Insurance: insurer liable for defence costs where only uninsured claims pursued

The High Court has made a non-party costs order against an insurer in respect of uninsured claims.

Background

The defendant, Transform Medical Group, faced 426 claims brought against it for the supply of defective breast implants as part of the Poly Implant Prothèse group litigation. Transform entered into liquidation during the group litigation proceedings and was, itself, unable to fund any liability that it was found to have.

197 of the claims made against Transform were covered by its product liability cover. These claims all related to claimants whose breast implant had ruptured. The remaining 229 had not suffered a rupture and were not covered by the policy terms.

In March 2016, the court awarded judgment in favour of the 299 claimants against Transform. The 229 claimants applied for a cost order against the insurer pursuant to section 51 of the Senior Courts Act 1981.

Decision

Thirlwall LJ reviewed the wording of Transform’s insurance policy, which stated that the insurer would pay the insured’s defence costs and expenses relating to ‘proceedings in court… in respect of any act or omission causing or relating to any occurrence’. When considering whether this wording covered the defence costs of the 229 uninsured claims, Thirlwall LJ noted that, had only the 197 insured claimants brought claims, the insurer would have paid the entirety of the claimants’ costs relating to the preliminary issues instead of what amounted to only roughly 30%. With Transform in liquidation and the insurer denying coverage for the costs for the remaining 229, it followed that the successful claimants would have to pay their own costs and Travelers had made a saving of £4 million compared to what they would have paid for defence costs if all claimants had been insured.

Thirlwall LJ found that this was an exceptional case where it was just to make a non-party costs order against the insurer in respect of the uninsured claims. In coming to this conclusion, she considered Lord Brown’s comments in Dymocks Franchise Systems (NSW) Pty Ltd v Todd (associated Industrial Finance Pty Ltd, third party), where he stated that, whilst cost orders against third parties are to be regarded as exceptional in litigation, “exceptional” ‘means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit at their own expense. The ultimate question in any such exceptional case is whether in all the circumstances, it is just to make the order’.

In this case there were a number of factors that took it outside the ordinary run of cases:

• The fact that the insurer insured other claims did not entitle it to be involved in and influence the conduct of the uninsured claims, which it had done.
• Without the insurer’s involvement, the judge was satisfied that Transform would have disclosed its insurance position to the claimants at an early stage; had that happened, they would not have brought/continued the claims and incurred costs.

Comment

This judgment serves as a reminder that, where an insured is defending both insured and uninsured claims, the insurer may be liable for the costs of defending all of these claims. Significantly in this case, although both insured and uninsured claims were initially brought, the insured claims had settled leaving only the defence costs relating to the uninsured claims in question.

Further reading: XYZ v Travelers Insurance Company Ltd [20017] EWHC 287 (QB)