ATE Insurance Coverage Found To Be Adequate Security For Costs

Verslot Dredging BV v HDI Gerling Vesicherung AG1 English High Court, 4 February 2013

The Court held that a deed of indemnity provided by the Applicant's ATE insurer in favour of the Respondent constituted acceptable security for costs. The case confirms that ATE insurance can be considered just as reliable as a bank guarantee in the context of security for costs.

Background The Applicant in the case applied to vary a Court Order requiring it to provide £500,000 security for costs in the form of a bank guarantee from a first class London bank. The Court Order allowed the Applicant to apply to vary its terms in relation to any ATE insurance that the Applicant obtained. The Applicant eventually offered a deed of indemnity as security for costs and argued that it provided a better form of security than a bank guarantee. The Respondent in the case argued that such security was in fact less reliable.

Approach to ATE insurance as security for costs

Previously, there had been some speculation as to the effectiveness of ATE insurance as a form of security for costs. The High Court in Michael Phillips Architects Ltd v Riklin 2 examined previous cases on this issue and noted that ATE insurance could not necessarily be said to provide adequate security for costs. There, the Court stated, obiter, that while there was no reason in principle why an ATE insurance policy could not provide security over a defendant's costs, it would only do so in rare cases where ATE insurance could provide a similar level of security as a payment into court or a bank bond or guarantee. The Court highlighted that insurance policies are (a) voidable by insurers, (b) subject to cancellation...