Travelers Insurance Company Ltd v XYZ [2019] UKSC 48

Travelers insured Transform, a clinic supplying defective PIP breast implants. In group litigation, uninsured claimants sought a non-party costs order against Travelers under section 51. The Supreme Court allowed Travelers' appeal, holding it had not unjustifiably intermeddled in the uninsured claims.

Facts

The appeal arose from group litigation concerning defective silicone breast implants manufactured by Poly Implant Prothèse (PIP). Transform Medical Group (CS) Ltd operated clinics that fitted PIP implants and was insured by Travelers Insurance Company Ltd under a product liability policy covering bodily injury occurring between 31 March 2007 and 30 March 2011.

Of approximately 1,000 claimants in the Group Litigation Order (GLO), 623 claimed against Transform. Of these, 197 had claims falling within Travelers’ cover (‘insured claimants’), while 426 fell outside it (‘uninsured claimants’) – either because they had suffered no rupture (‘worried well’) or because their injuries occurred outside the insurance period. Four test cases (A-D) were selected, two insured and two uninsured, to determine common issues.

The limitations on Transform’s cover were not disclosed to the claimants until June 2014. The trial judge found that, had earlier disclosure been made, the uninsured claimants would not have continued their claims. Transform became insolvent in 2015. The insured claims were settled in August 2015, leaving the uninsured claimants with default or summary judgments against an insolvent defendant.

The uninsured claimants applied under section 51 of the Senior Courts Act 1981 for a non-party costs order against Travelers. Thirlwall LJ made the order, and the Court of Appeal upheld it, relying heavily on the asymmetry in costs risk between Travelers and the uninsured claimants.

Issues

The Supreme Court had to determine the principles governing the exercise of the section 51 discretion to make a non-party costs order against a liability insurer, particularly where the insurer funded and directed a defence involving both insured and uninsured claims. Specifically:

• Whether the Chapman principles (derived from TGA Chapman Ltd v Christopher) applied to wholly uninsured claims;
• Whether Travelers’ conduct amounted to unjustified intermeddling;
• Whether asymmetry or lack of reciprocity in costs risk justified the order;
• Whether non-disclosure of the limits of cover was relevant conduct;
• Whether any relevant conduct causatively linked to the costs incurred.

Arguments

Appellant (Travelers)

Travelers submitted that the courts below had wrongly departed from the Chapman principles, exposing insurers to unforeseeable liability beyond the terms of their policies. They argued their conduct did not depart from the acceptable norm set out in Groom v Crocker; that asymmetry in costs risk was not exceptional or a proper basis for relief; that reliance on non-disclosure of cover was contrary to principle; and that the other conduct relied upon had no causative effect on the claimants’ incurring costs.

Respondents (Uninsured Claimants)

The uninsured claimants argued that the insured and uninsured claims were entirely separate, so that Travelers’ involvement in the uninsured claims was unjustified intermeddling. They submitted that the lack of reciprocity in costs risk was, on its own, sufficient to justify a section 51 order.

Judgment

The Supreme Court unanimously allowed Travelers’ appeal. Lord Briggs (with whom Lady Black and Lord Kitchin agreed) delivered the leading judgment, with concurring judgments from Lord Reed and Lord Sumption.

Two distinct tests

Lord Briggs identified two separate bases on which a liability insurer may be exposed to non-party costs liability: the ‘real defendant’ test and the ‘intermeddling’ test. Where a claim falls within the scope of cover (including limit of cover cases), the real defendant test, supported by the Chapman principles, is generally appropriate. However, where the claim is wholly uninsured, the intermeddling test applies.

Intermeddling

The intermeddling test derives from English law on maintenance and champerty. It asks whether the non-party’s involvement was ‘wanton and officious’ and without justification or excuse. Where a liability insurer acts within the scope of its contractual rights and duties, as described in Groom v Crocker, liability as an intermeddler will be very hard to establish.

Application

The Court held that the trial judge erred in treating the insured and uninsured claims as entirely separate. The common issues in the test cases concerned both insured and uninsured claims, and Travelers was contractually obliged to fund the defence of those common issues in all four test cases (per New Zealand Forest Products Ltd v New Zealand Insurance Co Ltd, approved in International Energy Group Ltd v Zurich Assurance plc).

On non-disclosure of the limits of cover, the Court held this was not unjustified intermeddling. The law did not require disclosure, and the advice was given legitimately in the context of managing the defence to both insured and uninsured claims.

On Travelers’ involvement in decisions about drop-hands offers and admissions, the Court doubted this crossed the line. Even if it did, it had no causative consequence: by 2015, the uninsured claimants were continuing their claims specifically to secure a non-party costs order, and no admission or drop-hands offer would have dissuaded them from pursuing judgment.

Asymmetry / Lack of Reciprocity

The Court rejected the Court of Appeal’s reliance on asymmetry as decisive. The asymmetry arose from Transform’s insolvency, its limited insurance, and the several-only costs regime under the GLO – not from any intervention by Travelers. Asymmetry in costs risk exists in many ordinary litigation contexts (legal aid, QOCS, Aarhus cases) and is not, on its own, a justification for a non-party costs order.

Causation

Causation is an essential requirement: the applicant must show a causal link between the non-party’s conduct and the costs sought to be recovered. Here, the only Travelers-related conduct that caused the uninsured claimants’ costs (non-disclosure) was not unjustified intermeddling.

Exceptionality

Lord Reed, concurring, was critical of ‘exceptionality’ as a freestanding criterion, stating that it has little independent significance beyond describing a departure from the ordinary run of cases. He also traced the historical antecedents of non-party costs orders and explored the Scottish doctrine of the dominus litis (real master of the litigation). Lord Sumption endorsed Lord Briggs’s taxonomy of the ‘real defendant’ and ‘intermeddling’ tests.

Implications

The decision provides important clarification of the principles governing non-party costs orders against liability insurers. Key points include:

• The Chapman principles operate as useful guidelines (not rigid rules) for identifying when an insurer has become the real defendant in cases involving insured claims (including limit of cover cases).
• Where claims are wholly uninsured, the appropriate question is whether the insurer’s involvement constituted unjustified intermeddling, not whether it became the real defendant.
• An insurer acting within the scope of its contractual rights and duties, and within the bounds set by Groom v Crocker, is unlikely to be treated as intermeddling.
• Involvement in the defence of common issues shared between insured and uninsured claims in group litigation may be justified, and does not automatically attract section 51 liability.
• Non-disclosure of the limits of cover is unlikely to amount to relevant conduct for so long as the law permits such non-disclosure.
• Asymmetry or lack of reciprocity in costs risk is, on its own, unlikely to justify a non-party costs order where the asymmetry arises from the defendant’s insolvency and the several-only nature of group litigation costs.
• Causation remains an essential element of any section 51 application against a non-party.

The decision is of particular importance to liability insurers, who can now have greater certainty about the boundaries of their exposure to non-party costs orders beyond their policy limits. It is also significant for claimants and their legal advisers in group litigation, who must appreciate that strategic participation in pursuit of eventual section 51 recovery is not always successful, and that asymmetric risk is an inherent feature of claiming against defendants whose insurance position is uncertain. The judgment preserves the public interest in liability insurance by ensuring insurers are not deterred from fulfilling their contractual role by unpredictable costs exposure to third parties.

Verdict: The Supreme Court unanimously allowed Travelers’ appeal and set aside the non-party costs order made against it under section 51 of the Senior Courts Act 1981.

Source: Travelers Insurance Company Ltd v XYZ [2019] UKSC 48