The recent Award of indemnity against an insurer in the Bellhouse rulings, reinforces vital importance of properly pleading defences. Some comment here from Stephen Netherway, Partner, and Grace Williams, Senior Associate, Devonshires Solicitors LLP.
Two recent, and related, High Court judgments – Bellhouse & Anor v Zurich Insurance Plc [2025] EWHC 1416 (Comm) (“Bellhouse 1”), and Bellhouse & Anor v Zurich Insurance PLC [2025] EWHC 1551 (“Bellhouse 2”) – saw the Court emphasise the need for insurers to clearly articulate their defences, especially in the context of consumer insurance. The judgments also showed that material adverse cost consequences can follow if the Court is not satisfied at the consequential litigation conduct.
The judgments concerned an application made by the policyholder claimants seeking strike out/summary judgment against defences asserted by their insurer Zurich. The background to that application was that in December 2022 a fire broke out at the claimants property, insured by Zurich, destroying their home. At the time of the fire, the property was being renovated. Zurich claimed in its defence that the claimants had wrongly represented – misrepresented – to Zurich at the inception of its policy that they did not intend to carry out contract works in the next 12 months. Zurich also put forward a defence on the basis of an exclusion which excluded loss or damage caused by contract works.
After service of its defence a dispute arose between the parties as to the adequacy and clarity of Zurich’s defences in respect of these issues, specifically whether and how the defence adequately explained how any alleged misrepresentation was communicated to Zurich, whether (and who) the underwriter at Zurich relied on that claimed misrepresentation and was induced by it. In respect of the contract works exclusion, the claimants complained that Zurich had not pleaded that the fire was causationally caused by the contract works.
Ultimately the claimants issued their application. In Bellhouse 1, the High Court criticised Zurich’s pleadings that sought to state their defences and positions, including describing them as “turgid” and “overly long, rambling, and digressive…full of irrelevancies…. not concise”.
In relation to its stated misrepresentation defence, the Judge said it was impossible to distil from Zurich’s pleadings precisely how the misrepresentation was communicated to Zurich, or (if and when it was) exactly how, and in what way, and if anyone, and if so who, at Zurich relied upon it. The Judge said, “An unkind, or cynical, reader of Zurich’s statements of case might be tempted to conclude that their very complexity and length were intended to conceal the lack of essential substance at their very heart.”
The position was no better with respect to the contract works exclusion defence, and the Judge said the pleadings, in their current state were insufficiently particularised to raise a triable issue with any real prospect of success.
The Judge struck out part of the contract works exclusion defence, but in respect of the remainder of that defence and the defence of misrepresentation, the Judge permitted Zurich a further opportunity to serve a further short document, to clarify its pleadings.
However, the parties could not agree a number of consequential matters, including the disposal of costs of the application, although the Judge held that Zurich was the losing party to the application made. This was addressed by Bellhouse 2 and, in that judgment, the Judge ruled that Zurich should pay the claimants costs of the application on the rarer indemnity, rather than usual standard basis.
The consequence of an indemnity costs order is that the party who is ordered to pay costs must pay those costs at a much higher level than is normal when standard costs orders are made, so compensating the receiving party more fully. Typically, they are awarded when the paying party’s conduct has been unreasonable or improper during the legal proceedings, and that such conduct or other circumstances has taken the case “out of the norm”. Where an application is based on the paying party’s conduct, it is necessary to show such conduct was “unreasonable to a high degree”.
The Judge considered the basis and threshold for ordering the insurer to pay indemnity costs was established. He considered Zurich’s pre application conduct which had made the application necessary, as “extraordinary” and that it took this case outside the “norm”. The application had caused an unnecessary drain upon the court’s scarce resources as a result of conduct by a well-represented insurer which should have known, and acted, better.”
When considered together, these judgments should serve as a salutary reminder to insurers of the critical importance of paying careful attention to how its defences are articulated, particularly in a consumer insurance context. As Bellhouse 1 and 2 demonstrate, failing to do so can have serious cost consequences as the Courts will not shy away from basing cost orders on an insurer’s conduct.
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