In the very recent case of Lewis Thermal Ltd v Cleveland Cable Company Ltd [2018] EWHC 2654 (TCC), the Technology and Construction Court (TCC) considered the role of an after the event (ATE) insurance policy on an application for security for costs.    

The usual rule in litigation is that the loser pays the winners costs.  Given a defendant has no choice as to whether or not it is a party to a claim, the claimant making the election whether to issue a formal claim or not, the defendant can apply for the claimant to pay monies into court or into a trust account to ensure that, if the defendant is successful, the money can be applied against any costs order made by the court.  After the Event Insurance policies normally cover the legal costs which a party must pay to the other side when a claim is unsuccessful. 

In recent years parties have often sought to rely on the existence of an ATE policy to oppose an application for security for costs on the basis that its financial position has no bearing on its ability to meet a costs order given the same will be paid by the insurer.

In this case the claim was for breach of contract and fraudulent misrepresentation.  C was a dormant company that had taken an assignment of the claim from an electrical cabling installer (G), shortly before G entered liquidation.  D had allegedly supplied defective cabling to G, damaging G’s reputation and causing loss of business valued by C at £8m. 

The judge observed that an appropriately framed ATE policy could, in theory, answer a security application.  However, in this case C’s ATE policy did not give D direct rights against the insurer, it excluded third party rights and contained various other relevant exclusions.  The judge said that these were real, not fanciful risks, and there was therefore reason to believe that C would be unable to pay Ds costs, either through itself or via the ATE, if ordered to do so.

The judge noted the lack of evidence explaining the basis of C’s case on causation and the absence of reliable evidence on quantum, concluding that this was a speculative claim.  Notwithstanding this, the judge ordered that the dormant claimant company was to provide security for the defendant's costs, ruling that the ATE insurance policy relied on by the claimant was inadequate for that purpose, and the claim (of which the claimant had taken an assignment) was speculative.

The decision highlights the challenge of relying on ATE insurance to answer security for costs applications.  Any party looking to obtain ATE insurance to protect its position on a security for costs application should consider the wording of the policy carefully and balance the cost of the relevant premium with the protection it deems is necessary in respect of this issue.