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Industry Updates

'After the Event' Insurance - Contrary to the Law of Champerty?

21 Aug 2014

Further to the article in our January 2014 update, the Irish High Court's decision in Greenclean Waste Management Limited v Maurice Leahy p/a Maurice Leahy & Company Solicitors1, in which the High Court refused to award a security for costs order because the plaintiff had acquired 'after the event' insurance ("ATE Insurance"), was appealed to the Supreme Court and subsequently referred back to the High Court.  The High Court was asked to decide whether or not, as a matter of principle, ATE Insurance was contrary to the law of maintenance and champerty.  

Judge Hogan reviewed the operation of the ATE Insurance policy, in the context of a security for costs application, and found the following2:

(a)  ATE Insurance is not contrary to the law of maintenance and champerty.  Interpretation of the law is not frozen by reference to social and policy conditions which were applicable hundreds of years ago and must move on.  Whether ATE Insurance amounts to trafficking in litigation must be assessed by reference to modern conceptions of propriety.

(b)  Generally, the courts can only supplement the law of torts when such law is shown to be basically effective to protect constitutional rights in a particular case.

(c)  The tort of champerty not only still exists in Ireland, but has a "practical vibrancy".

(d)  ATE Insurance serves an important purpose by facilitating access to justice for persons who might otherwise be denied such access.

(e)  Agreements which involve trafficking in litigation will be held to be void as champertous and contrary to public policy. 

Although ATE Insurance has long been in vogue in the UK, and is inextricably linked with conditional fee arrangements, traditionally there has been little appetite for ATE Insurance amongst plaintiff firms.  This may be due to the fact that the costs associated with ATE Insurance coverage are generally prohibitive and the terms and conditions of the conditions precedent to liability are onerous.  Given its expensive and onerous nature, it would be nearly impossible for many claimants to comply with the requirements of insurers particularly with regard to the requirement that a Senior Counsel provide an opinion that, based on its merits, the case has a probability of success. 

It will be interesting to see if this decision leads to an increase in the market of providers of ATE Insurance, particularly if it positively affects whether or not claimants purchase ATE Insurance for the purposes of heading off security for costs applications. 

In particular, the fact that the plaintiff in this case was accepted as being hopelessly insolvent may provide comfort to liquidators who have previously taken a view not to proceed with litigation, even where there was a reasonable prospect of success, where they were likely to be met with a successful application for security for costs by an intended defendant.

[2013] IEHC 7

[2014] IEHC 314

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