Travelers Insurance Company Ltd v XYZ

When a liability insurer faces a non-party costs application under section 51 of the Senior Courts Act 1981, the governing principle depends on the scope of cover. For an insured claim, the question is usually whether the insurer became the real defendant. For a wholly uninsured claim, the question is whether it unjustifiably intermeddled.

Contractually justified involvement in connected insured and uninsured claims does not ordinarily constitute intermeddling. The applicant must also establish a causal link between the impugned conduct and the costs claimed. Asymmetry of costs risk and lawful non-disclosure of policy limits are insufficient by themselves.

Travelers insured Transform Medical Group against specified product-liability claims. Transform was one of several defendants in group litigation concerning defective breast implants. Some claims against Transform were insured, while others fell outside the policy. Common issues arising across both classes were litigated through test claims.

After Transform became insolvent, the uninsured claimants obtained judgments but could not recover their costs from it. Thirlwall LJ made a non-party costs order against Travelers under section 51 of the Senior Courts Act 1981: [2017] EWHC 287 (QB). The Court of Appeal upheld that order, principally because Travelers benefited from an asymmetry in costs risk: [2018] EWCA Civ 1099.

The central issue was when a liability insurer funding and influencing the defence of closely connected insured and uninsured claims may be ordered to pay the successful uninsured claimants’ costs.

1. Appeal allowed unanimously. Lord Briggs delivered the leading judgment, with which Lady Black and Lord Kitchin agreed. Lord Reed agreed with the result and the general analysis, adding observations about the historical and comparative foundations of the jurisdiction. Lord Sumption agreed with Lord Briggs’s taxonomy and its application.

2. In liability-insurance cases, the fundamental inquiry under section 51 of the Senior Courts Act 1981 is whether the insurer became the real defendant in relation to an insured claim or unjustifiably intermeddled in an uninsured claim. The insurer’s conduct matters more than the mere rarity of the circumstances. The Chapman principles are useful guidelines, rather than rigid conditions, for deciding whether an insurer has become the real defendant where a claim or costs exceed the limits of cover. They are generally unsuitable for wholly uninsured claims, where the intermeddling principle governs.

3. Intermeddling does not require total control of the litigation. The court must compare the nature and extent of the insurer’s involvement with its justification or excuse. Contractual obligations and rights under liability insurance are of primary importance. An insurer acting within those confines, and in the common interests of itself and its insured, will rarely be an unjustified intermeddler.

4. The insured and uninsured claims were closely connected. They formed part of one group action, raised common issues and were tried through test cases. Travelers was contractually obliged to fund the defence of those common issues. Its participation in the uninsured claims was therefore substantially justified. Its involvement in possible admissions and settlement offers did not justify the order and, in any event, did not cause the relevant costs.

5. A causal connection is required between the particular conduct relied upon and the costs sought. Lawful non-disclosure of the policy limits caused some costs to be incurred but was not unjustified intermeddling. The later involvement in admissions and settlement might arguably have crossed the line, but it caused none of the costs claimed.

6. Asymmetry or absence of reciprocity in recoverable costs was insufficient. It arose from Transform’s insolvency, the limited insurance and the several-only allocation of group costs, rather than from Travelers’ conduct. The non-party costs order was therefore set aside.

1. United Kingdom Supreme Court: Allowed Travelers’ appeal unanimously and set aside the non-party costs order: [2019] UKSC 48.
2. Court of Appeal: Upheld the order, treating the asymmetry or lack of reciprocity in costs risk as decisive: [2018] EWCA Civ 1099.
3. High Court: Thirlwall LJ ordered Travelers to pay the uninsured claimants’ costs under section 51 of the Senior Courts Act 1981: [2017] EWHC 287 (QB).