Security for costs of a counterclaim

Jones v Environcom Ltd [2009] EWHC 16 (Comm) raised an important point of principle, albeit one to be resolved by the facts of each case. If insurers seek negative declaratory relief, eg, as to their right to avoid, and the assured counterclaims for the amount allegedly due under the policy in respect of a loss, are insurers entitled to seek an order for security for their costs in defending the counterclaim? Mrs Justice Gloster, on the facts before her, held that this was the case.

Jones: the facts

The claimant represented insurers who had insured Environcom’s recycling facility under two policies covering the period 25 May 2007 to 24 May 2008. The premises were destroyed by a major fire in September 2007, and the facility had to be demolished. In the present proceedings the insurers sought a declaration that the policies could be set aside on the basis that Environcom had failed to disclose the use of plasma guns on the premises, that fact being material because those tools had been associated with small fires. Environcom’s response was that the insurers had surveyed the premises in 2006 and again after the policy had incepted, and were aware of the use of plasma guns. There was also a counterclaim in the amount of some £2.9m, representing property damage and third-party claims.