Kerry Underwood

NON-PARTY COSTS ORDERS

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In Travelers Insurance Company Ltd v XYZ [2018] EWCA Civ 1099

the Court of Appeal upheld the decision of the High Court that a non-party costs order under section 51 of the Senior Courts Act 1981 could be made against the liability insurers of an unsuccessful defendant, even though the relevant claims against the insured were not covered by the policy.

The Court of Appeal held that case law did not prescribe conditions to be fulfilled before a non-party costs order could be made against liability insurers and the only principle was that the court’s discretion must be exercised justly – see  Deutsche Bank AG v Sebastian Holdings Inc. [2016] EWCA Civ 23.

The use of the word “exceptional” in the case law only meant that the case was outside the ordinary run of cases where parties pursued or defended claims for their own benefit and at their own expense, and whether a case was exceptional was not to be judged according to what is, or might be, usual in the insurance industry.

A key factor was that the insurers funded the costs of the proceedings against the insured and stood to benefit from a successful outcome and although cases will be fact sensitive, insurers should note that if they continue to defend uninsured claims, then they risk paying the costs of an unsuccessful defence, even if those claims were not covered under the policy.

Furthermore there was an obvious problem with the insurers’ position.

Had they succeeded against all of the claimants, both insured and uninsured, they would have been liable equally to contribute towards the insured’s costs which would have benefited the insurers as it would have reduced their costs liability.

However, if their argument here was accepted, then failure, rather than success, on those very same issues would leave them liable for only around one third of the costs of the claimants.

That was neither reasonable nor just.

The Court of Appeal also said that the insurers’ interests were in play even when only the uninsured claims were being considered as the longer those claims continued, and therefore the greater the proportion of costs incurred in them, the lower the insurers’ potential costs liability.

The facts of this case were unusual in that Travelers Insurance Company Ltd had previously settled certain insured claims, but was uninsured in respect of the remaining claims as they fell outside the period of insurance cover, but the claimants had mistakenly believed that Travelers Insurance Company Ltd was insured as, following a court order, it had confirmed that it had insurance in place.

The first instance court had said that the fact that the insurers had insured other claims against Travelers Insurance Company Ltd did not entitle them to be involved in, or influence the conduct of, the uninsured claims, both of which they had done.

As well as funding the unsuccessful defence of the uninsured claims, they had withheld their consent to a proposed settlement of those claims.

But for the insurers’ involvement, Travelers Insurance Company Ltd would have disclosed at an early stage that the claims were not covered under their policy and the claimants would not have pursued the claims and incurred cost.

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Written by kerryunderwood

June 28, 2018 at 10:06 am

Posted in Uncategorized

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