FSA underlines policyholder right to choose solicitor
The Financial Services Authority has ordered legal expenses insurers to prove to the regulator that they comply with European law that gives policyholders certain rights to choose their own solicitor.
The FSA’s insurance sector director Ken Hogg warned insurers that, in light of a European Court of Justice ruling in September 2009, policy terms that ‘detract from, or qualify in any way, the freedom to choose a lawyer’ might be illegal.
Hogg has given insurers until 30 September to tell the FSA what they have done to ensure that the terms of their LEI policies comply with the law.
At present, insurers often require LEI policyholders seeking to make a claim to instruct solicitors from a panel chosen by the insurer. These panel firms will usually pay referral fees to the insurer, or undertake work at reduced rates, in exchange for receiving the cases.
The ECJ ruled in Eschig in September 2009 that a legal expenses insurer cannot insist that its policyholders use its panel solicitors rather than a solicitor of their own choice.
However, Hogg said in his letter that, under European law, there are exceptions to this general rule.
Philippa Luscombe, clinical negligence partner at London firm Penningtons, said that a test case in the English courts might be necessary to determine whether Eschig should be interpreted as not allowing exceptions.
Hogg said in his letter: ‘The ECJ ruling in Eschig made it clear that any provisions of a contract that detract from, or qualify in any way, the freedom to choose a lawyer, will not be compliant with [European law]. The FSA is obliged to ensure that the regulations are applied effectively and that customers are treated fairly.’
Comments
Legal expenses insurance
The problem with Mr Hogg's letter to insurers is that it does not address all of the various ways in which legal expenses insurers can impede the insured's exercise of his right to choose his own lawyer. Rather than asking insurers what they have done to their policy wordings in the light of Eschig, Mr Hogg should ask to see their current policy wordings and should then review them thoroughly himself. One has only to look at a number of policy wordings which are available on the internet to see that they are not consistent with the 1990 Regulations, the Directive which those Regulations are supposed to implement or the decision in Eschig.
Further, some insurers require the insured's chosen lawyer to agree to the insurer's terms and conditions of acting. Mr Hogg should be asking to see what those terms and conditions are, since this is another mechanism by which the insurer can impede or thwart the insured's right to choose.
Yet further, Mr Hogg should be investigating (i) the extent to which the panel lawyers of legal expenses insurers are conducting claims on the basis that they will seek payment from the insurer only if the claim succeeds, (ii) whether, if panel lawyers are acting on that basis, that is made clear to the insured and to the other party to the dispute, (iii) whether client care letters sent to insureds by panel firms accurately reflect the basis of payment agreed between the panel firm and the insurer, (iv) whether referral fees paid by panel lawyers are properly disclosed to insureds and (v) the misselling of policies of legal expenses insurance (which are frequently added on to other forms of insurance, even if the consumer says expressly that he does not want legal expenses insurance).
In short, in the light of Lord Justice Jackson's views on legal expenses insurance - and the concerns expressed by the Law Society and the TUC which are recited in his Final Report - a full review of the way in which such insurance is sold and operated is required. That review needs to be undertaken by the FSA, perhaps in conjunction with the SRA and the Law Society. APIL, which produced a paper on (among other things) legal expenses insurance earlier this year, will no doubt be able to provide the FSA with examples of legal expenses insurers attempting to dissuade insureds from exercising the right to choose their own lawyer.
Legal Expenses Insurance
Further to the above, as a lay person who has had the misfortune to have LEI, and suffered the ensuing complications which restricted my choice of firms, this investigation has to be welcomed. However, I have to question how realistic – and more importantly – how accurate, the responses which Mr Hogg receives from insurance companies will be. Whilst many legal expenses insurers purport to endorse the freedom of choice, in reality, they make it as difficult and as irksome as possible for the policyholder to defect to the lawyer of their choice.
My experience using LEI was extremely frustrating, as my requests to use my own solicitor were studiously ignored by the insurer, until we reached a point when they thrust a panel firm upon me, despite the fact that I had told them, repeatedly, which firm I wished to use. That panel firm then failed to supply me with their Terms of Business, and then asked me to sign a client care letter which set out hourly rates. When I asked the panel firm to confirm that those hourly rates were actually being paid by the insurer and to clarify whether any referral fee was being paid, the panel firm declined to answer, on the basis that I had not yet signed the client care letter. I complained to the SRA, who did not appear to understand my complaint at all and took no action.
Having remonstrated, and stated my preference in writing, several times, the insurer eventually responded by sending my preferred solicitor a copy of the insured’s “Non-Panel Terms of Appointment”, which ran to 41 pages and contained numerous provisions which were wholly unacceptable to my chosen law firm. The correspondence which then ensued between my chosen solicitors and the insurer made the case I was involved in even more stressful; I found the entire exercise exhausting.
Generally speaking, few lay people enjoy litigation; fewer still are well-versed in the legalities of LEI. What I, and others, do not need are further complications from an insurer which seemingly does everything within its power to thwart our preference of lawyer.
Further to this, one has to question whether there is a multiplicity (and possible duplication) of legal expenses insurance policies as most insurance policies now have legal insurance relating to home contents, buildings and motor insurance policies, whereas there was once a single blanket cover policy which covered all LEI eventualities. This being the case, one has to question the ‘freedom of choice’ and the efficacy of litigation which will ensue from a large percentage of policyholders in the UK all being represented by ‘panel solicitors’.
In summary, there is much to be said for an investigation into LEI, but in my view, it is not only the wording of insurance policies which needs to be addressed as a means of determining to what level insurance companies comply; Mr Hogg should consider approaching lawyers and policyholders who have experience of the unfair treatment which can be meted out by legal expenses insurance companies. In my experience, LEI produced nothing but profound frustration and stress at a time when the insurance I had paid for should have offered support. Instead of relieving some of the stress which litigation entails, the legal expenses insurer compounded it.... endlessly.
Legal Expenses Insurance
I am also a lay person, albeit one who probably knows his way through the legal and insurance worlds better than most.
My personal experience of LEI was exactly the opposite.
My partner was injured, fortunately not very seriously, in an accident at work. We had BTE cover through our household policy. One quick phone call to the insurer saw the claim accepted and the services of a panel firm offered. I asked though that we use a firm I know well (and which is local to us - the panel firms were all some distance away). Our preference was accepted immediately, no pressure was applied to make us use a panel firm.
Chossing your solicitor
Strange that you can have a car accident and you are entitled to choose your own solicitor but if you are detained in a High Secure Hospital and your liberty is in issue you cannot (as of 15/11/10).
That's progress, well done LSC.
Legal Expense Insurance - the good, the bad and the ugly.
I have used LEI both as an individual and have been instructed through my own firm. My experiences are very different.
First, congratulations to the Prudential. They really do offer freedom of choice and allow an insured to choose his own lawyer without too much intervention. The rates and terms are fair, the only point of contention is that payment is not made until the matter is concluded. Generally very good.
Having used another insurer in my personal capacity, they could not have made life more difficult for me if they tried. After constantly arguing with them over the telephone and writing extensive letters, they eventually relented and agreed to use my choice of solicitor. They then however tried to argue that £90.00 an hour was a reasonable rate. In the end they came to my way of thinking and in fairness did fund my case to a very satisfactory conclusion - I understand the legal bill for my employment case was about 40K! However, the reality is that if I was not a solicitor I would have found it difficult to deal with their objectionable behaviour.
Doubtless most insurers will not be entirely truthful about the way in which they really behave. If the FSA is interested I would be happy to discuss my experiences with the LEI.
Fighting to Get a Solicitor
I had a similar experience. I had an accident whilst on holiday.
I contacted a well know personal injury firm who were not prepared to take it on as the were not on the 'panel' for my insurer.
I was eventually allocated a firm by the insurer who seemed to have no idea what to do as the accident was abroad and they had limited knowledge of the local law.
I am now pursing the claim myself.
Cynical claims capture mechanism
LEI is a cynical method of capturing claims so the 'insurer' can sell them on, something LJ Jackson seems to have completely overlooked.
If the LE Insurer cannot make the referal fee, then the premiums will have to rise to an uneconomic level for purchasers.
LEI
I agree that Lord Justice Jackson's Final Report betrays a lack of awareness of how legal expenses insurance works in practice. With the great respect to him, the report assumes (wrongly) that legal expenses insurance does what it says it does (and does so in accordance with the law, as set out in the Directive and the Regulations). It is for precisely that reason that a proper investigation of how legal expenses insurance is sold and operated is required.
The reality is that the business models of legal expenses insurers depend upon the receipt of referral fees and upon panel firms conducting claims at minimal expense to insurers (or on the basis that they will not seek payment from the insurer if the claim fails). How else could any insurer sensibly offer what purports to be £50,000 of cover for a premium of about £50? If the insurers are forced to abide by the Directive and the Regulations, the model ceases to work, because they then lose out on referral fees and have to pay proper rates to the lawyers of the insured's choice.
The example of Prudential (in one of the posts above) is interesting. Why should the insured's chosen solicitor have to wait until the end of the case before he or she gets paid? That is precisely the sort of tactic which is used to make it difficult or impossible to prevent the insured from exercising his freedom of choice. There is nothing in the Directive or the Regulations which allows the insurers to seek to impose their own terms and conditions on the insured's chosen lawyer.
Well, Tim,- Lord Jackson,
Well, Tim,- Lord Jackson, like most judges is entirely prejudiced against the solicitors profession.
Anything that he produced was unlikely to contain a true understanding of the position.
LJ Jackson
Not only that, he seems to think medical agencies add value to the PI process!
Please..... La la land!
And, oh joy, our glorious leaders are looking at implementation too. How much change can one profession take before it breaks? Why, especially with Co-Op Law, Virgin Law etc round the corner, anyone would want to train as a solicitor is quite beyond me.