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Security for Costs and ATE Insurance: Threats, Applications, Endorsements and Amendments

(Estimated reading time: 2 minutes 54 seconds)

When a claimant is insolvent or close to being insolvent, whether on a balance sheet or cash flow basis, you can and should expect the defendant’s solicitors to make or threaten to make an application for security for costs.

Such recourse for the defendant is entirely right and proper and it would be remiss of any defendant’s lawyers not to tackle the issue when a claimant is clearly impecunious.

It is also unfortunately our experience that sometimes defendant lawyers use security for costs more as a weapon and pursue it in an intimidating and aggressive manner. Such behavior is often indicative of the defendant’s desire to quickly dispose of what it (the defendant) considers to be a meritorious claim.

What kind of asset should a defendant be satisfied with as providing security for its costs?

Cash of course is king and clearly provides security for a defendant’s costs. A deed of indemnity from a financially stable parent company or some other corporate entity of similar financial standing could also comprise acceptable security as can an after-the-event insurance policy with an “A” – rated insurer.

We at Temple provide after-the-event insurance with Royal & Sun Alliance Insurance Limited as the insurer (it being one of the UK’s biggest insurers). We provide security for a defendant’s costs in the form of an anti-avoidance clause for incorporation into the policy by way of endorsement. This essentially prevents the insurer from voiding the policy for any reason whilst reserving the insurer’s rights against the insured.

The terms of our endorsement are expressed in clear and simple language.

However, our experience has been that lawyers acting for the defendant often require further comfort to be given in order for them to be satisfied the insurer is tied into the policy and has no ability to deny cover; for instance, due to certain liabilities being excluded under the policy or certain conditions not being met by the insured. We have a deal of sympathy with such concerns and approach it in a non-combative and co-operative way.

The defendant’s lawyers will typically identify certain areas of concern and/or suggest a number of amendments clarifying and qualifying not only the wording of the anti-avoidance endorsement but also that of the policy wording itself.

This inevitably involves a degree of flexibility and cooperation from both sides and various proposed drafts of new clauses and amended wording will be the subject of scrutiny and comment; ultimately it is the desire of both sides (or should be) to reach an acceptable accommodation.

Some requests made will be unacceptable, others not. It is our experience that, as long as clear and reasoned explanations are given for a rejection of a proffered amendment, this will not prove fatal to securing a satisfactory conclusion – without the involvement or assistance of the court. Clearly it is in the interests of all parties to try and reach agreement without having to go to the time and expense of issuing an application to the court.

We are here to help. The commercial team here at Temple pride ourselves on our collective experience gained assisting policyholders in dealing with security for costs applications real or threatened and negotiating a path to a successful outcome. We are often required to respond within very short time scales and have the capacity and expertise to do so.

If you would like to discuss the issues raised in this article or would like more information on our ATE insurance in relation to security for costs, please call us on 01483 577877 or send an email to .