Can An ATE Insurance Policy Defeat An Application For Security For Costs?

What is the effect of an After the Event ("ATE") insurance policy on an application for security for costs? The Court of Appeal considered this question for the first time in Greenclean Waste Management Ltd v Leahy [2015] IECA 97, where a "hopelessly insolvent" company was seeking damages against its former solicitor for professional negligence.

What is ATE Insurance?

ATE insurance enables plaintiffs to insure against the risk of having to pay a defendant's legal costs, and cover their own outlay, in the event that they lose. The cover is taken out after the dispute has arisen and the premium is usually only payable if the plaintiff's claim is successful.

As we reported last July, the High Court in Greenclean upheld the legality of an ATE insurance policy for the first time in this jurisdiction, finding that it does not offend against the torts of maintenance or champerty. Maintenance is the improper funding of litigation by somebody who has no legitimate interest in it. Champerty is an aggravated form of maintenance that involves a person maintaining another's action to share in the proceeds of that action.

The High Court further held that the specific policy sufficiently mitigated the risk that Greenclean, as plaintiff, would be unable to pay the defendant's costs in the event that it lost its action. Accordingly, the High Court refused to grant an order for security for costs. The defendant, who was seeking the security, appealed this decision to the Court of Appeal.

CAN AN ATE INSURANCE POLICY DEFEAT AN APPLICATION FOR SECURITY FOR COSTS?

An order for security for costs is an order requiring a plaintiff to provide security (usually by way of cash lodged in Court or a bond) to cover the costs that the defendant is likely to incur in defending the case. If the defendant successfully defends the case, the plaintiff may be liable for his costs.

In this case, the Court of Appeal held that there is no reason in principle why an ATE policy cannot provide sufficient security for a defendant's costs so as to justify a refusal of an order for security. In deciding whether to order security in circumstances where a plaintiff has ATE insurance, the Court must consider the following questions:

Is the plaintiff unable to pay the defendant's costs? Has the defendant established a prima facie defence? If the answer to these questions is yes, the Court will have regard to the ATE insurance policy when considering whether to exercise its discretion to...