In the recent instalment in the case of Greenclean Waste Management Ltd v Leahy, the Court of Appeal considered after-the-event ("ATE") insurance for the first time.  The Court held that the insolvent plaintiff’s ATE insurance could not substitute security for costs in this instance.

While the Court of Appeal held that an ATE insurance policy could provide security for costs in principle, it held that this policy did not provide sufficient security.  The Court’s decision was heavily influenced by a condition precedent in the policy, coupled with the absence of evidence confirming compliance with that condition precedent. 

The Court of Appeal made some useful observations regarding ATE insurance generally, noting that the principles that apply are:  

  • An ATE insurance policy can, in principle, provide security for costs;
  • However, it is only in very rare cases that the security an ATE insurance policy provides will be as good a security as a payment into court, a bank bond or a guarantee;
  • To be relied upon as security for costs, an ATE insurance policy must actually provide some security.  It must not contain terms which entitle the insurer to avoid liability to pay the defendant’s costs; and
  • If the ATE insurance policy is not sufficient security, the amount of security fixed could be reduced.  This reduction is to take account of any realistic possibility that an ATE insurance policy would cover the costs of the defendant.

It appears from this decision that the way is clear for ATE insurance to be used as a legitimate method of third party funding in Ireland.  That said, it is difficult to see how one might overcome the fact that an insurance policy cannot be enforced by a third party.  Further, it is less clear if it will be considered an acceptable form of security for costs.  This consideration will very much turn on the individual policy wording, which will be scrutinised by the Court, together with the extent to which the policy is perceived to be conditional.  It is also difficult to envisage that an insurer might agree to eliminate the prospect of repudiation for non-disclosure or declinature for breach of a condition precedent.