By Ella Spinks, Graduate and David Slatyer, Partner

On 7 March 2025, the Federal Court of Australia ruled in favour of WSP Structures Pty Ltd (WSP), holding that Liberty Mutual Insurance Company trading as Liberty Specialty Markets (Liberty) were liable to indemnify WSP for interest on defence costs (and were liable for all costs of the referee who determined the defence costs); WSP Structures Pty Ltd v Liberty Mutual Insurance Company t/as Liberty Specialty Markets [2025] FCA 160.

As for the interest payable on defence costs, it was a whopping $1,500,667.81, plus $1,539.23 per day from and including 16 November 2024 until payment.

The case is another example of the Court’s application of the remedial principle that where the insurer is found liable, interest is payable by the insurer from “the day on which a reasonable insurer would have paid out the claim on which the insured did succeed”.

Background

On 23 November 2021, WSP made a claim for indemnity from Liberty including in relation to defence costs arising from separate proceedings. On 28 January 2022, Liberty agreed to indemnify WSP for defence costs in accordance with the terms of their policy, subject to whether WSP had other insurance cover in respect of the same liability.

On 25 March 2022, WSP commenced proceedings against Liberty, Chubb Insurance Australia Limited (the Second Respondent) and Tokio Marine & Nichido Fire Insurance Co Ltd (the Third Respondent) seeking, amongst other things, a declaration that Liberty was liable to indemnify WSP for the defence costs. Liberty defended this claim, alleging that WSP’s defence costs should be met by WSP’s professional indemnity insurer.

On 28 September 2023 Liberty was found to be liable to indemnify WSP for its defence costs. On 27 October 2023, Liberty requested copies of WSP’s defence cost invoices. Thereafter, the dispute as to the amount of the defence costs was commenced, and ultimately a referee was appointed who determined that approximately 90% of WSP’s defence costs claim was reasonable.

Key Issues Considered

To reach a decision, Colvin J considered two key issues:

1. The appropriate date from which interest should accrue on the defence costs in accordance with section 57 of the Insurance Contracts Act 1984 (Cth) (the Act); and
2. Whether Liberty should be liable for the costs of engaging a referee to determine the reasonable amount of WSP’s defence costs.

Section 57 of the Act is as follows:

Section 57 Interest on claims

• Where an insurer is liable to pay to a person an amount under a contract of insurance or under this Act in relation to a contract of insurance, the insurer is also liable to pay interest on the amount to that person in accordance with this section.
• The period in respect of which interest is payable is the period commencing on the day as from which it was unreasonable for the insurer to have withheld payment of the amount and ending on whichever is the earlier of the following days:
  • the day on which the payment is made;
  • the day on which the payment is sent by post to the person to whom it is payable.
• The rate at which interest is payable in respect of a day included in the period referred to in subsection (2) is the rate applicable in respect of that day that is prescribed by, or worked out in a manner prescribed by, the regulations.

Decision

On the facts, Liberty argued that their conduct in not repaying the defence costs as and when they were incurred by WSP was not unreasonable for the purposes of section 57 of the Act because it was not until they were in receipt of the referee’s report that the extent of defence costs liability was known. Liberty relied on the reasoning of Stevenson J in Mobis Parts Australia Pty Ltd v XL Insurance Company SE (No 10)[1] and the approach applied by the High Court in CIC Insurance Ltd v Bankstown Football Club Ltd[2] which, in summary, provides that interest should run from the date that the amount payable became apparent.

This argument was rejected, and rather, the Court relied on the explanation of Derrington and Colvin JJ in the case of LCA Marrickville Pty Ltd v Swiss Re International SE who explained:

“What is required is a determination of the day on which a reasonable insurer would have paid out the claim on which the insured did succeed, assuming the insurer reached the factual conclusions ultimately found by the court and otherwise adopted the correct view as to its legal position.”[3]

Thus, it was held that if Liberty had performed its contract of indemnity, then they would have indemnified WSP for defence costs on or after 28 January 2022, being the date which it had completed its inquiries and had determined that indemnity was available to WSP under the policy.

The Court calculated interest on 90% of the value of the defence costs invoices, applying the reduction from the referee report. For invoices issued prior to 28 January 2022, interest was to commence from this date. For all other invoices, interest was to commence from the date they were paid by WSP.

In relation to the referee costs, the Court ordered that Liberty should bear the costs of the referee because WSP was substantially successful before the referee. As the parties jointly funded the cost of the referee, an order was made requiring that Liberty pay.

Once liable on a claim, insurers rarely achieve much joy in the remedial operation of s57, and this case was no different.   Finally, with respect to the costs of the resolution of these further issues, the Court found WSP wholly successful and Liberty to pay all of those costs ($46,266).

[1] [2018] NSWSC 37

[2] (1997) 187 CLR 384 at [410]

[3] [2022] FCAFC 17; (2022) 290 FCR 435 at [248]