Claim that surgery and insurer colluded in PIP implants settlement rejected (AB and CD v Transform Medical Group and Travelers Insurance)

What are the practical implications of this case?

This was a very rare—indeed, in Scotland, unprecedented—attempt by third parties to unravel a settlement struck between an insured and its insurers. Building on obiter dicta from a case in England in the 1980s (Normid Housing Association Ltd v Ralphs [1989] 1 Lloyd's Rep 265), Lord Tyre accepted that it might be possible for a third party to challenge such a settlement, if it were arrived at collusively in an attempt to defeat what would otherwise be the third party’s rights to be paid under the insurance policy. However, something of that nature would be 'extreme', and on the facts before him Lord Tyre found that the pursuers did not get close to showing the necessary collusion.

What was the background?

The case is one of the many fall-outs of the PIP scandal, in which breast implants manufactured by a now-defunct French company have caused problems for patients. The collapse of the manufacturer has led patients to look elsewhere for damages, with the present case targeting the defender, a company specialising in cosmetic procedures. The collapse of the defender led to the patients looking to the defender's insurers in widespread litigation, aspects of which reached the Supreme Court last year.

Shortly before the defender collapsed, it settled its claim against its own insurers, the minuter in this case. Some of the pursuers contended that this settlement would leave them out of pocket, and wished to have it set aside. They argued that, in view of the defender's impending insolvency and the parties' knowledge that the defender was entering into a transaction for no consideration which would reduce the level of indemnity provided by the minuter, there must have been collusion between the parties with the purpose of prejudicing the pursuers' claims.

What did the court decide?

Lord Tyre does not actually decide that collusion would, in Scots law, allow a third party to set aside an otherwise binding settlement. However, proceeding on the assumption that it would, he held that the facts did not come anywhere close to showing bad faith or collusion. Rather, there had been sound commercial reasons for the entering into of the settlement agreement, which brought benefits to both sides and which created certainty in what was otherwise a very uncertain picture. Accordingly, the challenge failed. That means that the pursuers, as statutory assignees of the insurance policy in terms of the Third Parties (Rights against Insurers) Act 1930, are bound by the settlement agreement.

Case details

• Court: Court of Session, Outer House

• Judge: Lord Tyre

• Date: 9 January 2020

Roddy Dunlop QC appeared for the insurers, who were the minuter in this case.

Interviewed by Robert Matthews.

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