Supreme Court unanimously concludes that insurers were not liable to pay the uninsured claimants’ costs

In our article of 14 January 2019 we highlighted the troubling line of authority set down in the cases of Various Claimants v Giambrone and AIG [11.01.19] and Travelers Insurance Company Limited v XYZ [17.05.18]. Today, the Supreme Court has sensibly overturned the decisions of the lower courts in Travelers in concluding that Travelers’ conduct did not cross the line into ‘unjustified intermeddling’ (per TGA Chapman Limited v Christopher [1998]) in litigation to which it was not a party.

The headlines from Lord Briggs’ decision are:

1. The underlying question as to whether the non-party has become a ‘real’ party to the litigation or has intermeddled, is fundamental to the exercise of Section 51 jurisdiction.
2. Causation remains an important element in what a Section 51 applicant has to prove - there must be a causative link between the incurring of the costs sought to be recovered from the non-party and the conduct of the non-party.
3. There is no obligation on a liability insurer to disclose limitations on cover – whilst the Supreme Court accepted that Travelers’ failure to do so may have been causative of incurrence of costs, which would not have been incurred, the non-disclosure did not constitute unjustified intermeddling.
4. The insured were contractually entitled to receive funding from Travelers for the defence of the common issues, regardless of whether they arose in the uninsured or insured claims – the claims were all being pursued together as one single group action and Travelers’ participation was not therefore unjustified intermeddling – rather their engagement was involuntary, arising from their status as insurers.
5. It may well be that the legitimate interests of the insurer will justify some involvement in decision making and even funding of the defence of the uninsured claims without exposing an insurer to liability to pay the successful claimant’s costs.
6. The reliance placed by the courts below on ‘reciprocity’ or ‘asymmetry’ as a factor justifying a third party costs order was misplaced – it is unlikely, on its own, to be a reason for making a non-party costs order against an insurer where such asymmetry arises because a claimant sues an uninsured and insolvent defendant and incurs several–only costs liability in group litigation.

Lord Sumption’s concurring comments are particularly helpful in that he suggests that it will be rare for an insurer to be found to have ‘intermeddled’ and if any insurer acts in good faith in relation to insured claims, they should not incur liability in respect of costs beyond the scope of the policy. Further, he recognised that the relationship between liability insurers and their insureds has a number of specific features which distinguish it from other cases in which costs orders are sought against non-parties to litigation.

Finally, the approach taken by the uninsured claimants’ solicitors in electing to pursue the claims even after the insurance position was disclosed, in order to be in a position to pursue a s.51 application against Travelers, was categorised as somewhat disingenuous. It is to be hoped that this commentary will be taken seriously by opportunistic claimant solicitors who have, to date, been content to run litigation in the knowledge of limits on cover, expressly to maximise their position under s.51.

The decision is to be welcomed by Insurers for clarifying an area of the law surrounded by uncertainty for too long.

AIG are appealing the decision in Various Claimants v Giambrone and AIG [11.01.19] to the Court of Appeal and this is due to be heard in the New Year.

Related items:

• Insurer liable for costs of defending uninsured claims
• Judgment applies reciprocity test, holding liability insurer liable to pay claimants’ costs under s.51 Senior Courts Act