Can 'After The Event' Insurance Be A Substitute For Security For Costs?

Author:Ms Sharon Daly and Darren Maher

In the recent case of Greenclean Waste Management Limited v Maurice Leahy & Co. Solicitors, the High Court had its first opportunity to consider whether "after the event" ("ATE") insurance policies could effectively be a substitute for security for costs. Judge Hogan concluded that the policy before the Court could only provide adequate security to a defendant in circumstances where the plaintiff's insurer gave an assurance that it would not rely on a "prospect of success" clause to deny cover. As companies struggle to remain solvent during the economic downturn, security for costs is increasingly sought before the Irish courts. Security for costs can be an effective tool for a defendant who is being sued by an insolvent plaintiff where the defendant believes that the case against it is without merit and there is a risk the plaintiff will not be in a position to pay the defendant's costs in the event that the litigation is unsuccessful. In such cases, the Court orders the plaintiff to lodge money in Court, or take other appropriate steps, to demonstrate its ability to pay costs. If ordered by the Court, the requirement to give such security serves as a condition of being permitted to proceed with the litigation and the inability to provide the required security can bring an abrupt end to the litigation. However, the courts are reluctant to order security for costs for fear it will hinder a plaintiff's right to access to justice. This case concerned an application for security for costs by a firm of solicitors which was being sued for professional negligence by an insolvent plaintiff company (Greenclean) which had recently entered voluntary liquidation. Greenclean argued that it would be able to discharge the defendant's costs by virtue of its ATE insurance policy and consequently security for costs was unnecessary. ATE, a relatively new product in the Irish market, is taken out in the wake of a specific event and is often closely linked to "no win no fee" arrangements in litigation. The premium in respect of such policies is generally high, but is only payable following successful costs recovery against another party. In the High Court, Judge Hogan was in no doubt that the existence of a policy of insurance would generally be highly relevant to the question of whether Greenclean would be able to pay the defendant's legal costs in the event that its case was not successful. The Court accepted that the plaintiff was...

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