After The Event Insurance – Effect On Litigation And Security For Costs Applications

Author:Mr Dudley Solan, Peter Lennon, Daniel Scanlon, Graham O'Doherty, Nicholas Cole and Enda O'Keeffe
Profession:Maples and Calder

A recent High Court case has considered the effectiveness of an 'after the event' insurance policy ("ATE insurance") in the context of a security for costs application (Greenclean Waste Management Limited v Maurice Leahy Practising under the Style and Title of Maurice Leahy & Co. Solicitors [2013] IEHC 7). It concerned a professional negligence claim by the plaintiff company that the defendant solicitors failed to advise on the extent of the plaintiff's obligations to make certain reparations under a lease, failed to advise the plaintiff in relation to a relevant limitation period and to disclose a relevant conflict of interest. An application was brought by the defendant for security for costs under section 390 of the Companies Act 1963 where it was mutually accepted that the plaintiff was "hopelessly insolvent" although the plaintiff had ATE insurance to ensure the defendant was paid its party and party legal costs, in the event that the plaintiff was unsuccessful and a costs order was made against it. Should the plaintiff succeed a relatively high premium would be paid to the plaintiff's insurers. Legal Considerations The judge had to assess the defendant's application for security for costs having regard to the ATE insurance.  The key consideration was the extent to which the insurer could legitimately repudiate on its liability under the policy. If the extent was great enough, it could be said that the insurance provided no real security for costs. The defendant argued that whilst policies of insurance were generally relevant to these applications, the plaintiff's ATE insurance policy had so many avoidance provisions that it had serious doubts it would be able to recover costs if successful. The judge noted that, as the plaintiff was in voluntary liquidation there was "no doubt" but that it was hopelessly insolvent. He also acknowledged that the defendant had provided a prima facie defence and was, therefore, prima facie entitled to an order for security for costs, unless the ATE insurance sufficiently mitigated the risk that the plaintiff would be unable to discharge the defendant's costs. The judge looked at English case law on the issue and followed the rationale that the existence of a policy was in no way determinative that the insured was, in fact, covered. What mattered was whether the policy actually provided an effective means of protecting the defendant's position should the plaintiff lose. ATE policy The judge acknowledged that...

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