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Supreme Court brings clarification on non-party costs orders for liability insurers

  • United Kingdom
  • Financial services disputes and investigations
  • Litigation and dispute management

28-11-2019

Summary:

The Supreme Court handed down its long anticipated judgment in the case of Travellers Insurance Company Limited v XYZ [2019] UKSC 48 on 31 October 2019.

The appellant, Travelers Insurance Company Limited (“Travelers”) was successful in its appeal to the Supreme Court, overturning the decisions of the Court of Appeal and High Court below where a non-party costs order was made against it under section 51 of the Senior Courts Act 1981.  The decision has brought clarity as to the way in which the court may make a non-party costs order where an insurer is involved in the funding of both insured and uninsured claims.

Background:

A Group Litigation Order arising out of claims brought against several defendant clinics in respect of defective Poly Implant Prothese breast implants.  One of the clinics to the litigation was the Transform Medical Group (CS) Limited (“Transform”).  Travelers were Transform’s liability insurer.

Of the 623 claims brought against Transform, it transpired Travelers were only on cover for 197 of the 623 cases.  Travelers were not on cover for the remaining 426 claim, either because the claim was outside of the period of cover, or the claims related to a category of claimants known as the “worried well” (i.e. those who had not suffered a rupture).  Notwithstanding that they were not on cover, Travelers funded the costs of both the defences on both the insured and uninsured claims.  The lack on insurance was not communicated to the claimants until late in the proceedings.

The claimants sought a non-party costs order against Travelers under section 51 of the Senior Courts Act 1981.

The claimants were successful in their application in the High Court.  Travelers made an unsuccessful attempt to appeal to the Court of Appeal (although with slightly different reasoning to the High Court).

The Decision:

The Supreme Court allowed the appeal.  In so doing it has provided some guidance applicable to the relationship between non-party costs orders and liability insurers in cases where insurers find themselves in the position of funding both insured and uninsured claims.

The court held that the authorities indicate two approaches to deciding whether a third party should pay costs:

  • First, whether the non-party had taken control of the litigation so as to be regarded as the ‘real defendant’
  • Secondly, whether the non-party had engaged in ‘unjustified intermeddling’.

In the scenario of an insurer being involved in wholly uninsured claims, it was the extent to which there had been ‘unjustified intermeddling’ that was relevant.  The court held it would usually be necessary to establish a causative link between the insurer’s involvement and the claimants’ incurred of costs.

In the current proceedings, the court held there had not been ‘unjustified intermeddling’ so as to justify making a non-party costs order.  Travelers had a legitimate interest in the defence of both the insured and uninsured claims brought against Transform (two of the tests cases were insured and two were uninsured).  Unlike the courts below, it did not consider the refusal of Travelers and Transform’s solicitors to disclosure details of insurance limits and cover amounted to intermeddling.  Further, Travelers involvement in Transform’s decision not to make offers of settlement or admissions in the uninsured claims also did not amount to intermeddling. 

Unlike the Court of Appeal, the Supreme Court did not consider asymmetry of risk was a decisive factor (in this case, the fact that if the defence was successful, Transform would be been entitled to seek costs from the claimants in both the insured and uninsured claims.  Conversely, where the claimants were successful, they would not be able to seek costs in the uninsured cases).

Comment:

Although each case will be fact specific, the Supreme Court’s guidance will no doubt be welcomed by insurers in particular who find themselves in positions whereby their insured may face claims, only some of which they are on cover for.