All material subject to strictly enforced copyright laws. © 2021 Insurance Insider is part of Euromoney Institutional Investor PLC.
Accessibility | Terms & Conditions | Privacy Policy | Modern Slavery Act | Cookies | Subscription Terms & Conditions

Travelers’ victory in a UK liability case provides protection for carriers from cost orders

Travelers chairman and CEO Alan Schnitzer is a vocal critic of a US litigation culture he claims imposes a “tax across society”. A worsening tort environment was the driving factor in the carrier’s own quarterly earnings shortfall, and has also emerged as key theme of the third quarter reporting period.

So he must have taken some comfort last week from a Supreme Court judgment here in the UK which allowed an appeal by the US carrier against an award of costs in a group litigation action over defective breast implants.

The ruling will, of course, mean not a jot to legal whizzes in the US, the source of most of the world’s liability woes. Here, Schnitzer used the company’s third quarter earnings call to go after the ambulance chasers, arguing that their actions often left plaintiffs worse off.

But in the UK, the judgment is not to be sniffed at.

Travelers had already settled with 197 recipients of defective implants from the since-collapsed supplier Transform where their claims were covered, but that left 426 claims from uninsured plaintiffs, almost half of whom were merely worried about the possibility of ruptures – the “worried well”, as the court defined them.

The country’s highest court ruled that Travelers was not obliged to pay the court costs of these uninsured claimants, overturning two lower court rulings and drawing a line under the US insurer’s liabilities stemming from a policy with Transform dating back to 2007.

In scoring the victory the carrier did the industry as a whole a major service.

Before last week’s ruling, the legal grounds for ordering Section 51 cost awards against non-parties were murky and nebulous – or in Supreme Court judge parlance – were made “at the very highest level of generality”.  Such orders previously hinged on whether the case was “exceptional” and on general principles of “fairness and justice”.

Last week’s ruling means insurers’ liability for uninsured costs will be subject to the “unjustified intermeddling” test – i.e. whether an insurer was rightfully involved in the case or not. (For cases where claims were insured but where the costs exceed the cover’s limit a different test will apply.)

What’s more, the Supreme Court judges said they expect cost orders against liability insurers based on intermeddling are “likely to be rare” provided the carriers act in good faith.

The judgment will aid liability insurers as they weigh up whether to fund all or part of their insured’s defence and vastly reduce the risk that financing the uninsured component of a court action will evoke a Section 51 cost order against them.

Section 51 costs are relatively rare but the growth of litigation funding points to an increase in the number of parties seeking these cost orders.

Indeed, the Supreme Court judges were cognisant of this and seem to have been keen to lay out some ground rules given the “endless development of novel ways of funding the ever-increasing cost of civil litigation”.

Last week’s ruling won’t stem the tide of liability lawsuits in itself.

And RPC’s Laura Stocks notes that given the marginal additional cost it probably won’t stop plaintiffs’ legal representatives attempting to secure cost orders on their behalf.

But it does mean that when they arise they are far less likely to succeed and that carriers can make appropriate decisions about defence funding without fearing they are also making a rod for their own back.

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree