Supreme Court Provides Welcome Clarity On When Non-Party Costs Orders Should Be Made Against Insurers

The Supreme Court has overturned the Court of Appeal's decision in Travelers Insurance Company Ltd v XYZ [2019] UKSC 48 in a landmark decision on the question of insurers' liability for costs under section 51 of the Senior Courts Act 1981 (section 51 SCA).

The decision, which is welcome news for liability insurers, brings some much-needed clarity to the question of when an unsuccessful party's insurer can be held liable for another party's costs in litigation.

Amongst other things, section 51 SCA provides that the costs of and incidental to all proceedings in the High Court shall be in the discretion of the court, and the court has full power to determine by whom and to what extent the costs are to be paid. Its application has previously been somewhat uncertain.

Background

In 2012, a number of claims were brought under a Group Litigation Order (GLO) in respect of defective breast implants, 623 of which were brought against Transform Medical Group (CS) Ltd (Transform), a private hospital which had supplied the defective implants.

Transform had a product liability policy in place with Travelers Insurance Co Ltd (Travelers) in relation to 197 claims made against it, but was uninsured in respect of the remaining 426 claims.

In April 2014, Transform's insurance position was revealed to the Claimants' solicitors, by which time expert evidence showed that it was likely that the Claimants would be successful against Transform.

In June 2015 Transform entered insolvent administration and in August 2015, the covered claims were settled, with Travelers paying both damages and an agreed portion of common costs referable to the covered claims.

The action in respect of the uninsured claims led to judgment in default being entered in May 2016. Transform was insolvent and unable to pay damages or costs, thus the Claimants sought to recover the balance of their common costs (ie costs common to the insured and uninsured claims), from Travelers.

High Court decision

In January 2017, Lady Justice Thirwall (as she by then was) made an order that Travelers pay the Claimants' costs under section 51 SCA even though they did not provide insurance in respect of such claims. The Court emphasised the following facts:

Litigation funding: Travelers funded the unsuccessful defence of the 426 claims. Prolonged proceedings: Thirwall LJ was satisfied that, but for Travelers' involvement: (i) Transform would have disclosed its insurance position to the Claimants at an early stage; and (ii) the claims would not have been brought (or...