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Do you have legal expenses insurance?

Do you have legal expenses insurance?

It’s a question we often ask our clients; ‘Do you have legal expenses insurance?’

Where the answer to this question is yes and a claim is made for legal costs it can become an argument with the insurance provider as to whether or not they will allow us to continue to act for our client. It is a point which sometimes seemingly even confuses the insurers from time-to- time.

There are marked benefits for an insurance company in operating a panel of solicitors however these benefits are far less clear for the insured party. However, fortunately, often it is not the case that the insured party need actually use the panel solicitors if they would prefer to appoint their own solicitors to deal with any inquiry or proceedings instead.

As noted, it is not unusual for insurers to operate a panel of preferred solicitors however some insurers take the extra step of insisting that claims under their policies are managed by particular solicitors. This arrangement has benefits for the insurance company in terms of their administration of the claim as they will normally have systems in place for the exchange of information with their panel and the panel solicitors will normally be set up in a fashion which supports dealing with bulk numbers of insurance claim cases. Equally the insurer will likely have preferential fee arrangements in place with their panel solicitors enabling the solicitors to receive large numbers of claim referrals in exchange for discounted rates which will form the costs in the insurance claim. The benefits of this however are far more questionable for the insured party.

It is quite normal that over time solicitors will gain an insight and understanding of the way you and your business operates which will better enable them to advise you on the matters which you instruct them to assist with. Such an understanding is unlikely to be replicated by a panel solicitor which will be tied to a particular method of processing insurance cases which has been approved specifically to suit the methods of the insurance company and assist in their own claims management.

The law deals with this through The Insurance Companies (Legal Expenses Insurance) Regulations 1990, these regulations, subject to certain specific exceptions, allow an insurance policyholder to select their own lawyer. In particular regulation 6 states:

‘(1) Where under a legal expenses insurance contract recourse is had to a lawyer (or other person having such qualifications as may be necessary) to defend, represent or serve the interests of the insured in any inquiry or proceedings, the insured shall be free to choose that lawyer (or other person).’

Additionally regulation 6 continues on to provide that in the event of a conflict of interest that the insured shall be allowed their own choice of lawyer. The insurer must also ensure that these rights are incorporated within the policy itself.

In dealing with legal expenses insurance it is quite possible for conflict situations to arise between insurers and their insured, due to the parties potentially holding different objectives in dealing with the case. An insurer is chiefly concerned with minimising the sum ultimately payable under any claim and such consideration will be irrespective of the long term effect on their insured’s reputation or view of how the case should be ultimately resolved.

Equally an insurer cannot reject a policyholder’s choice of lawyer because the chosen lawyer charges at a different rate than the insurer’s own panel solicitor does. The insurer does however have the option to restrict the cover they provide to the level which the panel lawyer charges, this must take place through the terms contained within the policy itself. This is the approach adopted in Jan Sneller CJEU (2013) by the Court of Justice of the European Union and, for the time being, this remains the applicable approach in the UK.

Further, it has been suggested by the Court of Appeal that in complex matters that it would be inappropriate for the insured’s choice of lawyers to be restricted in any way by the insurers (Sarwar v Alam [2001] EWCA Civ 1401), a view subsequently supported by the Financial Ombudsman
Service. The Financial Ombudsman Service have also recommended that where significant work has already been carried out by the insured’s lawyers it may also be inappropriate for the insurers to insist on a change of solicitors to a panel member.

More recently a decision of the European Free Trade Association Court found that insurers could not impose a term in their policies which allowed the insurer to reject cover under their policies where an insured to instruct their own lawyers at a point in time at which they would also have been entitled to bring a claim, but had not yet done so. This supports the principle of freedom of choice in allowing an insured to select their own chosen lawyers in a matter.

Overall there is a great deal of support supplied by the various sources referenced that an insured should remain free to choose their own lawyers when also bringing a claim for legal expenses cover with their insurer. Insurers may be reluctant to allow this but often they cannot prevent you from choosing your own solicitors.