Defence costs in third-party claims – Supreme Court confirms that the insured must file a specific claim against the insurer to be indemnified

Costs – What are the insurer’s obligations?

When a third damaged party brings an action against an insured and wins the case, two categories of defence costs should be considered:

1. Those due by the insured to the third damaged party because the insured has lost the case (the losing costs). Such costs: (a) are ancillary to the insured’s obligation to pay damages and are entirely borne by the insurer; (b) form part of the policy limit.
2. Those incurred by the insured in resisting the third party’s claim. Such costs are governed by Article 1917(3) of the Civil Code that stipulates that “the costs incurred by the insured in resisting the third party’s action are borne by the insurer within the limit of 25% of the policy limit and on top of it…”

The case recently examined by the Supreme Court

In a first instance action, an insured had made a generic request that his insurer was ordered to pay costs and expenses relating to the litigation. Eventually, in the second instance proceeding the Court of Appeal ruled that such a request was so generic that could not be interpreted as including the costs under (ii) above.

By order no. 4275 of 16 February 2024, the Court of Cassation confirmed the decision of second instance on the basis that:

• The generic insured party’s request could not be considered as including the costs under Art. 1917(3) of the Civil Code, because “the insurer’s obligation to reimburse such costs is independent of a judgement by which the insured party is condemned to refund the third party. The said obligation arises from the insurance contract”.
• To obtain the reimbursement of the costs under Art. 1971(3), the insured must file a specific demand. The insured’s generic request to condemn the insurer to pay costs and expenses relating to the litigation can only be interpreted as referring to the losing costs and not also to the costs under Art. 1917 (3).

On such basis, the Supreme Court dismissed the insured’s appeal claiming for the insurer’s indemnification of costs under Art. 1917 (3).

This order is in line with recent precedents of the Supreme Court on the subject of costs under Art. 1917 (3), whereby the court has also clarified that the costs are payable to the insured only if the insured has provided evidence of the relevant disbursement (see judgment no. 26683 of 15 September 2023 and order no. 21290 of 5 July 2022).