ATE insurance coverage and security for costs – what you need to know

In recent years there has been some speculation as to the effectiveness of ATE insurance as a form of security for costs. The High Court in Michael Phillips Architects –v- Riklin [2010] VHC (TCC) noted that ATE insurance could not necessarily be said to provide adequate security for costs and indeed would only do so where the ATE insurance could provide a similar level of security as a payment into court or a bank bond or guarantee.

In a recent case of Verslot Dredging BV –v- HDI Girling Vesicherung AG 4 February (unreported) the High Court held that a Deed of Indemnity provided by the Applicant’s ATE insurer in favour of the Respondent constituted acceptable security for costs.

A Deed of Indemnity is intrinsically linked to the ATE insurance policy insofar as it provides an additional promise (over and above any promise made in the ATE insurance policy) to pay an order for adverse costs limited to the amount of adverse costs indemnity provided by the ATE policy itself .

However, the Deed of Indemnity does not contain any of the usual voidance clauses or exclusions found within an ATE insurance policy and the Deed has now been held to provide security which is at least equal to, if not better than, that offered by a bank guarantee.

Defendants in such matters have, in the past voluntarily agreed to accept as adequate security Deeds of Indemnity in addition to ATE insurance policies in isolation subject to modification to remove certain voidance clauses.

However the decision whilst confirming the Court’s acceptance of the Deed of Security as adequate acceptance does not yet give comfort to those who simply seek to rely on an unmodified ATE Policy alone.

Thus when arranging ATE insurance cover or when considering whether existing cover is adequate it is important to ensure that the policy is either modified appropriately or is accompanied by a Deed of Indemnity for effective security for costs to be provided.

For further information or to discuss this article please contact Nicola.maher@edwincoe.com.

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