Factual and Procedural Background
This opinion concerns an application under section 51 of the Senior Courts Act 1981 for an order requiring Travelers Insurance Company Ltd ("Travelers") to pay costs incurred by claimants in successful claims against Transform Medical Group (CS) Limited ("Transform") (in administration). The claims arose from injuries caused by defective breast implants manufactured by a French company and supplied by Transform.
A Group Litigation Order ("GLO") was made in April 2012, with approximately 1,000 claimants joining to bring claims in contract and/or under the Sale of Goods and Services Act ("SOGSA"). Multiple defendants were involved, including private hospital companies, with separate claims under the Consumer Credit Act settled in many cases. This application relates specifically to Transform and 426 of the 623 claimants against it.
Transform held a product liability insurance policy with Travelers covering the period from 31 March 2007 to 30 March 2011, which covered 197 claims. These insured claims were settled in June 2015 following expert evidence indicating the implants were not of satisfactory quality. Travelers paid damages and costs for these claims. However, 426 claims fell outside the policy period or were not covered (the "uninsured claims"), including cases where claimants were concerned but had no implant rupture ("worried well"). Judgment was entered for all uninsured claims by March 2016, but no damages or costs were paid due to Transform's administration status.
The litigation involved preliminary issues tried in four sample cases, addressing whether the implants breached implied terms as to satisfactory quality under relevant legislation and the remedies available. Cloverleaf, a supplier of the implants to Transform, was a Part 20 defendant with separate insurance, but took little part in proceedings initially, complicating Travelers' attempts to settle.
Concerns about Transform's financial position and insurance coverage arose in 2013. The court ordered Transform to disclose information about its insurance, which was partially complied with but did not reveal the absence of cover for many claims. The claimants' advisers were misled into believing all claims were insured. It was only in 2014 that it became clear many claims were uninsured.
Legal Issues Presented
- Whether Travelers should be ordered to pay the costs incurred by claimants in pursuing uninsured claims against Transform.
- The proper interpretation and application of the insurance policy terms regarding coverage of claimants' costs and defense costs.
- The extent to which Travelers exercised control over the litigation and whether that justifies a costs order against it under section 51 Senior Courts Act 1981.
- The application and scope of the court’s discretion under section 51 to make costs orders against non-parties.
Arguments of the Parties
Applicants' Arguments
- Travelers, despite insuring only some claims, influenced and controlled the litigation including uninsured claims, which justifies a costs order against it.
- Had claimants known the uninsured claims were not covered, they would not have pursued them, thus Travelers’ conduct caused unnecessary costs.
- The insurance policy covers claimants’ costs and defense costs for insured claims, but Travelers also paid defense costs relating to uninsured claims without contractual entitlement.
- The relationship and conduct of Travelers and Transform during litigation evidenced conflicts of interest and failure to disclose insurance limitations, prejudicing claimants.
Travelers' Arguments
- Travelers only insured certain claims and did not control the litigation of uninsured claims.
- The application should be dismissed because Travelers did not exercise control over the uninsured claims as described in precedent cases such as Citibank NA v Excess Insurance Company Ltd.
- Funding an unsuccessful defense does not automatically make Travelers liable for claimants' costs in uninsured claims.
- Travelers submitted evidence addressing control and involvement, maintaining that their interests were separate from uninsured claims.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| International Energy Group Ltd v Zurich Insurance plc (SC(E)) [2016] AC |
Insurer liable for defense costs incurred with consent for claims during insured periods, even if defense costs benefit uninsured claims. |
The court applied this principle to hold that Travelers was liable for defense costs for insured claims, but not for uninsured claims under clause 3(b) of the policy. |
| New Zealand Forest Products Ltd v New Zealand Insurance Co Ltd [1997] 1 WLR 1237 |
Defense costs need not be apportioned between insured and uninsured defendants if costs are reasonably required to defend insured claims. |
Supported the view that Travelers must pay defense costs related to insured claims even if they incidentally benefit uninsured claims. |
| Deutsche Bank AG v Sebastian Holdings Inc CA [2016] 4 WLR 17 |
Section 51 Senior Courts Act 1981 confers broad discretion to make costs orders against non-parties in exceptional cases. |
The court relied on this precedent to emphasize the discretionary and fact-specific nature of costs orders against third parties like Travelers. |
| Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 965 |
Section 51 allows costs orders against non-parties when just and equitable based on their connection to the proceedings. |
Used to confirm the exceptional nature of costs orders against non-parties and the requirement of justice and equity. |
| Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] 1 WLR 2807 |
Costs orders against non-parties are exceptional and depend on whether it is just to make such an order in all circumstances. |
Supported the court’s finding that the case was exceptional and justified a costs order against Travelers. |
| Citibank NA v Excess Insurance Company Ltd [1999] 1 Lloyds Rep IR 122 |
Critical question is who controlled the litigation; insurer liability for costs arises if insurer controlled litigation disregarding insured’s interests. |
The court distinguished this case as involving insurers funding defense of insured claims, whereas here Travelers funded defense of uninsured claims. |
Court's Reasoning and Analysis
The court examined the complex relationship between Travelers and Transform, noting that although Travelers only insured some claims, it had significant involvement in the litigation, including uninsured claims. The court found that the interests of Travelers and Transform diverged, particularly regarding disclosure of insurance coverage, which was not adequately communicated to claimants.
The insurance policy clearly covered claimants' costs and defense costs for insured claims, but not for uninsured claims. Travelers paid defense costs for all claims without seeking contribution from Transform or other defendants for uninsured claims, and it did not have contractual entitlement to these costs.
The court emphasized that the uninsured claims were unrelated to Travelers’ insurance and that Travelers’ involvement in those claims was not justified by the insurance contract. The failure to disclose the lack of insurance for uninsured claims led claimants to incur costs they would otherwise have avoided.
Applying section 51 of the Senior Courts Act 1981, the court considered the discretion to make costs orders against non-parties in exceptional cases. It concluded that this case was exceptional, given Travelers’ involvement and the prejudice to claimants.
The court rejected the narrower approach that an insurer must have controlled the litigation to be liable for costs, holding instead that Travelers’ conduct and involvement justified a costs order despite the lack of control over uninsured claims.
The court also noted that Travelers gained a significant benefit by funding the defense of uninsured claims without risk, while claimants bore the costs, and that it was just to require Travelers to pay the applicants’ costs up to 31 March 2016.
Holding and Implications
The court's final decision was to GRANT THE APPLICATION and order Travelers to pay the costs incurred by the applicants in pursuing their uninsured claims against Transform up to 31 March 2016.
The direct effect is that Travelers bears responsibility for these costs despite the claims not being insured under its policy. The decision reflects the court's exercise of discretion under section 51 to make costs orders against non-parties in exceptional circumstances. No new legal precedent beyond the application of existing principles was established, but the ruling underscores the importance of transparency and the equitable allocation of costs in complex group litigation involving insurers and uninsured claims.