XYZ v Travelers Insurance Company Ltd

Under section 51 of the Senior Courts Act 1981, the court may order a non-party insurer to pay costs where its involvement in litigation makes that order just. An insurer need not have controlled the litigation, or be the real party, before such an order can be made. The relevant question is the overall justice of the case. Important factors include the insurer’s involvement in uninsured claims, the influence it exercised over their conduct, whether its interests conflicted with those of the insured, and whether its conduct caused the claimants to incur costs that would otherwise have been avoided. Funding a defence alone is insufficient, but funding and influencing numerous claims that the insurer never insured may make the case exceptional.

The applicants brought successful claims against Transform Medical Group for injuries arising from defective breast implants. Transform had product liability insurance with Travelers for only some claims. Travelers settled the insured claims but Transform was uninsured for the applicants’ claims and later entered administration.

The applicants sought an order under section 51 of the Senior Courts Act 1981 requiring Travelers to pay their costs. They alleged that Travelers had funded and influenced the defence of the uninsured claims, and that the applicants would not have pursued those claims had the absence of insurance been disclosed. Travelers argued that the established insurer-costs cases required proof that it controlled the litigation. The central issue was whether, in all the circumstances, it was just to make the order.

1. The application was granted. Travelers was ordered to pay the applicants’ costs up to 31 March 2016.

2. Section 51 of the Senior Courts Act 1981 gives the court a broad discretion to determine by whom and to what extent costs should be paid. The immutable principle is that the jurisdiction must be exercised justly. The court is not required to apply a rigid control-based test.

3. The insurer-costs authorities concerning insurers who funded an insured defendant’s unsuccessful defence were of limited assistance. This case was conceptually different because Travelers funded the defence of 426 claims that it had never insured. It was therefore unnecessary for the applicants to establish that Travelers controlled the litigation.

4. Travelers’ involvement in the uninsured claims remained relevant. It selected the solicitors and counsel, used a common advisory structure for Travelers and Transform, influenced decisions about disclosure of the insurance position, and treated its consent as necessary for proposed settlements of uninsured claims. The interests of Travelers and Transform were materially different, but the conflict was not properly identified or addressed.

5. The claims were exceptional in the sense explained in Dymocks Franchise Systems (NSW) Pty Ltd v Todd: they fell outside the ordinary run of cases in which parties pursue or defend claims for their own benefit and at their own expense. Had the lack of insurance been disclosed earlier, the applicants would not have pursued or continued their claims and would not have incurred the costs claimed.

6. Travelers had taken no litigation risk in respect of the uninsured claims while obtaining a substantial benefit through the reduction of costs attributable to its insured claims. It would pay what it had bargained for under the policy. Those matters, together with the history and conduct of the litigation, made it just to order Travelers to pay the applicants’ costs.

First-instance decision. The judgment records earlier case-management decisions in the same group litigation, including [2013] EWHC 3643 (QB), but no appeal from the present application.