Insured entitled to indemnity for defence costs

Introduction

In this case the Court of Appeal of Victoria found that an insured was entitled to recover defence costs pursuant to a costs extension clause in a policy in circumstances where the insured had successfully defended the claim made against it.

Background

Major Engineering Pty Limited ('Major') held a broadform liability policy with CGU which provided public and product liability cover and an additional benefits extension providing cover for certain legal costs. Major sought indemnity under the policy for a claim brought against it by Timelink Pacific Pty Ltd.

Timelink's claim was for damages arising out of the failure of two hydraulic cylinders that were supplied by Major for the racing yacht 'Skandia' owned by Timelink. The hydraulic cylinders were fitted to the specially designed 'canting' keel of the yacht. During the 2004 Sydney to Hobart yacht race, the hydraulic