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Travelers Insurance Company Ltd v XYZ

Background

623 claims had been brought against Travelers’ policyholder, which entered insolvent administration half-way through the litigation. The insurance policy only covered 197 of the claims and a dispute arose as to who would pay the costs of the 426 uninsured successful claimants who were unable to recover any damages or costs despite obtaining judgment.

Both the High Court and the Court of Appeal ordered Travelers, as the liability insurer for 197 of the claimants, to pay the costs of the 426 uninsured claimants.

Decision

The Supreme Court unanimously allowed Travelers’ appeal.

Relevant principles: The ‘real defendant test’ and ‘unjustified intermeddling’

Simply to ask whether a case was ‘exceptional’ was not enough as it did not provide adequate clarity for liability insurers.

Although it was common place for the courts to scrutinise carefully whether a proposed insurer non-party was the ‘real defendant’, following the principles laid out in TGA Chapman Ltd v Christopher (1998), such a test was inappropriate in a case which concerned itself with uninsured coverage. The ‘real defendant test’ should be confined to cases where insurance exists but some part of the claim (including the claim for costs) lies outside the limits of cover. The claims in issue here were by contrast wholly uninsured.

The relevant determination for uninsured cases was whether the insurer has engaged in ‘unjustified intermeddling’. Crucially, for an insurer to become liable for costs, it will be usually be necessary to establish a causative link between the insurer’s conduct and a claimant’s incurring of costs.

Conduct will be fact sensitive. Three particular instances had been relied upon by the courts below:

  1. 1. The active decision not to disclose the limits of the insurance cover. However, there was no legal obligation to disclose details of insurance.
  2. Travelers had influenced their policyholder’s decision not to make any offers or admissions to the uninsured claimants. However, this did not cause the uninsured claimants to incur costs. The uninsured claimants would have pursued their claims to judgment; an offer to settle without paying their costs would have made no difference.
  3. Asymmetry on costs risk. The Court of Appeal had been especially influenced by the imbalance between Travelers’ potential ability to recover costs from the uninsured claimants and the claimants’ inability to recover costs. This though was due to the policyholder’s insolvency and not due to any action taken by Travelers.

Comment

The Supreme Court’s decision recognises that a liability insurers’ involvement in proceedings is a natural result of its status as an insurer. Where an insurer is acting within a framework of contractual obligation, and has not gone beyond its contractual obligations, it will be difficult to demonstrate ‘unjustified intermeddling’ and an insurer is unlikely to be found liable in costs.

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