Product Liability - Travelers Insurance Company V XYZ

Court of Appeal upholds decision that insurer liable for costs of defending uninsured claims

The claimants in a group litigation action alleged that the defendant had supplied defective breast implants to them. The defendant's product liability insurers advised that the policy did not cover the "worried well" ie those claimants who were concerned about their implants but whose implants had not ruptured. Eventually, the insured claims (197 in total) were settled with the consent of the insurer (who paid a proportionate amount of the common costs attributable to the insured claims). The remaining 229 claimants (whose claims were uninsured) subsequently succeeded in their claim against the defendant. The defendant was by then in administration and the claimants sought, and were granted, a costs order against the insurer, pursuant to section 51 of the Senior Courts Act 1981. The insurer's appeal from that decision has now been rejected by the Court of Appeal.

The insurer had sought to argue that a liability insurer should only be held liable under section 51 if it has controlled the litigation in its own interest, without paying appropriate regard to the insured's interests. But the Court of Appeal placed more importance on the principle of reciprocity: if the insured had won, all the claimants (both insured and uninsured) would have been liable equally to contribute the other side's costs.

The Court of Appeal noted that the decision has caused consternation in the insurance industry and amongst insurance lawyers but went on to find that "It is, in my judgment, fanciful to suppose that when [the insurer] entered into the contract of insurance they expected that, if called upon to indemnify [the insured] against a claim for defective products, such a claim would be brought by a random mix of insured and uninsured claimants. The expectation must have been that, if called upon to indemnify [the insured], [the insurer]...