In Travelers Insurance Company Ltd v XYZ  UKSC 48, the UK Supreme Court has confirmed that insurers will not be liable for third-party costs to non-insured claimants, where the insurers are justifiably involved in that litigation by reason of other, insured claimants.
623 claims were brought against Transform Medical Group (CS) Limited (Transform) for the supply of defective silicone breast implants. Transform had product liability insurance from Travelers Insurance Company Limited (Travelers), though most claims fell outside the insured period.
Travelers settled the claims that fell within the insured period. The uninsured claimants successfully sued Transform. However, Transform had been liquidated, leaving the legal costs of those claimants unpaid. Travelers had funded Transforms' defence and paid the insured claimants' portion of the total legal costs. The uninsured claimants applied for a third-party order that Travelers pay their costs as well.
The Supreme Court cited two approaches to deciding whether a third party should pay costs:
- Whether the third party took control of the litigation and became 'the real defendant'
- Whether the third party engaged in 'unjustified intermeddling'.
An insurer would become the real defendant if the insurer:
- Determined that the claim would be fought
- Funded the defence of the claim
- Controlled the conduct of the litigation
- Fought the claim exclusively to defend their interests
- The defence failed in its entirety.
The Court considered the 'real defendant' test inappropriate in the circumstances, as the claims were wholly uninsured.
Instead, the question was whether the insurer engaged in 'unjustified intermeddling' in litigation to which it was not a party. Such intermeddling would be justified where there was a close connection between the insured and the uninsured claims. The Court found that Travelers had done nothing to justify a costs order against it: an insurer who acts in good faith in relation to insured claims should not incur liability in costs.
See the Court's decision here.