In Brief
- The High Court has clarified requirements for ATE policy wording to ensure adequate protection for defendants facing adverse costs, including explicit anti-avoidance provisions covering fraud by any person.
- The judgment approved policy terms requiring insurer consent for cost agreements and clarified how the policy limit should account for sums paid or owed by the insurer.
- The court confirmed that, while ATE security may place a greater burden on defendants than payment into court, costs incurred in relation to the provision of the security should be reasonable and assessed within the case.
We recently explored the High Court judgment in Lloyds Development Ltd v Accor Hotelservices UK Ltd [2025] EWHC 1238 (TCC), which provided guidance on what after-the-event (ATE) policy wording would be adequate to provide defendants with sufficient protection for their adverse costs exposure (see our article here). In that judgment the court gave the parties the opportunity to remedy some outstanding defects in the policy.
The court has now given a further short judgment on those defects, and other issues that arose between the parties in the intervening period (Lloyds Developments Ltd v Accor HotelServices UK Ltd [2025] EWHC 2011 (TCC)). Interestingly, it appended to the judgment a copy of the approved policy "given its potential interest to the relevant industry".
Avoidance for fraud
The court ordered that the anti-avoidance endorsement (AAE) should expressly refer to the insurer honouring any claim irrespective of fraud "by any person" (rather than just by the policyholder and/or claimant). The defendant argued that the reference to "any person" should be included so that the insurer could not seek to rely on the fraud of the claimant's principals or agents to avoid liability under the policy.
The court agreed, despite the risk of the insurer successfully making such an argument on the basis of the previous wording being negligible, because: (i) even a negligible risk of an insurer avoiding liability is greater than the risk of non-payment posed to a defendant by having the claimant make a payment into court, which Mr Justice Constable described as "zero"; (ii) Lloyds' claim would not be stifled by making a payment into court, so security by way of ATE was a preference rather than a necessity; and (iii) it was not submitted that, if the new wording was adopted, the insurer would refuse to incept the policy, and there was no suggestion that the new wording would be prejudicial to the insurer.
Other points to note
It was acceptable to require that the insurer approve any agreement as to payment of the defendant's costs. The practical reality is that the insurer would be sitting behind Lloyds and determining what, if any, agreement could be reached as to the costs payable in any case.
It was appropriate to include a reference to offsetting any sums which the insurer is liable to pay, as well as any sums already paid by the insurer, in the definition of the policy's "Limit". The judge was satisfied that "it would plainly not have the effect of defeating the entire purpose of the policy by allowing insurers to claim that a liability incurred (which they refuse to meet) reduces the limit (and thus the obligation to pay)".
Where a claimant proposes to provide security by way of ATE, providing the approach of both sides is reasonable, the costs incurred on either side should not be substantial. Therefore the costs incurred in this regard should ordinarily be assessed in the case. The fact that providing security by way of ATE places a greater burden on the defendant (to ensure the policy is suitable as security) than payment into court does not entitle the defendant to a form of indemnification of all costs in meeting that burden, irrespective of the outcome of the litigation.