over litigation and caused the opposing side to incur unnecessary expense.