Prospective claimants would often like to know whether there is adequate insurance behind a potential defendant before they incur costs beginning a claim. In recent cases, the courts have upheld the traditional position that details of insurance are a private matter between an insurer and an insured and disclosure of those details would encourage speculative "deep pocket" litigation. The position may not be as straightforward as this suggests following the Court of Appeal’s decision in Travelers Insurance Co Ltd v XYZ (the PIP breast implant litigation) where a refusal to disclose details during the course of the litigation resulted in a non-party costs order against the defendant’s insurers.
Drawing lessons from this case, we review a claimant’s entitlement to information about the defendant’s insurance position, costs orders against insurers and the conflicts of interest that can arise where the same solicitors act for insurer and insured.
Compulsory indemnity insurance
Although a claimant is not generally entitled to know about a defendant’s insurance position, the Provision of Services Regulations 2009 require the majority of businesses and some professional service providers to provide details of their compulsory indemnity insurance. These details are limited to the contact details of the insurers and the territorial coverage of the insurance, and several services, including healthcare, are excluded from the scope of the Regulations.
Where the defendant is a professional required to hold indemnity cover by their regulator or professional body, the claimant may be able to discover more. For example, the Solicitors Regulation Authority Indemnity Insurance Rules 2013 set out the minimum terms and conditions for solicitors’ insurance and entitle a claimant to information including the insurer’s contact details and the policy number. By contrast, although the General Medical Council requires doctors to have adequate and appropriate insurance or indemnity cover, there is no requirement to give any further details to a potential claimant. It’s worth noting that even where the level of compulsory cover is specified, a claimant will not be able to find out whether the professional has taken out any additional cover.
If the defendant is already insolvent, the claimant will be able to obtain information about the defendant’s insurance under the Third Party (Rights against Insurers) Act 2010 or, somewhat less straightforwardly, its predecessor, the 1930 Act. Where the potential defendant is still solvent but will not be once the claim is made, the claimant is not entitled to details of the defendant’s insurance in anticipation of the insolvency. The court rejected a claim for pre-action disclosure in these circumstances in Peel Port Shareholder Finance Company Ltd v Dornoch Limited. The 2010 Act creates a framework for the disclosure of an insolvent defendant’s insurance details and the established practice to refuse to disclose a solvent insured's insurance policy remains unchanged.
Case management in group litigation
The claimant’s limited entitlement to insurance details before proceedings are begun looks pretty clear. But what is the position where litigation in underway and, because it is a group action against several defendants where test claims have been chosen, the insolvency of one of the defendants could scupper the proceedings and waste a lot of public money? This was the position in the PIP breast implant litigation back in 2013. There was a serious risk that Transform Medical Group (CS) Ltd, one of the defendant companies running private hospitals which had supplied the defective implants, would collapse before trial.
There were more than 670 claims against Transform and it was, effectively, the lead defendant for the trial of three issues in four sample cases. Another defendant had already gone into liquidation and the claims against it had been removed from the group action. The claimants wanted Transform to be ordered to confirm whether it had sufficient insurance to fund its participation to the end of the trial, and to meet any orders for damages and costs.
In her judgment in XYZ v Various, Thirlwall J DBE (she became Thirlwall LJ later in the proceedings) described Transform’s position as follows:
“We have insurance but we are not prepared to say how much. Transform claimants must take their chances. The court will have to cross its fingers, as will all the other litigants. If Transform collapses before the conclusion of the trial the court can rewrite the timetable. The other parties will bear their wasted costs. The waste of court time and resources will be borne by the public purse”.
She accepted that there was no jurisdiction to order disclosure of Transform’s insurance position under CPR 18 because it was not a matter in dispute in the action. Instead she used her case management powers in CPR 3.1(2)(m) to order Transform to confirm whether it had sufficient insurance to fund its participation to the end of the trial. This was necessary to ensure that costs and court resources were not wasted unnecessarily. The required witness statement from Transform’s Chief Executive confirming the position was shown to the judge. The claimants inferred from this, incorrectly as it turned out, that Transform was insured in respect of all the claims it faced.
Costs and insurance in the PIP litigation
623 claimants sued Transform and in March 2016 all had obtained either a settlement or default judgment, by which date Transform had gone into administration. The company had product liability insurance with Travelers for a five year period only and this policy covered only 197 of the claims. It was uninsured in respect of the remaining 426 claims, whether because the policy did not cover claimants whose implants had not yet failed (the “worried well”) or because the claim fell outside the period covered by the insurance.
The effect of this was that the higher the number of uninsured successful claimants, the lower the proportion of common costs to be paid by Travelers and the higher to be borne (but not paid) by the insolvent Transform. Accordingly the 426 claimants recovered nothing and were left having to pay their share of the common costs of the group litigation. Had they known that there was no insurance for their claims, they would have discontinued. Transform had wanted to disclose their insurance position to the claimants from as early as 2011 but Travelers did not wish them to do so.
The costs order against Transform’s insurers
Travelers were required by the policy to pay the costs of defending all the common issues which affected both the insured and the uninsured claims. It was not open to them to apportion those costs as between the insured and the uninsured claims. If the defence had succeeded, Travelers would have been able to recover defence costs from the claimants. Since Travelers must have expected to pay for all the costs of an unsuccessful defence of the preliminary issues, Thirlwall LJ concluded that it was only fair in the circumstances to order them to pay the uninsured 426 claimants’ costs. The Court of Appeal upheld her decision, emphasizing the importance of reciprocity regarding liability for costs (Travelers Insurance Co Ltd v XYZ).
Consequences for costs orders against insurers
The Court of Appeal’s decision in Travelers raises the question of whether a potential claim for costs by claimants against the defendant’s insurers can or should be affected by a refusal to disclose details of a defendant’s insurance position. Although the circumstances were unusual, the principles discussed are relevant to many cases where the defendant and their insurer may end up with divergent interests.
Non-party costs orders have been made against insurers for the last twenty years under section 51 of the Senior Courts Act 1981 and the courts’ readiness to make them appears to be increasing. Orders have been made where the insurer has conduct of the litigation and funds the defence exclusively (or predominantly) to protect its own interests and the defence fails. The case must be exceptional but all this means is that it is out of the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense.
The Court of Appeal rejected any suggestion that there is a set of conditions that must be met before an order can be made against an insurer. It also made clear that whether a case is exceptional is not to be judged according to what is usual in the insurance industry. Similarly, the fact that the decision below was said to have caused consternation in the insurance industry and among insurance lawyers was not a reason to disturb the costs order against Travelers.
Several themes of general relevance emerge from the Court of Appeal’s judgment in Travelers and the history of this unusual litigation. The themes reflect in part the present preoccupations of the courts and suggest that the judiciary is prepared to be more creative and flexible where this is necessary to achieve a just outcome. A similar approach can be seen regarding access to information following another product liability trial in Dring v Cape Distribution Ltd - see our briefing Open justice and access to court documents.
- Court’s resources: The court must and will control its resources. It will not allow a party to dictate the way in which resources and costs are incurred by withholding relevant information.
- Reciprocity: Also known as fairness. If someone funds and stands to benefit from proceedings, justice requires that if they fail they should pay the successful party’s costs.
- Flexibility in the interests of justice: There are few constraints on the court’s power to order costs to be paid by a non-party.
- Conflicts of interest: Conflicts between insured and insured are complex and require attention where they instruct the same lawyers under a joint retainer. The present case illustrates the court’s lack of sympathy towards insurers who benefit from a conflict.
- Insurance market: Arguments about the effect of a decision on the insurance market as a whole may carry less weight than previously, particularly where the justice of a particular case requires a particular outcome.
If you would like to find out more about this topic or you need legal advice, please contact Miranda Whiteley or any of our insurance, litigation and arbitration and product liability lawyers.