Use ATE Insurance to provide security for costs

This case has been very useful in establishing the respectability of the After the Event Insurance market operating in the UK and just as importantly, the use of ATE to defeat a defendants application for security for costs.

This case has been very useful in establishing the respectability of the After the Event Insurance market operating in the UK and just as importantly, the use of ATE to defeat a defendants application for security for costs.

The decision, handed down on 24th October 2016, confirmed that the ATE insurance that the claimant liquidators had obtained, was adequate to prevent any further security being provided for payment of the defendants costs.The main purpose of an application for security for costs is to short circuit the defendants obligation to contest a case to trial and hand a swift victory to the defendant. It is a very powerful weapon in a defendants armoury.

Limited companies and individuals domiciled outside the jurisdiction of the UK (and currently, the EU) are susceptible to being challenged by a defendant to provide security for costs. If the defendant can show that the claimant will be unable to pay the adverse costs of the litigation if the claim is lost then some form of security can be ordered.

It is a discretionary remedy. Therefore Courts will not allow it to be used obviously oppressively, e.g. take an insurance company whose decision to refuse to pay out under a policy is being challenged by their insured. It will be difficult for that insurer to obtain security where it is their very refusal to pay under the policy, which leaves the claimant with no funds to pursue the claim.

Typically, where security is ordered to be provided, this can take the form of paying money into court or providing a bond from some third party. Both of these are potentially expensive.

It is a particular problem for Insolvency Practitioners (IPs). Often there are no assets left in the company and creditors are unwilling to commit further funds to the pursuit of a claim. Therefore ATE insurance, where obtained on a fully deferred and contingent basis, and which provides a means by which a defendants costs can be paid, is a very efficient solution, since no premium is required to be paid up front.

Alternatively, where third party funding is involved, the use of ATE still remains a very efficient solution since the funders are likely to have paid part of the premium when the policy is taken out. However the level of premium paid is likely to be substantially less than the typical cost of providing security.

Indeed this was the situation in the Premier Motor Auction case above. The defendants raised the usual objection to the ATE insurance policies being offered as security. Namely, the policy was a contract between the insured and the insurer. The insured might do something which entitled the insurer to avoid the policy or otherwise pay out under the policy; a situation over which they had no control.

The Court dealt with these arguments by observing that the Insurers concerned had been operating in this sphere of ATE for some years, and with one potential exception, were adequately capitalised and unlikely to behave capriciously in respect of any claims. It was also observed that the risk of avoidance was nothing more than theoretical particularly where, as in this case, the proposers were liquidators and therefore officers of the Court, who could be taken to have been accurate and scrupulous when proposing for the insurance and observing the policy terms during the conduct of the case.

The test is formulated as whether , having regard to the terms of the ATE policy in question, the nature of the allegations of the case and all the other circumstances, there is reason to believe that the ATE policy will not respond so as to enable the defendants costs to be paid.

Conclusion

At Lakehouse Risk, we believe that our ATE insurance product and security is sufficiently robust to provide adequate security for costs. Our products are specifically designed for the Insolvency Practitioner given that they are written on a deferred and contingent basis. We can also write the policies on the basis where the defendant is named as an interested party, further undermining any claims for security for costs.

Related
Articles

Solve ATE – Lakehouse Risk Services Limited launch their new ATE insurance for Insolvency Practitioners

Problems confronting IPs are; CASH IPs are most unlikely to have the funds to pay for the insurance of their claims up front and the creditors are reluctant (to put it mildly) to invest in the possible recovery of money either by way of investment…

-View More