The Supreme Court held that Travelers, the product liability insurer of a clinic sued in group litigation over defective PIP breast implants, was not liable for the costs of claimants whose claims fell outside the insurance. Funding and helping to run the defence of common issues did not, without more, make the insurer an unjustified intermeddler who had caused those costs. The appeal was allowed, so the non-party costs order made below should not have been made.
The case concerned a non-party costs order under section 51 of the Senior Courts Act 1981. That provision gives the court a broad power to decide by whom, and to what extent, the costs of civil proceedings are to be paid. It can, in an appropriate case, be used against someone who is not formally a party. Here the non-party was Travelers Insurance Company Ltd, the product liability insurer of Transform Medical Group (CS) Ltd.
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The claims and the insurance
The litigation arose from defective silicone breast implants made by the French company Poly Implant Prothèse. Transform operated clinics which supplied and fitted those implants. About 1,000 women brought claims under a group litigation order made on 17 April 2012. Of those, about 623 claimed against Transform.
Travelers insured Transform against liability for bodily injury occurring between 31 March 2007 and 30 March 2011. About 197 of the claims against Transform fell within that cover. The other 426 did not. Some 194 of those 426 claimants, described as the “worried well”, had not yet suffered bodily injury from a rupture but were exposed to the risk that they would. The rest had suffered injury outside the insured period. Together, these 426 were the uninsured claimants and the respondents to the appeal. The Court ordered that their names and identifying details were not to be published.
The policies required Travelers to indemnify Transform for costs in proceedings on covered claims and gave Travelers the right to control the conduct of those claims. Transform could not admit liability or offer to settle a covered claim without Travelers’ consent.
The group litigation order provided that common costs were to be shared by dividing them by the number of claimants, and that each party’s liability for and entitlement to costs was several, not joint. Thirlwall J selected four test claims against Transform, two insured and two uninsured. That split was chance: neither the court nor the claimants then knew the limits of the cover. Costs of the common issues were shared among all the relevant claimants.
Disclosure, insolvency and the later judgments
The uninsured claimants sought information about the extent of Transform’s cover. The policy limits were not disclosed at the outset. Transform subsequently went into administration.
Thirlwall LJ later found that, had the limits been known from the outset, the uninsured claimants would not have started or at least continued their claims in the group. By June 2014 they had already contributed, on a several-only basis, to the cost of the common issues, including expert evidence. They continued afterwards in part because they hoped, if successful against Transform, to obtain a non-party costs order against Travelers.
Travelers funded the whole of Transform’s defence of the common issues in all four test claims, including the two uninsured claims. It was common ground that, where issues are common to insured and uninsured claims, an insurer may not apportion its contractual liability for defence costs. The insured claims were settled in 2015, after which Travelers’ obligation to fund defence costs ended. The uninsured claimants later obtained default or summary judgment against Transform.
The decisions below
The first-instance judge ordered Travelers to pay the uninsured claimants’ costs. She relied on the way the claims had been defended together and the insurer’s involvement in decisions affecting the uninsured claimants.
The claimants faced the risk of paying defence costs if they lost, but the clinic’s insolvency left their own costs unrecovered if they won.
The Court of Appeal reached the same result, but not on the basis that the claims were wholly separate. Common issues arose in both, and Travelers had to fund the defence of Transform’s position on those issues. For the Court of Appeal, the lack of reciprocity was decisive: it made the case exceptional and pointed towards a just non-party order. Patten and Lewison LJJ also upheld, with some hesitation, the judge’s view that Travelers should bear responsibility for the jointly instructed solicitors’ advice on non-disclosure.
When an insurer may be ordered to pay costs
Lord Briggs, with whom Lady Black and Lord Kitchin agreed, said that liability insurers occupy a distinct place among non-party funders. Liability insurance protects insured defendants and reduces the risk that injured people go uncompensated. The insurer is typically an involuntary funder, with a contractual right to control the defence, rather than a volunteer who chooses to interfere.
Earlier cases, especially TGA Chapman Ltd v Christopher, had identified two routes to a non-party costs order against a liability insurer. One is unjustified intermeddling: involvement which cannot be justified or excused. The other is that the insurer has become the real defendant, funding and controlling the defence in its own interest. The Chapman guidelines are useful where the claim itself is insured, including where a limit of cover leaves some costs outside the policy. They are not the right test where every claim for which costs are sought is wholly uninsured. In that situation the question is intermeddling, not whether the insurer became the real defendant.
A contractual framework, particularly liability insurance, is highly relevant and may be decisive against liability if the insurer stays within the limits explained in Groom v Crocker: control exercised in what the insurer bona fide considers to be the common interest, rather than for an advantage outside the litigation. The applicant must also show a causative link between the conduct relied on and the costs sought. If those costs would have been incurred anyway, a section 51 order is unlikely to be just.
Lord Reed cautioned against treating “exceptionality” as a separate legal condition. The power is discretionary and established principles explain when it is just to use it.
Why the order was wrong
The Supreme Court held that the courts below were wrong to treat asymmetry of costs risk as a reason for the order. That asymmetry did not come from Travelers intervening in the uninsured claims. It came from Transform’s insolvency, cover for only some claims, and the claimants’ choice to accept several-only liability for common costs without knowing whether they were insured. Many ordinary situations, including legal aid, qualified one-way costs shifting and an insolvent opponent, produce a similar imbalance. The law did not, in this case, require disclosure of the insurance, and whether it should do so was not the issue on the appeal.
Non-disclosure was not unjustified intermeddling, even though the judge found that it caused the uninsured claimants to incur costs. The advice concerned the claims against Transform as a whole and formed part of the conduct of the insured defence which Travelers was entitled to control. There was no duty to disclose cover, and disclosure might damage the insurer’s legitimate interests. Advice reflecting that position was not a proper basis for a section 51 order.
Travelers’ involvement in whether Transform should make a drop-hands offer or an admission to the uninsured claimants also did not justify the order. Those questions arose while the closely related insured claims were still live, and a concession on an uninsured claim might have been read as weakness on the common issues. Even if that involvement had crossed the line, it had no relevant causative effect. By 2015 the uninsured claimants knew that they were uninsured and were continuing in part so that they could seek a costs order against Travelers for expenditure already incurred. Neither an admission nor a drop-hands offer, under which each side would bear its own costs, would have stopped them incurring the costs of the later judgments.
Verdict: The Supreme Court unanimously allowed Travelers’ appeal and set aside the non-party costs order. Its conduct in defending common issues in the insured claims did not justify making it pay the uninsured claimants’ costs.
Source: Travelers Insurance Company Ltd v XYZ [2019] UKSC 48
