UK News

Legal costs insurance - Can insurance companies restrict the choice of lawyer?

December 2011

Historically insurers have restricted the lawyers that may be instructed. A recent case has rejected this practice. Insurers have restricted the choice of lawyers who may be instructed by policy holders by stipulating that only law firms from a panel can be instructed and/or by imposing a cap on the level of fees that lawyers can charge.

Background

Many employers take out ‘before the event’ (BTE) insurance to guard against the possibility of claims from employees. Depending on the policy, BTE will cover the cost of legal fees in defending claims and perhaps also (though less commonly) awards that are made if the defence is unsuccessful. Insurers have sought to restrict the choice of lawyers that the insured may instruct by imposing a limit on the rates that law firms who carry out this work may charge.

The High Court has recently considered 3 claims (which were heard together) which were brought by the insured and their solicitors against their insurers with regard to these restrictions.

The High Court's decision

The High Court held:

  • Insurers are not able to refuse the insured’s choice of lawyer on the grounds that the lawyer selected by the insured has more expensive rates than those specified by the insurer.

  • Lawyers' rates are ultimately to be determined in accordance with the Civil Procedure Rules ("CPR") under which a law firm’s charges may be reviewed and decreased if the court considers they were unreasonable. While limits imposed on rates by the insurers will be taken into account they are not binding.

Commentary

This decision will be well received by the insured employers and lawyers and less well received by insurers. It gives the insured greater choice, most useful when the claims are complex and may require specialist advice. It also permits the insured to instruct lawyers with whom they have an existing relationship and who are familiar with their circumstances.

Insurers have of course pointed out that the result of this decision means that, in losing the ability to select panels of a limited number of law firms and so keep fees low, they may have to increase the premiums they charge in order to cover the increased legal costs!

Resources

Brown - Quinn & Anor v Equity Syndicate Management Ltd & Anor (Rev 1) [2011] EWHC 2661 (Comm) (21 October 2011)

For further information or to discuss the issues raised, please contact David Widdowson or Stephen Wright on +44 20 3051 5711.