Ireland: After The Event Insurance – Effect On Litigation And Security For Costs Applications

A recent High Court case has considered the effectiveness of an 'after the event' insurance policy ("ATE insurance") in the context of a security for costs application (Greenclean Waste Management Limited v Maurice Leahy Practising under the Style and Title of Maurice Leahy & Co. Solicitors [2013] IEHC 7). It concerned a professional negligence claim by the plaintiff company that the defendant solicitors failed to advise on the extent of the plaintiff's obligations to make certain reparations under a lease, failed to advise the plaintiff in relation to a relevant limitation period and to disclose a relevant conflict of interest.

An application was brought by the defendant for security for costs under section 390 of the Companies Act 1963 where it was mutually accepted that the plaintiff was "hopelessly insolvent" although the plaintiff had ATE insurance to ensure the defendant was paid its party and party legal costs, in the event that the plaintiff was unsuccessful and a costs order was made against it. Should the plaintiff succeed a relatively high premium would be paid to the plaintiff's insurers.

Legal Considerations

The judge had to assess the defendant's application for security for costs having regard to the ATE insurance.  The key consideration was the extent to which the insurer could legitimately repudiate on its liability under the policy. If the extent was great enough, it could be said that the insurance provided no real security for costs.

The defendant argued that whilst policies of insurance were generally relevant to these applications, the plaintiff's ATE insurance policy had so many avoidance provisions that it had serious doubts it would be able to recover costs if successful.

The judge noted that, as the plaintiff was in voluntary liquidation there was "no doubt" but that it was hopelessly insolvent. He also acknowledged that the defendant had provided a prima facie defence and was, therefore, prima facie entitled to an order for security for costs, unless the ATE insurance sufficiently mitigated the risk that the plaintiff would be unable to discharge the defendant's costs.

The judge looked at English case law on the issue and followed the rationale that the existence of a policy was in no way determinative that the insured was, in fact, covered. What mattered was whether the policy actually provided an effective means of protecting the defendant's position should the plaintiff lose.

ATE policy

The judge acknowledged that ordinarily an insurance policy would be relevant to the proceedings, as an insured party would be expected to be able to pay any award made against it. A distinction was drawn however with situations where there was reason to believe that the award was not within the scope of the policy in question or where the party was guilty of conduct that would enable the insurer to repudiate liability.

In this case, the defendant contended that such was the scope of the avoidance provisions in the plaintiff's ATE policy, that it did not give the defendant any real security if he obtained an award of costs against the plaintiff.  A number of clauses were brought to the court's attention, most pertinently a "prospects clause", which provided: "We can end cover under this policy if we, after discussion with your solicitor, are of the opinion that it is more likely than not that you will lose your claim".

Other clauses in the policy were examined, such as a "fraudulent claims" clause and a "cancellation clause", both of which, while perhaps not phrased as generally as the "prospects clause", allowed the insurer to repudiate liability based on the occurrence of certain events.

Evaluating the policy as a whole, the judge concluded that while the insurer was not entitled to terminate for no reason, under the prospects clause it could do so if agreed following discussions with the plaintiff's legal advisors that the action was likely to fail.  This right to terminate could therefore theoretically arise at any stage of the proceedings.

Conclusion

Ultimately the judge adjourned the application to allow the plaintiff to review its policy with its insurers, but made it clear that security for costs would be ordered in the circumstances, given the policy as it then stood.  He made specific reference to the novelty ATE insurance brought to such security for costs applications, and the additional factors that needed to be considered in this regard.

The judge stated that, before he would consider the policy sufficient to 'ward off' an order for security, he would require a "binding assurance from the plaintiff's insurers that it does not propose to exercise the right to repudiate based on the prospects clause", stressing however that this was entirely a matter for the insurers to decide.

If no such assurance was forthcoming, then he would be compelled to conclude that the plaintiff would be unable to discharge a costs award which might be made in favour of the defendant, and in those circumstances would make an order for security for costs.

The judgment is a timely reminder to plaintiffs and defendants alike that, while the court may, in principle, accept the role ATE insurance can play in litigation; a specific exclusion clause in a policy may result in a court refusing to acknowledge the effectiveness of that policy, which would render the policy redundant.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Peter Lennon
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.