Following an application for security for costs in the recent case of Premier Motorauctions Ltd & Anor v Price waterhouse coopers LLP & Anor  EWHC 2610 (Ch), the High Court allowed an after-the-event (ATE) insurance policy to stand as being sufficient for the purposes of security for costs. Whilst there has been various cases back and forth on this point Snowden J, ruling, introduced the concept of an insurer’s track record, thus offering some guidance on this issue.
This is a case arising from the insolvency of the Claimant companies, Premier Motorauctions (PMA) and its parent company (PMAL) against PWC and Lloyds bank.
The Claimants were placed into administration in December 2008 and then compulsory liquidation in June 2010. The claimant have alleged of collusion between the defendants companies, Lloyds Bank and PWC.
The liquidators therefore, brought proceedings against the defendants, alleging that the defendants of various wrong doings but essentially manufacturing a situation where the Claimant had to be put in to administration. The purpose of which was so that the Claimant’s assets could be sold at an under value by the administrators for the benefit of the bank.
These allegations have been denied and are currently being contested through the litigation.
The ATE policy and the Security for costs application:
As the proceedings have been brought by the liquidators and there is no evidence of any funds being in the estate, the defendants made an application for security for costs in order to protect their position should they successfully defend this matter.
The Claimant’s key point of response to this was the existence of an ATE policy supporting their case. The ATE provided an indemnity for up to £5 million of adverse costs. This was provided by QBE, DAS, Elite and Acasta. The policy was multi-layered. The primary layer of £250,000 was provided by QBE, the second of £750,000 by Elite, a third layer again by QBE for £1.75 million, the fourth by Elite of £750,000, the penultimate layer of £500,000 by Acasta Europe and a final layer of £1 million by DAS.
The Defendants argued that this policy was not sufficient for the purposes of providing security for costs. The defendants raised a number of issues including misrepresentation and non-disclosure by the Claimant to the insurers, arguments around the specific wording that may allow the insurers to avoid payment of a claim and the credit worthiness of Acasta and Elite whom are both Gibraltar based non-rated insurers.
The Court held that this ATE policy was sufficient for the purposes of security for costs:
Snowden J did not believe that the insurers would deny liability under the policy and expressly felt that the Defendant’s had ‘rather overplayed’ this point. He confirmed that “the ATE market in the UK is now a substantial and mature on, and a significant part of that market relates to the funding of insolvency cases… whilst ATE insurers are of course entitled to take a stand on their policy terms and conditions, they are unlikely to have a commercial incentive to take an unusually defensive line in seeking to avoid liability under the policies they issue. If they were to do so, this would soon become known in the market, and potentially profitable future business would be placed elsewhere.”
What does this mean or ATE policies in relation to Security for costs applications going forward?
It is of particular interest to note Snowden J’s comments on the commercial considerations involved. The ATE market exists to provide insurance on cases where there is a risk of having to pay out in the event of an adverse costs order. Therefore, it would not be in an insurers commercial interests to build a reputation for not paying out on claims when their policy is called upon. It is the consideration of ATE in this commercial context that helps strengthens the arguments for ATE being accepted as security for costs.
Of particular interest in the Judgment was Snowden J’s introduction of the concept of an insurers ‘track record’ in paying claims and presence in the market. It seemed readily accepted by the defendants that QBE and DAS were not a genuine risk of defaulting on payment and this was also found by Snowden J.
Going forward Claimant’s must therefore, bear in mind a further number of key factors beyond pricing and policy wordings, when obtaining ATE:
- The likelihood of receiving a security for costs application
- The rating of the insurer
- The insurer’s track record both within the ATE market generally and for paying claims
- The financial position of the insurer.
Failing to do so may mean that a bond or some other guarantee may be required when faced with a security for costs application.
In view of Snowden J’s comments concerning rating, base, financial strength and track record, UK based Temple’s A-Rated ATE policies should provide sufficient cover for your needs.