Supreme Court overturns third-party costs order made against insurer

The Supreme Court has overturned an order that an insolvent defendant’s insurer pay the costs of uninsured claimants in group litigation, in a rare ruling by the country’s top court on costs.

Travelers Insurance Company Ltd v XYZ [2019] UKSC 48 dealt with the liability for costs arising out of litigation concerning the supply of defective PIP breast implants.

The claims were made in group litigation involving around 1,000 claimants. Some 623 of those claims were brought against Transform Medical Group (CS) Ltd, which was insured by Travelers in relation to 197 claims, but, for various reasons, not the remaining 426.

The case settled in 2015, but not before Transform had entered insolvent administration. Travelers paid an agreed proportion of the damages and costs attributable to the insured claims.

The uninsured claimants incurred little by way of individual costs, but were potentially liable under the costs-sharing terms of the group litigation order for their proportion of the common costs.

In March 2016, the uninsured claimants entered judgment in default against Transform. The uninsured claimants have not recovered anything, either by way of damages or costs. As a result, they applied to the court for an order that Travelers pay their costs of the action – not any damages.

Lady Justice Thirlwall (as she had by then become) made such an order in January 2017, a decision upheld by the Court of Appeal last year. It said the only limit on the court’s discretion to make third-party costs orders against insurers was that it must be exercised justly.

Overturning this decision, Lord Briggs – giving the main ruling in the Supreme Court – said “intermeddling” or becoming the real defendant were the two bases under which an insurer might become liable to a non-party costs order, as set out in the 1998 Court of Appeal decision in TGA Chapman Ltd v Christopher. This was “much preferable to the quest for factors which may satisfy an elusive concept of exceptionality”.

Where the claim itself fell within the scope of the insurance, whether or not subject to limits of cover, the real defendant test would usually be the appropriate one to apply, Lord Briggs said. But this was not the case here, so intermeddling was the issue to address.

Explaining it, he said “its starting assumption is that non-parties usually, although not invariably, have no legitimate interest in becoming involved in the litigation of others. It does not render involvement of any kind objectionable, but only involvement which is (in old-fashioned language) wanton and officious, for which the non-party cannot demonstrate some justification or excuse”.

The lower courts had focused on the asymmetry of the parties – the fact that the uninsured claimants would have to pay the other side’s costs if they lost, but the defendants would not. But Lord Briggs described this concern as “misplaced” when used to justify the imposition of a third-party costs order under section 51 of the Senior Courts Act 1981.

He said: “In the present case, every one of the claimants against Transform began their claims without knowing whether they were covered by insurance and continued them in face of increasingly depressing evidence about Transform’s impending insolvency.

“They all took the risk of asymmetric costs exposure and, for a majority of them, namely the respondents, that risk came to pass…

“By contrast, the lucky minority made a satisfactory costs recovery, funded by Travelers, when their cases were settled after mediation in August 2015.”

Lord Briggs said that where there was a connection between the uninsured and the claims for which the insurer had already provided cover, it “may well be” that the insurer’s legitimate interests justified “some involvement” in “decision-making and even funding of the defence of the uninsured claims without exposing the liability of the insurer” to pay the successful claimants’ costs.

“This is just such a case because of the very close connection between insured and uninsured claims, raising common issues to be tried together in test cases in group litigation, and the limited nature of Travelers’ involvement in the uninsured claims.”

Lord Briggs said that, of the three elements of Travelers’ conduct which the High Court regarded as “crossing the line”, the first (non-disclosure of the position of the uninsured claimants) was not “unjustified intermeddling, although it did cause those costs to be incurred”, while the second and third (decision-making about offers and admissions) “even if amounting to unjustified intermeddling, which I doubt, plainly had no relevant causative consequences”.

Lord Briggs allowed the appeal by Travelers. Lord Kitchin and Lady Black agreed. Lord Reed and Lord Sumption gave separate concurring judgments, with the latter suggesting that cases in which an insurer has engaged in intermeddling were likely to be rare, and an insurer who acted in good faith in relation to insured claims should not incur a costs liability.

Colin Edelman QC and Ben Lynch (instructed by DWF) for the appellant; Hugh Preston QC and Marcus Pilgerstorfer (instructed by Hugh James) for the respondents.

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Costs News
Published date
31 Oct 2019

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