Court of Appeal Provides Guidance for After the Event Insurance in Ireland

The Court of Appeal has overturned a High Court ruling relating to security for costs and has provided guidance for after the event insurance in Ireland.

Because of the significant costs of defending a court case in Ireland, defendants can apply to a judge for the plaintiff to deposit a security of costs with the court to ensure that, if the plaintiff is unsuccessful with their claim, the defendant is assured of recovering their legal costs.

The application, if granted, has been used in the past as a strategy to force plaintiffs away from litigation when they do not have the assets to place a security of costs; and consequently more plaintiffs are using after the event insurance in Ireland to protect them from exposure to financial losses.

After the event or ATE insurance is a policy that can be purchased by plaintiffs when they make a claim for compensation. No premium is charged for the insurance policy until the result of the case is known; and usually the premium is only then deducted from an award of compensation.

However, during a High Court case last year, a defendant challenged the legality of a plaintiff to use after the event insurance in Ireland. The defendant claimed that after the event insurance in Ireland was contrary to the common law of champerty – a law that prevents third parties (in this case an insurance company) from providing financial support in a court case that the third party has no direct interest in.

The judge hearing the court case – Judge Hogan – reviewed how after the event insurance in Ireland works, and ruled that the provision of insurance to plaintiffs was not “trafficking in litigation” – the deed that the law of champetry was introduced to prevent – because the insurance company´s exclusive motive in supporting the plaintiff was not to derive a profit.

The judge´s ruling was appealed by the defendant, and arguments for and against after the event insurance were recently heard in the Court of Appeal. In a written judgement from Judge Kelly, the High Court ruling was overturned because the insurance policy in question was “highly conditional” and the insurance company providing the ATE insurance could have avoided payment to the defendant “for a substantial number of reasons outside the defendant’s control and knowledge”.

However, Judge Kelly wrote in his judgement that an after the event insurance policy is a factor for a court to give consideration to in exercising its discretion whether to order security for costs. The judge wrote that after the event insurance in Ireland could be used as a full or partial alternative to security for costs provided that it did not contain terms that would allow the insurance company to avoid payment to the defendant in the event of an unsuccessful claim.

The Appeal Court´s opinion does not make it possible for after the event insurance in Ireland to be used in every circumstance, but it should certainly provide access to justice for many more plaintiffs – particularly in complex personal injury claims that revolve around issues such as medical negligence or breach of professional duty.