+44 (0)20 7353 6000
29 Nov 2012

Corker Binning partner comments on implications of Coulson legal costs judgment

In an article in Legal Week, David Corker, partner, Corker Binning, looks at the implications of the Court of Appeal judgment on Andy Coulson’s legal costs.

News Group ordered to pay Coulson’s legal costs – implications of the judgment

Yesterday’s judgment by the Court of Appeal in Coulson v News Group Newspapers (NGN) is good news for those who have a legal expenses insurance policy which they wish to use to defend themselves against an allegation that they have committed a criminal offence.

Typically, such policies are written for the protection of directors and officers of companies and are sold by insurers on the basis that they provide ‘peace of mind’ in the event that any allegation of malpractice is made against them in connection with their duties. Whatever the anxiety caused by such an allegation, the insured can at least rest assured that their lawyers’ bills in relation to rebutting it will be paid on their behalf. Judging by the way in which they are widely marketed in magazines such as The Economist, such policies must be good business for insurers.

Sometimes, an insured person who holds such a ‘D&O’ policy and who has become the target of an allegation that in the course of their employment they committed a criminal offence, has had a nasty surprise when they have notified their claim and requested that their criminal lawyers’ fees be paid.

Their insurer has advanced either or both of the following arguments to deny liability: firstly, that the type of risk covered is limited to the ordinary occupational hazards which attach to the job or lifestyle of the insured and their alleged criminal conduct falls outside of this.

So in the case of a company director (or ex-director) whose company took out a D&O policy on their behalf and is under investigation for e.g. suspected complicity in the making of corrupt payments by the company, the insurer has sought to avoid liability on the basis that such alleged criminal conduct could never have formed part of their job and moreover would have been contrary to their lawful duties.

Secondly, that as deliberate personal wrongdoing is alleged a decision about the insurer’s liability should be postponed until the eventual outcome of any legal proceedings is known.

In response to public outrage concerning the News of the World‘s phone-hacking activities and following former editor Andy Coulson’s related arrest, NGN announced in August 2011 that it was terminating an agreement it had reached with him when he resigned as the editor of the NoW in 2007. The salient part of this concerned NGN’s commitment to pay his future legal fees incurred in connection with any allegation which might be made against him concerning his editorship.

When challenged about this by Coulson, who now wanted NGN to pay his ongoing criminal lawyers’ fees, especially after he was charged, NGN stated its commitment to him extended only to allegations such as libel or his dealing with press complaints. Activities such as alleged phone-hacking which could never have been a legitimate part of his job were not, it argued, encompassed by the agreement.

NGN also submitted that it was entitled to deny cover until Coulson disclosed his answer or defence to the allegations so that it could determine the merits of his claim and so decide if his legal fees were reasonable.

The court held that neither of these submissions was sound and that NGN was bound to indemnify Coulson in respect of the criminal proceedings which he now faces. It rejected NGN’s attempt to establish that there was a dichotomy which delineated an editor’s lawful and unlawful activities so that only the former was covered.

Lord Justice McCombe held that this “would surely deprive the indemnity of all practical use. It would not even cover the editor for the costs of defending proceedings arising out of the publications of alleged libels or publications said to constitute a contempt of court, the very occupational hazards of editorship referred to by [counsel for NGN] in argument.”

The judge added, “Indemnity against costs of a defence to criminal charges cannot have been outside the contemplation of the parties to the present agreement.”

The judgment also rejected any argument that a D&O policy excluded lawyers’ fees incurred in connection with defending an allegation of crime. The court held that there was no reason to justify this exclusion. The point was whether the alleged criminality related to the insured’s job.

Lord Justice McCombe held that “there is nothing inherently objectionable in a clause such as this covering the defence of criminal proceedings as such, it seems to me that the limit has to be bounded by the question whether the criminal allegations arise out of how the employee went about the performance of his job or whether they arise out of some act having nothing whatever to do with performing the job.”

Finally the Court dealt with NGN’s submission that it could scrutinise Coulson’s defence case. Again rejecting that this was a valid reason for NGN to prevaricate until Coulson complied, the court held: “it is artificial in such circumstances to have expected that the indemnity would be subject to a scrutiny of the nature or merits of the intended defence to the charges or subject to the outcome of the trial itself. I consider that the phrase costs “properly incurred” in this contract simply means costs of a nature properly to be regarded as required in the defence of the particular proceedings in question.”

This case should be borne in mind and used whenever an insurer seeks to deny cover to a client who is under investigation or is being prosecuted for any type of criminal offence. Unless the policy expressly excludes liability for costs associated with criminal defence or the client admits their guilt, the insurer should be unable to direct that the client either pays themselves or applies for legal aid.

Author: David Corker, criminal and regulatory litigator and founding partner at Corker Binning.