Legal expenses insurance
Legal expenses insurers go to some lengths to make sure good quality law firms handle claims and set up a panel of firms following a rigorous tender and auditing process.
Understandably they want their panel firms to handle claims for their policy holders, which can be for a myriad of reasons, not least to control the quality of the service and the cost. There is empirical evidence to suggest that claims handled by non-panel firms costs more than claims handled by panel firms.
It is in the insurers' and therefore also the policyholders' interests (as any increase in claims' costs is passed on to policyholders in the form of increased premiums) to keep legal costs down and also to ensure that the level of service provided by to an insured person is of the highest quality.
Brown-Quinn & Anor v Equity Syndicate Management & Anor  should give some insurers some urgent work to do on their policy terms. The Court of Appeal recently agreed that policy holders do have freedom to choose their own lawyer. This is no surprise and is indeed in accordance with the European Regulation on the point.
An insured individual could therefore choose their own lawyer to represent them in accordance with the terms of the LEI policy. However the rate paid to those lawyers should be at the same level paid to panel firms ("…insurers are obliged to pay the appropriate non-panel rates to their insureds but no more…"). There is a discussion in the case as to what an appropriate rate is, which could be cause for future claims; and it is always an option for an insured to pay the difference between the panel and non-panel rate.
The case should help Legal Expenses Insurers control the costs of the service provided to their policyholders. Whether policyholders are the best people to choose their own representation is another matter, and insurers should always consider this when they receive an LEI claim, and have a dialogue with the insured.
Insurers need to be aware that any limit of the panel firm's costs does not render the freedom of choice meaningless; and insurers need to ensure that policy wordings comply with the European Regulations. Where policies do not comply, they should be either deleted or substantially re-drafted. That should keep a few insurers busy for a little while as there are some policies that do not comply with the terms of this legislation and judgment.
- Originally the Council Directive 87/334/EEC but since superseded by the General Insurance Directive 2009/108/EC and transposed into English Law by the Insurance Companies (Legal Expenses Insurance) Regulation 1990