Sagacious Legal Pty Ltd v Wesfarmers General Insurance Limited (No 5)

In the matter of Sagacious Legal Pty Ltd v Wesfarmers General Insurance Limited (No 5), the court was tasked with determining the propriety of the insured's conduct in their legal proceedings against the insurer. The central dispute revolved around whether the insured had acted unreasonably by rejecting a settlement offer from the insurer, given that the insured's wife, Mrs O’Shanassy, was under the influence of alcohol at the time of the accident. The insurer argued that the insured's rejection of the offer was unreasonable and that the insured's case had no real prospects of success, thereby warranting an indemnity costs order against the insured. The primary issue before the court was whether the insured's decision to reject the offer and proceed with the litigation was unreasonable and unjustified, especially considering the clear evidence that Mrs O’Shanassy was intoxicated.

The court examined the insured's knowledge and appreciation of the circumstances surrounding the accident. It was apparent that Mr O’Shanassy was aware of his wife's inebriated state and the strong indications of her alcohol consumption from the numerous independent witnesses and her blood alcohol level. Despite this, the insured contested the insurer's assertion that the evidence overwhelmingly suggested Mrs O’Shanassy was under the influence of alcohol. The insured contended that the insurer's evidence and reasoning were not sufficiently detailed to warrant their acceptance of the offer. However, the court found that the insured's arguments lacked merit, given the incontrovertible evidence of Mrs O’Shanassy's intoxication. The insured's insistence on proceeding with the litigation, despite having clear evidence to the contrary, was deemed unreasonable.

The court concluded that the insured's conduct in the litigation was unreasonable, and as such, the insurer was entitled to an indemnity costs order from the date the insured rejected the offer, being 13 August 2009. The court highlighted that the insured's decision to proceed with the litigation, despite having full knowledge of the overwhelming evidence of Mrs O’Shanassy's intoxication, made it unjust for the insurer to bear the costs of the litigation. Consequently, the court granted the insurer's application for costs on an indemnity basis, effective from 13 August 2009, and ordered that the insured pay the costs of the application for costs. This decision underscores the importance of acting reasonably in litigation, particularly when there is clear evidence that undermines one's case.