We recently commented on reports that an After the Event (‘ATE’) insurance policy had been upheld as adequate security for costs.

Now that more details have emerged, it appears that the story is perhaps not as ground breaking as it might first appear. Taylor Wessing provided a very useful summary of the issues; click here to read this in full.

The court appears to have accepted a Deed of Indemnity and not the ATE insurance policy specifically. And that is an important distinction.

A Deed of Indemnity is an additional promise to pay an order for adverse costs, to cement any promise made in the ATE insurance policy. The instrument is intrinsically linked to the ATE policy in so far as it will not pay costs in excess of the amount of adverse costs indemnity provided by the ATE policy. Crucially, however, a Deed of Indemnity does not contain any of the normal voidance clauses or exclusions found within an ATE insurance policy.

The case in question is an unreported case called Verslot Dredging BV v HDI Gerling Vesicherung AG in which there was a hearing in the High Court on 4th February 2013 concerning an application by the claimant to vary an existing order for security for costs. The court was asked to consider whether they would accept a Deed of Indemnity as opposed to a bank guarantee from a first class London bank, as per the original order.

As we now know, the court granted the application for the variation sought, which prompted interest around the market, as it suggested ATE policies are adequate security. But the crucial aspect in this case, that may not be widely understood, is that a Deed of Indemnity is a very different instrument to a standard ATE insurance policy. It was not the ATE policy itself that was being tested by the court, but a separate instrument that has been deliberately designed by ATE insurers to satisfy security for costs orders.

This development is of course good news because it means a court has accepted the Deed of Indemnity as adequate security. However, defendants have voluntarily accepted Deeds of Indemnity previously in the past including in relation to cases which we have brokered, and indeed a previous court decision (on another unreported case) has deemed a Deed of Indemnity as adequate security. Moreover, defendants have in the past agreed to accept ATE insurance policies in isolation provided they are modified to remove certain voidance clauses.

In summary, anyone seeking to rely on an unmodified ATE insurance policy, without an accompanying Deed of Indemnity, must be warned that this judgment may not give fresh comfort that it will necessarily be accepted by the court.

If you would like to discuss this in more detail, or if your client is looking for alternative methods to satisfy security for costs, contact us.