In a dispute between insurer and insured relating to a fire claim, the insured sought claims preparation costs in the form of professional fees relating to fees charged by their lawyers for pursuing claims under the policy. The court held that the only sensible construction of the clause in the policy insuring claims preparation costs was one which was to the effect that it related to professional expenses reasonably incurred by the insured for the preparation of claims submitted to the insurer so that it falls within the scope of the policy.

The clause in the policy covered “such reasonable professional fees as may be payable by the insured, and such other reasonably expenses necessarily incurred by the insured and not otherwise recoverable, for preparation of claims”. The time period in which the professional fees were incurred was well after the time that the insured had lodged their claim for indemnity on the insurer, after the obligation to indemnify it had been recognised and accepted, and well after releases for some of the indemnified costs had been signed. The fees relates to the subsequent dispute rather than to preparing the claim in the first place. The courts draw a distinction between claims preparation costs on the one hand and claims advocacy costs on the other. Time spent, for instance, in formulating or negotiating settlement is not covered. It is not the intention of insurers to indemnify the assured in respect of any fees paid to professional claim-makers who may be engaged to conduct loss settlement negotiations. The cover is restricted to the reasonable costs of producing particulars and information, etc required by the insurers in considering the claim.

A similar result would follow in South Africa. The court referred to well-known textbooks used as reference in this country as well.

[Pinnacle Living v QBE Insurance [2023] VSC 621, Supreme Court of Victoria, 31 October 2023]