Legal expenses insurance: the right to choose your own lawyer
In a recent case, the English court has considered whether or not legal expenses insurers can restrict the insured’s right to choose their own lawyer once proceedings have been commenced. The court held that, pursuant to well established Legal Expenses Regulations, the legal expenses insurer could not. The court also held that this applied to the insured’s right to instruct a barrister directly (so that the legal expenses insurer could not insist on a solicitor being instructed).
The insurance policy in question contained a clause which stated that the insured was free to choose an "appointed representative" but that the insurer "may choose not to accept [the insured’s choice], but only in exceptional circumstances". The Insurance Companies (Legal Expenses Insurance) Regulations 1990, SI 1990/1159 which govern legal expenses insurance in the UK state that, amongst other things, the insured has the right to choose its own independent legal representation as soon as proceedings have commenced.
The Court pointed out that the Regulations do not specifically provide for a restriction of this right in "exceptional circumstances". Accordingly, the Court considered that the Regulations appear to contemplate no circumstance in which a legal expenses insurer might choose not to accept the lawyer chosen by the insured. At the very least, the "exceptional circumstances" in the instant case would have to have been "very exceptional" for such a restriction to apply. Consequently, the Court granted the declaration sought and the insured was not obliged to go through a solicitor in order to instruct her barrister.
The case follows on the heels of the ECJ decision in Eschig, in which the Directive which formed the basis for the UK Regulations was considered. In that case, the ECJ held that an insured could insist on its own independent legal representation once proceedings had commenced even where the insured was part of a class action, with obvious costs benefits to having one lawyer representing all people within that class. There was, according to the ECJ, no exception to the basic right even in class actions.
This case highlights the fact that courts in the UK will not hesitate to apply the Regulations to legal expenses insurance policies. Legal expenses insurers should be aware that the mandatory provisions of the Regulations are clear and place significant restrictions on things like the ability insurers have to control who an insured may instruct under a legal expenses insurance policy. There is no “exceptional circumstances” restriction on that ability, and nor does it depend on any assessment of whether or not the legal expenses insurer is acting in the insured’s best interests.
It may be of some reassurance to legal expenses insurers to note that whilst the court was prepared to order a declaration that the insured was entitled to instruct the lawyer of her choosing, the court also held that an insured in this situation does not have a right to claim damages against a legal expenses insurer.
Nonetheless, legal expenses insurers will clearly need to ensure that their policies comply with the Regulations, particularly given that following the ECJ decision in Eschig, the FSA has taken an active interest in the way in which insurers are writing this class of business (see the FSA’s open letter to legal expenses insurers dated 12 August 2010).
This article first appeared in Law-Now, CMS Cameron McKenna's free online information service, and has been reproduced with their permission. For more information about Law-Now, please go to www.law-now.com.