Travelers had insured XYZ, who was facing 623 claims relating to defective breast implants. 197 of the claimants were insured and 426 were not. The question was whether Travelers were responsible for the costs of the uninsured claimants, who had applied directly for a costs order against Travelers.
The same solicitors were instructed for both the insured and the uninsured, but the lack of insurance was not disclosed to Travelers. At first instance, the Judge granted a non-party costs order against Travelers on the basis that Travelers had no business involving itself in the uninsured claims. It was held that if early disclosure of the coverage position had been made, the uninsured claimants would not have pursued their claim and incurred costs.
Further, there was asymmetry in the costs risk. If Travelers successfully defended the uninsured claims, they would be able to recover the costs from them but in contrast, if the uninsured claimants were successful, they would not have any recourse against Travelers. One further point raised was that their settlement discussions supported the view that Travelers had participated in the uninsured claims sufficiently enough to incur a non-party costs liability.
The Court of Appeal supported the first instance decision and the appeal was dismissed. However, the Supreme Court overturned the Order and allowed Travelers to appeal. The Supreme Court provided clear guidance on when an insurer can be held liable for a non-party costs order. The following questions were used to consider the position:
- Could the insurer be considered to be the real defendant? (Did it take control of the litigation?)
The limitations of this test are that it is not useful in claims that are wholly uninsured.
- Was the insurer involved in “unjustified intermeddling”?
This is the test for wholly uninsured claims. It has to be considered on the facts – there is no benchmark for what “intermeddling” is. In this instance, it was noted that whilst the insurers’ conduct was open to criticism at various points, it had fallen short of “unjustifiable intermeddling”. It was also noted that parties to litigation are not necessarily required to disclose their insurance arrangements.
With regards to asymmetry, the Supreme Court did not find the costs risk to be decisive. It stated that there will often be asymmetry (it used the example of where one party is funded by legal aid) but in this instance, that asymmetry did not result directly from Travelers actions.
On settlement and admissions, the Supreme Court found no causative link between Travelers’ involvement in making an offer in the uninsured claims, and the costs sought as these would have been pursued regardless of whether an offer had been made.
The case provides welcome guidance for insurers in determining whether they are at risk of a non-party costs order, although there remains a degree of uncertainty in defining “unjustified intermeddling”. It does serve as a useful reminder that there is always a risk of exposure to adverse costs consequences for insurers, particularly in relation to uninsured parts of a claim. Insurers may need to consider disclosing their coverage position early, in order to avoid penalties later on.