Prince Harry, Sir Elton John, Elizabeth Hurley & Ors ordered to pay £9.5m on account: why didn’t they just buy more cover?

3 Sept

The costs ruling following the unsuccessful privacy claims brought by the Duke of Sussex, Sir Elton John, Elizabeth Hurley and four other claimants against Associated Newspapers Limited (“ANL”) raises an obvious question: if ANL’s costs reached approximately £34.5m, why did the claimants reportedly hold only £16.2m of adverse costs cover?

The answer emerging from the judgment is more complicated than simple underinsurance.

Mr Justice Nicklin dismissed all seven claims on 7 July 2026. On 21 August, he ordered the claimants to pay ANL’s costs on the indemnity basis, save where costs orders had already been made. He also ordered a payment on account of £9,544,355, payable by 4pm on 28 August 2026.

The final amount recoverable by ANL has not yet been determined. Its incurred costs are not the same as an assessed liability, and costs which were unreasonably incurred or are unreasonable in amount may still be disallowed. Nevertheless, the indemnity-basis order materially changes the potential exposure.

On the indemnity basis, proportionality does not limit recovery and doubts about reasonableness are resolved in favour of the receiving party. Crucially in this case, the usual costs-budgeting constraint also falls away.

What the claimants knew when arranging cover

The proceedings were subject to costs budgeting in the usual way.

At the first costs management hearing, ANL identified incurred costs of approximately £8.1m. The court initially approved £4.445m of future budgeted costs for ANL, later increased to £5,187,919. According to the claimants’ submissions, incurred and approved future costs together indicated an exposure in the region of £13m.

The judgment records the claimants’ submission that they arranged and increased their ATE cover against that background. Their counsel said that cover was increased incrementally as the budgets rose and that the level of insurance was considered by reference to ANL’s approved budget and the costs information then available.

The claimants further submitted that ANL’s costs of nearly £34.5m were almost £18m above its original budget and that decisions about ATE cover had been taken without knowledge of that escalation.

Those submissions do not establish every detail of the insurance placement, and the public information does not disclose the policies’ complete terms. They do, however, make the central point clear: the reported £16.2m limit was not selected against a known £34.5m exposure. It was arranged by reference to materially lower costs information available during the proceedings.

Indeed, the reported cover exceeded the approximated £13m exposure which the claimants said was being articulated through the approved budgeting process.

What changed?

The potential shortfall arose not simply because ANL spent more than expected, but because the court ordered costs on the indemnity basis.

On a standard-basis assessment, CPR 3.18 would ordinarily require the court to have regard to the approved or agreed budget and not depart from it without good reason. An indemnity-basis order removes that constraint and allows the receiving party to seek recovery beyond its approved budget.

Mr Justice Nicklin held that the claims and the manner in which they were brought, pleaded, pursued, maintained and publicly advanced involved circumstances and conduct outside the ordinary and reasonable conduct of civil proceedings.

Among the factors identified were the speculative and substantially inferential character of the claims at their origin, their exceptional breadth and the public presentation of serious allegations which were not ultimately established. The judge concluded that the cumulative effect took the case well outside the norm and that the conduct was unreasonable to a high degree.

The claimants asked the court, in the alternative, to cap recoverable costs at between £18m and £20m. The judge declined to do so. He held that selecting a cap at that stage would be arbitrary and could unfairly prevent ANL from demonstrating on detailed assessment that costs above it had been reasonably incurred and were reasonable in amount.

He nevertheless made clear that indemnity assessment is not a blank cheque. ANL’s costs remain subject to detailed scrutiny. The approved budgets will not impose a ceiling, but the Costs Judge may use them as context when considering whether departures were explained, excessive, duplicative or unreasonable.

Could more cover have been purchased?

The public information does not establish whether materially more cover was available, on what terms or at what cost.

An adverse costs policy may cover costs assessed on the indemnity basis where its terms are sufficiently broad and no exclusion or policy condition removes that protection. Whether the policies in this case respond, and to what extent, is not publicly established.

The circumstances leading to an indemnity-costs order can also create difficult coverage questions. Where such an order results from the way allegations were advanced or litigation was conducted, insurers may examine compliance with notification, cooperation, merits-review and conduct provisions. No conclusion should be drawn about the position under these particular policies.

Nor would it necessarily have been straightforward to identify an appropriate additional limit in advance. Before the indemnity order, there was no established figure for the exposure beyond the budgeted position. The public record does not show whether insurers would have offered substantially greater protection against that unquantified risk or what premium and conditions would have applied.

ATE premiums in publication and privacy proceedings remain, in principle, recoverable from the losing opponent where the insured succeeds, subject to the applicable costs rules and assessment. It should not, however, be assumed that the whole premium for a very large and speculative additional layer would necessarily have been recoverable.

On the publicly known facts, this is therefore not a straightforward example of lawyers or claimants failing to purchase an obviously necessary amount of cover. It illustrates the limits of using an opponent’s costs budget as a complete measure of potential exposure where a subsequent indemnity-costs order may remove the budgetary protection.

If the exposure had increased in the ordinary way

Had the potential shortfall instead arisen through the ordinary expansion of the case, increasing budgets or a visible rise in the opponent’s costs, the position would have been different.

In those circumstances, the structure of the insurance programme could be as important as its initial limit. Where a single insurer writes the full amount, the claimant and its lawyers should consider whether that insurer would have the capacity and appetite to provide a material increase later. If it declines, obtaining replacement or excess capacity after the risk has developed may be difficult and expensive.

For larger limits, a multi-carrier programme can provide greater flexibility. Where no participating insurer is already writing its maximum line, an increase may be divided across the existing panel rather than requiring one insurer to absorb the entire additional exposure.

In appropriate cases, it may also be possible to reserve further capacity when the original placement is arranged. A claimant requiring an initial £15m limit but anticipating that another £5m to £10m may later become necessary could seek to reserve that capacity without paying the full additional premium at the outset.

None of those structures guarantees that increased cover will be available. They can, however, reduce the risk that a reasonable initial limit becomes an irreversible constraint when an exposure develops in a way that could reasonably have been anticipated.

The broader lesson

The prominence and likely personal wealth of some of the claimants should not obscure the commercial point. Individuals do not generally want to meet substantial adverse costs from their own assets. The same is true of companies with strong balance sheets.

The ability to absorb a loss does not necessarily make retaining it an efficient use of capital, particularly in a mature ATE market offering contingent and deferred premium structures. Equally, the existence of insurance does not mean every exceptional or unforeseeable costs outcome can be economically covered.

The lesson from this case is therefore not simply that the claimants should have bought more insurance. The available figures suggest that the reported cover was arranged by reference to the costs information and approved budgets then available. The potential gap arose following an exceptional indemnity-costs order which removed the usual budgetary constraint.

More generally, claimants and their lawyers should consider not only the initial limit but how the programme would respond if the exposure increased. As ever, we recommend discussing the range of possible outcomes with an experienced broker at the outset and at intervals throughout the life of the case. The unexpected cannot be eliminated, but careful modelling, appropriate programme design and regular review can often materially reduce the risk that the case becomes uninsured or unduly expensive due to distressed upsizing.

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