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Insured Required To Pay Costs Of Uninsured Claimants In Group Action

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Travelers Insurance Company Ltd v XYZ [2018] EWCA Civ 1099

The recent decision in Travelers Insurance Company Ltd v XYZ has created concern in the insurance sector and comes with some stark lessons all insurers should be aware of.

The Court of Appeal made a decision at trial pursuant to section 51 of the Senior Courts Act 1980 (“Section 51”) requiring Travelers to pay costs incurred by claimants including those who were uninsured.


The facts of the case

The claim related to the supply and use of defective breast implants in breast surgery, manufactured by PIP. The claims were subject to a group litigation order (GLO) made in April 2012 and encompassed about 1,000 claims brought against Transform Medical Group (CS) Ltd, amongst other defendants.  Travelers provided Transform with insurance cover in respect of 197 of the claims it faced, but the remaining 426 claims were uninsured.

During the litigation, the claimants pursued an application for an order to establish the insurance position.  In response to the application, Transform produced a witness statement which satisfied the court that sufficient funding was available to pay for its part of the litigation.  This fact was not disclosed to the claimants’ solicitors.

Following the production of expert evidence, the claim with regards to the insured claimants was settled prior to trial.  Travelers Insurance agreed to pay a proportion of the insured parties’ damages plus costs.

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 incurred in progressing the four sample Transform cases that had previously been earmarked for trial of preliminary issues.

Transform subsequently fell into administration.  The uninsured claimants entered judgment in default against Transform and applied to the court for an order that Travelers Insurance pay their court costs.  Transform was liable for approximately 42% of the costs.  Travellers Insurance would only cover around 20% of the common costs, as a bulk of the claimants were uninsured. 

The uninsured claimants applied for an order that Travelers pay their share of the costs, but not any damages.  Lady Justice Thirlwall granted this order.

Travelers Insurance appealed.


The grounds for appeal

Travelers Insurance argued that when making her ruling, Lady Justice Thirlwall failed to apply established case law which regulated when costs should be awarded against an insurer.  Its counsel put forward a submission that a costs order made under section 51 could only be made against the insurer if it was proved the insurer controlled the litigation in its own interest and without appropriate consideration to any inconsistent or contrary interest for the insured.  This argument was rejected, and Lady Justice Thirlwall stated that the overriding principle when making a costs order was that justice would be done.  The unique circumstances, in this case, meant that if Travelers’ grounds for appeal succeeded, they would have ‘escaped’ 68% of the costs and such a result “accords neither with reason or justice”.


The decision of the Court of Appeal

The Court of Appeal stated Travelers’ circumstances fell squarely within the test set out   in Dymocks Franchise Systems v Todd [2004] UKPC 39, [2005] 4 All ER 195, where it was stated:

 

“Where, however, the non-party not merely funds the proceedings but substantially also controls or at any rate is to benefit from them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party's costs. The non-party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes”.

The court also stated that although exceptional circumstances had to be present for a costs order to be made under section 51, this simply meant the case was outside the ordinary.  It went on to point out that the test for what was ‘ordinary’ related to litigation before the courts, not what was ordinary within the insurance industry.

Although the uninsured’s claims were nothing to do with the insurer, Travelers involvement in the defence of the claims and their approach to the company’s conduct of them were relevant considerations when considering a costs order.  In addition, Travelers had been in the driving seat of the litigation.  Finally, both Travelers and Transform chose not to give the uninsured claimants information regarding the insurance policy which would have led to them discontinuing their claims.  The court held it would ultimately be unjust for uninsured claimants to be liable for their own costs where, had they been aware of all the facts, they would have stopped the litigation at a much earlier stage.

In summary

This case illustrates the importance of full disclosure in litigation, especially in a group action. 

The Court of Appeal held that where an insurer provides a policy and is called on to indemnify the insured against a claim for defective products, they, the insurer can be potentially liable for all the costs of an unsuccessful defence ie the costs of both insured and uninsured claimants.

Fisher Scoggins Waters are experts in construction, manufacturing, and engineering law, based in London.  If you would like more information on construction contract disputes, please phone us on 0207 993 6960.

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Categories: Insurance

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