In the long-running saga of the PIP breast implant litigation, the Supreme Court this week dramatically overturned the non-party costs order made against Travelers, the product liability insurer of one of the defendants.
Transform Medical Group (Transform) operated medical clinics which supplied and fitted allegedly defective breast implants in the UK. It was named as a defendant in the PIP breast implant group litigation (GLO), launched in 2012. Transform was insured by a product liability policy issued by Travelers covering liability for bodily injury occurring during the policy period. Of the 623 Transform claimants within the GLO, 197 were identified as being covered by the Travelers policy; the remaining 426 were uninsured.
Travelers funded the whole of Transform’s defence in relation to four test cases which were selected for early determination, two of which were insured claims and two of which were uninsured. In July 2013 the claimants, concerned about the financial position of Transform, applied for disclosure regarding the company’s insurance position. The application was dismissed but ultimately, in June 2014, Transform admitted that it would be unlikely to be able to pay compensation or costs to uninsured claimants.
In 2015, Transform settled with all of the insured claimants at mediation. At that point, Travelers’ obligation to fund defence costs came to an end. The remaining uninsured claimants went on to obtain default judgment against Transform in 2016, following which they made an application under Section 51 of the Senior Courts Act for a non-party costs order against Travelers.
The Judge at first instance granted a non-party costs order against Travelers, focussing on four main criteria and finding that:
The Court of Appeal upheld the first instance judgment, though for different reasons; it did not agree that Travelers had no business involving itself in the uninsured claims, and was more persuaded by the disparity in THE position with regard to costs in the event that the claimants lost or won. Travelers appealed to the Supreme Court.
The Supreme Court unanimously upheld Travelers’ appeal, noting that there were generally two tests for deciding whether to make a non-party costs order:
The court confirmed that the “real defendant” test was appropriate where claims were part insured/part uninsured, but not where, as in this case, the claims were wholly uninsured. In those circumstances, it would need to be shown that the insurer had engaged in “unjustified intermeddling” and, usually, that there was some causative link between the insurer’s involvement in the case and the claimants’ incurring of costs.
With regard to the four points considered by the lower courts, the court held:
The court’s discretion under section 51 is a broad one, and the judgment should not be interpreted too widely. Going forward, courts will have to decide the position on a case by case basis. Where a claim is wholly insured, it will almost always be the case that the insurer has become the “real defendant” and is liable for the claimant’s costs. Where claims are part insured/uninsured, the Court of Appeal judgment in the Chapman case provides guidance on the application of the “real defendant” test. Where the claim is wholly uninsured, arguably the rarest of the situations, the question to ask is this: has the insurer caused the claimants’ costs to be incurred by intermeddling in the defence of the uninsured claims without justification?
Although the facts of this case have been repeatedly described as “unique” and “exceptional”, the growing appetite, and availability of third party funding, for group claims means that this type of situation might arise more frequently in the years to come. As such, the case provides somewhat of a warning to group claimants to carefully consider the financial stability of a defendant before commencing proceedings, particularly in circumstances where the insurance position is unknown.
If you would like to discuss this article with a member of our insurance policyholder practice, please contact Harriet Chopra, Senior Associate at Harriet.Chopra@michelmores.com.