Right to choose

Posted: 19th August 2010


Following a decision of the European Court of Justice, accident victims may now have freedom to use the solicitor of their choice rather than one appointed by insurers.

In the case of Erhard Eschig, referred by the Austrian Supreme Court, the ECJ made it clear that “any provisions of a contract [for legal expenses insurance] that detract from or qualify in any way the freedom to choose a lawyer will not be compliant with a European Commission Directive of 22 June 1987”.

Many people do not even realize that they have legal expenses insurance - or LEI - though it is a common feature of many motor and household insurance policies. It has various labels, including “family legal protection” and often the consumer has to tick a box to opt out of cover.

Some insurers have no objection in principle to their policyholder instructing a solicitor of choice, provided that they are competent to deal with the work, and will pay the solicitor a reasonable market rate. Others flatly refuse indemnity under the terms of the policy they have sold unless the policyholder agrees to use one of the insurer’s “panel” solicitors.

This is often explained by reference to those solicitors being appointed because of their expertise in a particular area of work and standards being maintained through panel memberships, rather than fees paid for membership and/or for the purchase of individual cases.

These business models obviously don’t work so well if policyholders can use their own lawyer who wants to charge a reasonable market rate and has no reason to act other than in the client’s best interests.

About twenty years ago, LEI insurers negotiated a compromise with the Financial Services Ombudsman which was essentially that the freedom of choice of lawyer would not operate until the point at which court proceedings were issued.

Since courts reasonably expect people to try and resolve their differences without issue of proceedings in the first instance, this arrangement ensured that anybody wanting to take advantage of their LEI insurance had no choice but to retain a panel lawyer, often miles away and usually unknown to them.

Panel solicitors working at discounted rates might have conduct of a claim for two years or more without it being resolved or progressed significantly. It is common for liability insurers to refuse to make interim payments of compensation, often for unjustifiable reasons, and only pay what a victim is entitled to once a claim form is issued and followed up with an application to the court.

It is hard to see how the duty of a solicitor to his client to take those steps if necessary can be met if, for example, the solicitor has an agreement with LEI insurers that includes an obligation to avoid proceedings wherever possible. There is an obvious benefit to insurers in promoting the use by accident victims of representatives who will present a much smaller bill of costs than a true independent who thrives on reputation and is driven by all the positive aspects of a personal relationship.

The FSA has written to legal expenses insurers following the ruling in Eschig. A copy of Ken Hoggs’ letter may be viewed here.