UK: 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 for various reasons not in the control of the defendants, and (c) constitute a promise to pay under the policy to the claimant rather than the defendant. The Court went on to consider the terms of the ATE insurance policy in the case and, having found that the policy granted extensive rights for the insurer to cancel the policy without any obligation to indemnify the insured, held that the policy did not provide any real security for the defendants' costs.

The Court in the present case noted that it must take a pragmatic and realistic approach to the issue and consider the merits of the ATE insurance policy as compared to security under a bank guarantee. In doing so, the Court noted that a guarantee from a first class London bank had "no magic" to it and, on the evidence (considering the deed of indemnity and the creditworthiness of the insurance company), held that the deed of indemnity did provide security which was at least equal to, if not better than, that offered by a bank guarantee. 

Footnotes

^1.Unreported

^{2. [2010] EWHC 834 (TCC)}

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