Many household policies now have some LEI cover. Solicitors are obliged on first contact with a potential client to ask whether any claim to be made is covered by LEI. If it is, then investigations need to be made of the cover provided. Until those investigations are complete, the solicitor cannot, for example, enter into a conditional fee arrangement to pursue a claim.
The process presents a number of difficulties. It introduces delay and, more importantly from the solicitor’s point of view, the insurer can say that, unless the solicitor is a member of its panel, cover will not be provided.
This issue was highlighted by the ECJ (Case C-199/08, Eschig) when the court was called on to determine whether insurers were able to rely on a provision in a policy that restricted the insured’s choice of lawyer if the claim was a ‘mass claim’. Austrian Erhard Eschig’s claim was one of several thousand for money lost when an investment turned sour. Others also had LEI from the same insurer, Uniqa. Having received the claim, Uniqa refused cover, saying lawyers had to be panel members.
The freedom to choose your lawyer is dictated by a European Council directive, which provides that the insurance contract should allow the insured a lawyer of their choice “from the moment that he has the right to claim from his insurer under the policy”. Eschig complained that the limitation on the policy for mass claims was in breach of the directive. The ECJ agreed.
Insurers are clearly keen to pass on as many cases as possible to their panel members. Those members will work at reduced rates on the basis that they receive bulk referrals. They may also be paying referral fees to the insurer. But from the insured’s point of view, it means going to an unfamiliar solicitor, possibly in some distant town or city.
The ECJ decision throws into sharp contrast the directive and the UK’s own domestic regulations, the Insurance Companies (Legal Expenses Insurance) Regulations 1990. These are intended to reflect the wording of the directive. But there is some debate over whether they are in fact more restrictive of freedom of choice. The UK regulations guarantee the freedom only for any inquiry or proceedings. There is nothing so specific in the directive.
This wording leads to a standoff between insurers, the insured and solicitors. That conflict often comes to the Financial Ombudsman Service (FOS), which takes a restrictive interpretation of the freedom to choose.
The FOS advice depends on the interpretation of the local regulations. It does not examine the regulations against the background of the directive. The wording of the regulations is not directly referable to the wording of the directive. The directive makes no reference to freedom of choice being limited to circumstances in which proceedings have, or are about to be, commenced. Rather it refers to freedom of choice arising from the moment the insured has the right to claim from the insurer under the policy.
There has been no test of the UK regulations and their place against the directive. Certainly, solicitors affected by the concentration on panel members would question whether the limitations in the UK regulations are appropriate. The ECJ decision in Eschig suggests that it will take an expansive view of the freedom guaranteed by the directive. Until that is resolved the conflict is likely to increase with the greater availability of LEI under normal household policies.