INSURER NOT LIABLE TO PAY CLAIMANTS’ COSTS: TRAVELERS INSURANCE DECISION OVERTURNED BY THE SUPREME COURT

In the judgment today in Travelers Insurance Company Ltd v XYZ [2019] UKSC 48 the Supreme Court held that the insurer was not liable to pay the costs of those claimants who had proceeded (unknowingly) against uninsured defendants.  This is an important decision in relation to non-party costs orders.  One of the points made in relation to a non-party order is that there has to be a causative link between the conduct of the non-party and the incurred costs which are sought to be recovered.

“… causation remains an important element in what an applicant under section 51 has to prove, namely a causative link between the particular conduct of the non-party relied upon and the incurring by the claimant of the costs sought to be recovered under section 51. If all those costs would have been incurred in any event, it is unlikely that a section 51 order ought to be made”

THE CASE

623 claimants brought an action against a medical clinic in relation to defective silicone breast implants. The insurer, Travelers, funded the whole of the defendant’s defence. It did not disclose until a late stage that a substantial number of the claimants were uninsured, in that the defendant’s policies only covered the clams brought by 197 claimants.  The claimants who were covered recovered costs and damages. The  court initially ordered that the insurer nevertheless  pay the costs of those claimants who were not covered by the defendant’s policies. This decision was upheld by the Court of Appeal.

THE SUPREME COURT: OVERTURNS THE EARLIER DECISIONS

The Supreme Court overturned the earlier decisions. No costs of the “uninsured” claimants were to be recoverable from the insurer.   The decision is set out in the helpful summary available here. 

“DRAWING THE THREADS TOGETHER”

Lord Briggs gave the main judgment.
76.             It may be convenient to draw together the threads of this rather long analysis into some concluding propositions. First, the underlying question, whether the non-party has either become the real defendant in relation to an insured claim, or intermeddled in an uninsured claim, is fundamental to the exercise of the section 51 jurisdiction, in insurance cases. It is the conduct of the non-party which matters, rather than the mere rarity of the case.
77.             Secondly, the Chapman principles are useful guidelines for establishing whether the liability insurer has become the real defendant in all but name, in a case where some part of the claim (including the claim for costs) is or may lie outside the limits of cover, so that the insured has at least a prima facie joint interest with the insurer in the outcome of the litigation.
78.             Thirdly , the Chapman principles are not likely to be of assistance where the question is (as here) whether the liability insurers crossed the line in becoming involved in the funding and conduct of the defence of wholly uninsured claims, as opposed to claims where there is limited cover. In such cases the insurer may cross the line by conduct falling well short of total control, and without becoming the real defendant, if the insurer intermeddles in the uninsured claim in a manner which it cannot justify.
79.             But, fourthly, where there is a connection between uninsured claims and claims for which the insurer has provided cover, it may well be that the legitimate interests of the insurer will justify some involvement by the insurer in decision-making and even funding of the defence of the uninsured claims without exposing the insurer to liability to pay the successful claimant’s 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.
80.             Fifthly, causation remains an important element in what an applicant under section 51 has to prove, namely a causative link between the particular conduct of the non-party relied upon and the incurring by the claimant of the costs sought to be recovered under section 51. If all those costs would have been incurred in any event, it is unlikely that a section 51 order ought to be made.
81.             Sixthly, the non-disclosure of limits of cover by the defendant at the request of the insurer is unlikely to amount to relevant conduct, for as long as the law continues to make that non-disclosure legitimate.
82.             Seventhly, asymmetry or lack of reciprocity in costs risk, as between the uninsured claimant and the defendant’s insurer, is unlikely on its own to be a reason for the making of a non-party costs order against the insurer where, as here, the asymmetry arises because a claimant sues an uninsured and insolvent defendant and incurs several-only costs liability in group litigation.
83.             Applied to this case, those conclusions mean that this appeal should be allowed. This is because, of the three elements of the conduct of Travelers which the judge regarded as crossing the line, the first (non-disclosure) 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. The Court of Appeal’s alternative route to the judge’s conclusion, based essentially upon the asymmetry point, was in my view wrong for the reasons already given.