Security for Costs Insurance

Terms

Terms, where available, are set case by case through underwriting.

Protects

Cash otherwise tied up as security, depending on policy terms.

Terms

Limit, premium and conditions are set by underwriting on the specific risk.

1. Clause 1

   The insured

   Who it is for

   Claimants facing an application for security for costs — often companies with limited assets in the forum, overseas claimants, insolvent claimants and funded parties — who would rather not tie up cash in court.

2. Clause 2

   Insuring clause

   What risks can be protected

   The liability that security is meant to protect: the defendant's costs if the claimant loses.

   A suitably worded ATE policy, sometimes with a deed of indemnity, can be offered instead of cash or a bank guarantee.

3. Clause 3

   Operation of cover

   How it works

   The court or tribunal must be satisfied that the instrument gives the defendant real protection.

   That usually means wording the insurer cannot avoid for the claimant's own conduct (an anti-avoidance endorsement), an insurer of adequate standing, and sometimes a deed allowing the defendant to claim directly.

4. Clause 4

   Underwriting

   Underwriting factors

   The same merits and quantum review as ATE, plus a close read of what the court or tribunal will accept.

   Underwriters look at the security order or application, the identity of the paying party, whether an anti-avoidance endorsement or deed is needed, and how much of the security is likely to be called. Because the policy is being relied on by a third party, wording is negotiated with that reliance in mind.

5. Clause 5

   Proposal documents

   Information required

   1. (a)The security application, order or correspondence;
   2. (b)The opponent's evidence on quantum of security;
   3. (c)Counsel's merits opinion;
   4. (d)The costs budget;
   5. (e)Details of any funder; and
   6. (f)The form of wording the court or opponent is likely to require.

   Timing matters: security applications run to court timetables, so an early approach helps.

6. Clause 6

   Limit, premium and staging

   Potential structure

   1. (a)ATE with an anti-avoidance endorsement;
   2. (b)ATE plus a deed of indemnity in favour of the defendant; and
   3. (c)A surety bond.

   The limit tracks the amount of security ordered, often in stages.

7. Clause 7

   Exclusions

   What it does not cover

   It does not remove the security application itself: the court still decides whether security is needed and whether the policy is adequate. It does not cover your own costs or damages, and it responds only up to the limit and on the terms the court and defendant rely on.

8. Clause 8

   Alternatives

   Alternatives

   1. (a)Payment into court;
   2. (b)A bank guarantee or letter of credit;
   3. (c)A funder's undertaking; and
   4. (d)A parent company guarantee.

9. Clause 9

   Territory

   Jurisdiction notes

   Courts in England and Wales have accepted ATE policies as security where the wording gives the defendant sufficient protection — commonly through an anti-avoidance endorsement or a deed of indemnity.

   Australian courts have taken a similar approach in funded and class proceedings. Arbitral tribunals decide security under the applicable rules and seat law, and practice differs between institutions.

Specimen for explanation only. Terms, limits and exclusions are set by underwriting on each matter and by the wording issued.