Whether an ATE insurance policy provided adequate security for defendant's costs

http://www.bailii.org/ew/cases/EWHC/TCC/2015/1122.html

The defendant issued an application for security for costs. The parties eventually agreed that security would be provided but the issue was whether the claimants' ATE insurance policy would provide sufficient security.

Coulson J reviewed the relevant caselaw and drew the following principles:

  1. Adequate security can be provided by an ATE insurance policy, depending on the terms of the insurance and the circumstances of the case;
  2. A defendant can argue that certain terms of the policy reduce or remove security, but such objections should be approached "with care" by the court and concerns must be "realistic, not theoretical or fanciful".

The defendant in this case had raised two objections to the ATE policy.

Firstly, it was argued that the insurer and the claimants could agree to commute the policy. That objection was rejected by the judge: the reputable insurer in question here had addressed the point in the proceedings and there was no basis for saying that it was even possible that the insurer would risk its reputation by acting in a way that it had expressly disavowed.

Secondly, it was argued that there was a risk that the claimants would be put into liquidation and hence the insurer would be legally required to pay out to the claimant's insolvency practitioner. That argument was accepted by Coulson J as being a legitimate and realistic concern, since the Third Parties (Rights Against Insurers) Act 1930 does not apply in St Vincent and the Grenadines (where the claimants are incorporated). As a result, the claimants would have no greater claim over the policy proceeds than any of the other creditors of the claimants. Even if the 2010 Act had been in force, that would not have helped since the claimants would not be wound up in the UK. Furthermore, the Contracts (Rights of Third Parties) Act 1999 had been expressly excluded in the policy. The insurer refused to remove that exclusion, arguing that that would "fundamentally alter" the policy.