Not So Secure: What Lloyds v Accor Tells Us About ATE Policies

The High Court’s decision in Lloyds Developments Ltd v Accor Hotel Services UK Ltd [2025] EWHC 1238 (TCC) offers a sharp reality check on the use of after-the-event (ATE) insurance policies as security for costs – especially when those policies are supported by Anti-Avoidance Endorsements (AAEs). While ATE policies can be a lifeline in commercial litigation, this case shows they are not a guaranteed shield for claimants, particularly where allegations of fraud are in play.

ATE policies as Security for Costs in Commercial Litigation

Unsuccessful parties in commercial litigation are usually required to pay a proportion of the winner’s legal costs in addition to their own. Security for costs is a court-ordered safeguard that protects defendants from the risk that a claimant might be unable to meet this liability. Rather than paying money into court, claimants may offer After-the-Event (ATE) insurance – a policy taken out after the dispute arises – to cover the opposing party’s costs if they lose.

While courts do accept ATE policies in principle as adequate security, the terms are scrutinised closely, particularly around exclusions, fraud clauses, and the identity of the insured party. To strengthen the policy, many claimants include an Anti-Avoidance Endorsement (AAE) – a clause designed to limit the insurer’s ability to avoid the policy (for example, due to misrepresentation or non-disclosure). However, as the courts have increasingly shown, an AAE is not a catch-all solution, especially where the risk of fraud or ambiguous wording remains.

ATE insurance in practice: Saxon Woods v Costa

The effectiveness of ATE insurance was tested in Saxon Woods Investment Ltd v Francesco Costa [2023] EWHC 850 (Ch), where the High Court accepted an ATE policy with an AAE as sufficient security for costs, despite it including a fraud exclusion clause. The court found that the insurer had been fully aware of the dishonesty allegations when issuing the policy, making it less likely the insurer could later avoid paying out. The court also considered public policy, noting that the purpose of security for costs is to protect the innocent defendant – not to penalise them because of potential wrongdoing by the claimant.

This case demonstrated that, in the right factual context, ATE insurance (even with some exclusions) can still meet the required threshold – provided the insurer’s intention to cover remains clear, and the policy reflects an informed decision in light of the allegations.

Lloyds v Accor

Lloyds v Accor is the latest in a series of High Court decisions tackling the use of ATE insurance policies, backed by AAEs, as security for costs. In this case, Lloyds (in administration) argued that its ATE policy – supported by an AAE – should be accepted instead of paying further funds into court. Accor disagreed, raising concerns about the reliability of the cover.

The High Court had to decide whether the policy provided adequate protection against the risk that Lloyds would be unable to pay Accor’s costs if it lost. Applying the test from Re Ingenious Litigation [2020] EWHC 235 (Ch) – whether there was a “real, not fanciful” risk that the policy would not respond in full – Mr Justice Constable concluded that it did not.

The Court’s reasoning

The policy was scrutinised for its specific wording, structure, and potential limitations. Despite being reinforced with an AAE, the judge identified four key issues that rendered it inadequate:

• Termination risk: The AAE excluded cover for costs incurred after the termination of the litigation funding agreement. As that agreement hadn’t been disclosed, Accor wouldn’t know if or when the policy ceased to offer protection.
• Fraud exclusion: The AAE did not clearly remove the insurer’s right to avoid liability in the event of fraud. In a case involving dishonesty allegations, this posed a serious concern.
• Policy ambiguity: General uncertainty in the drafting increased the risk of a dispute with the insurer, which undermined the reliability of the security.
• Sanctions clause: Although not determinative in this case, the clause excluding payments that might breach foreign sanctions was flagged as potentially problematic in other contexts.

Mr Justice Constable reiterated that security for costs must offer clear, unconditional protection. Even the prospect of a dispute with the insurer was enough to make ATE cover materially less valuable than cash held on account.

Practical implications

This ruling reinforces that ATE insurance is not bulletproof, especially where:

• The policy terms are unclear or poorly drafted;
• Fraud exclusions are not explicitly dealt with in the AAE;
• There’s a possibility of coverage lapsing without notice;
• Sanctions or regulatory exclusions introduce additional uncertainty.

Insurers and claimants alike should take note: relying on generic AAEs based on prior case law (like Saxon Woods) is risky. Courts will assess each case on its facts, and a previous judicial nod does not guarantee future approval.

This case also sends a message to defendants: raise security concerns early. The court criticised Accor for failing to flag its objections in time, which limited Lloyds’ ability to amend the policy wording pre-hearing. Co-operative case management matters.

Key takeaways from Lloyds v Accor

• Clarity is crucial: ATE policies must be drafted with precision, especially around exclusions and termination clauses.
• AAEs are not a safeguard by default: If an insurer intends to provide cover even in the event of fraud, that must be expressly stated.
• Each case turns on its facts: Courts won’t blindly follow earlier decisions like Saxon Woods if the policy wording or litigation context differs.
• Get it done early: Secure your ATE policy and any amendments as early as possible in litigation. Waiting risks rejection – and wasted costs.
• Co-operation counts: Defendants must raise concerns about security for costs in good time, or risk criticism from the court.

Lloyds v Accor reinforces the courts’ growing reluctance to accept ATE insurance policies at face value in security for costs applications. While such policies remain a potentially viable form of protection, they must be clear, comprehensive, and tailored to the specific risks of the case – particularly where fraud is alleged. The judgment underlines the importance of precision in drafting, early engagement with the opposing party, and proactive case management. Simply put, the effectiveness of an ATE policy will depend not only on its existence, but on the quality of its terms and the confidence it inspires in the court.

You can find the full judgment here: https://www.bailii.org/ew/cases/EWHC/TCC/2020/941.html

Need advice on ATE policies or security for costs?

The Commercial Litigation team at BBS Law has extensive experience advising on ATE insurance, security for costs, and broader litigation risk. If you’d like to discuss how these issues may affect your case – or need strategic guidance tailored to your circumstances – we’d be happy to assist.

Please don’t hesitate to contact us to arrange a consultation.