Insurers liable for uninsured costs under non-party costs order

May 23, 2018

There are no special rules limiting the circumstances in which the court can, by means of a non-party costs order, make an insurer liable for costs that would otherwise fall outside the scope of the insurance policy, the Court of Appeal emphasised in Travelers Insurance Company v XYZ [2018] EWCA Civ 1099 (judgment handed down on 17 May 2018). The only immutable principle is that the discretion to make such an order has to be exercised justly.

Although the facts of the case were described by the Court of Appeal as “highly unusual (if not unique)”, the judgment will make uncomfortable reading for insurers: it suggests that a non-party costs order may potentially be available against an insurer in any case in which the insured’s liability for damages and costs exceeds the limit of the policy and the insured cannot pay. Certainly, the judgment suggests that insurers should think carefully about how they act in any case that involves both insured and uninsured elements.

Read the full case note on Travelers v XYZ by Alice Nash.