A hollow choice?
Date: 18 November 2011
Authors: David Greene
Issue: Vol 161, Issue 7490
Categories: Opinion, Legal services
The increasing tendency to include legal expenses insurance in household policies highlights changes in the relationship between the insurer and the insured’s chosen lawyers. In particular, the insurer’s tendency to steer work towards its own panel has brought into question the ability of the insured to choose their own solicitor, a right guaranteed by the European Directive on Legal Expenses Insurance and the domestic regulations, the Insurance Companies (Legal Expenses) Regulations 1990. One element of that choice is the ability of the insurer to determine the rates at which solicitors instructed by the insured may be paid under the policy. The High Court has now addressed the subject in Brown-Quinn v Equity Syndicate Management Ltd & Others [2011] EWHC 2661 (Comm), [2011] All ER (D) 243 (Oct).
There has been, with the development of before-the-event (BTE) insurance (which itself may be knocked by the ban on referral fees), an increasing tension between the insurer and the insured about who should represent the insured in any litigation, despite the overriding freedom to make that choice. This tension has arisen in two main respects: first, when the freedom to choose in accordance with the Directive and Regulations applies; and second, the rates at which a lawyer of choice may be remunerated. Indeed, rates payable can be used to impose the insurer’s choice upon the insured.
It has generally been the practice of insurers to insist that the insured’s choice of solicitor (on the basis that they are not panel members) works only on the basis of the rates that the insurer is willing to pay. Although referred to as non-panel rates, those rates on the whole are based on panel rates and are probably significantly lower than the solicitor’s normal charges. Those panel rates are based on a significant flow of work, probably being undertaken in the main in an administrative process with reduced supervision by solicitors. Many firms, particularly in the High Street, do not have that luxury and cannot afford to work on rates proposed by insurers.
Solicitors are obliged to consider and activate the BTE cover before entering into a conditional fee agreement (CFA). Some insurers have worked a more flexible regime with non-panel members with, for instance, the BTE covering adverse costs only or mixing cover with a CFA.
Sore point
The question of remuneration rates, however, has remained a sore point. Now Burton J has concluded in Brown-Quinn that it is not open to an insurer to refuse to allow the insured to choose a solicitor solely because the solicitor’s hourly charges are above the panel/non-panel rates dictated by the insurer. Those panel rates, however, will still retain relevance because, Burton J opines, the court could take them into account in party and party assessment in the measure of whether the hourly rates claimed by the successful insured are reasonable. In addition to this main point, the court also concluded that a request to transfer a case to a new solicitor could not be “unreasonably” refused.
The knock to the BTE insurance industry by this decision is major. Rates are often imposed to achieve the end of steering the insured towards the panel. Although the court was reiterating the freedom to choose one’s own lawyer, it did not deal with the timing of that choice. Under the Regulations, the current thinking is that the freedom only arises when litigation commences and not before—so not when the insured is complying with a pre-action protocol prior to commencement.
This remains an area of tension with non-panel solicitors—that the freedom to choose should arise immediately on first instruction. Relying on findings of the former insurance ombudsman, insurers are sticking to their guns. This may well result in further questions for the court. If, as Jackson LJ suggests, BTE is to be the future, then all solicitors will have an interest in the outcome.
David Greene, senior partner, Edwin Coe LLP & consultant editor of NLJ.
E-mail: David.Greene@EdwinCoe.com Website: www.edwincoe.com
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