Non-party costs order made against insurers

There are certain circumstances in which a non-party to court proceedings can be ordered to pay the costs of one of the parties. In the latest round of the PIP breast plant litigation against Transform Medical Group, the High Court ordered Transform’s product liability insurer to pay the costs incurred by third party claimants. Transform had previously settled certain insured claims but was uninsured in respect of these particular claims as the losses occurred outside the policy period. The claimants had mistakenly believed that Transform had valid insurance cover.

The court held that this was an exceptional case which justified a non-party costs order against the insurer. The insurer’s conduct behind the scenes was an important factor in the decision. Despite no coverage being available for these particular claims, the insurer had sought to influence their outcome, for example by funding Transform’s defence and withholding their consent to a proposed settlement. The court also found that, but for the insurer’s involvement, Transform would have disclosed the fact that it had no cover and therefore the claimants would not incurred costs in pursuing the claims. The court held that it was just to grant the order as, had the claims failed, the claimants would have been liable for the insurer’s defence costs.

This decision does not mean that an insurer should never seek to influence the defence of an uninsured claim, whether directly or indirectly. There are situations in which it might be tactically advantageous to do so, for example where the case could set precedent as to the proper construction of a standard market wording. The message for insurers is to pick and choose its battles carefully.