Be aware of insurance products on offer

David Hartley and Gareth Phillips consider the importance of the Conditional Fee Agreement Regulations 2000 requirement to advise clients on insurance products.

Regulation 4(2)(e) of the CFA Regulations 2000 states that legal representatives must inform, explain and advise on whether they consider any particular method of financing the costs of litigation is appropriate.If they consider a contract of insurance is appropriate or recommend a particular contract they must give reasons for doing so, and declare whether they have an interest.This provision has been a source of concern to practitioners who have questioned whether they now need to assume the role and burdens of insurance brokers.

Might they be held accountable if they fail to give thorough advice on all insurance products available?If so, how can they keep up with the ins and outs of the fast-developing insurance market?Further, those solicitors who offer Accident Line Protect (ALP), or other delegated authority schemes, have wondered whether there is an irreconcilable conflict between their obligations as scheme members and their duties under the regulations.The requirement in Regulation 4(2)(e) to give reasons for advising that a contract of insurance is appropriate cannot mean that solicitors must offer advice on the merits of various insurance policies and arrange 'the best' (even if it were possible to decide which was 'best').

Solicitors are not insurance brokers.The government's 'conclusions' document following consultation on recovery of success fee and premium issues made it clear that they were drawing from the obligations in the current solicitors' cost information and client care code.

They envisaged general information being given about the type of alternative products.

David Lock, MP, Parliamentary Secretary at the Lord Chancellor's Department, made it clear at the recent APIL conference that solicitors were not expected to be experts in all the products available, but that they should be in a position to give claimants a reasonable explanation of the nature of products.

Nothing newThe reference in the regulations to 'appropriate insurance' is in fact no different from previous obligations.

Solicitors arranging 'after the event' insurance have always been acting as 'independent intermediaries' in insurance language.

The Code of Practice of the Association of British Insurers requires intermediaries to ensure simply that any contract of insurance is appropriate to their clients' needs.

Provided practitioners are satisfied that the policy covers clients' likely risks at a reasonable premium, it is likely to be appropriate to their needs.

Most delegated authority schemes are likely to meet this test.

By their very nature, for non-exceptional cases they are likely to be more competitively priced than schemes that rely on an individual risk assessment in every case.Where the new regulations go further is in requiring solicitors to give reasons.

This will depend on the practitioner's judgment, but ALP panel firms, for example, may wish to point out that:l The solicitor rather than the insurance company retain professional judgement in the conduct of the case;l The scheme is well established with no issue over recoverability, and;l It is likely to be the benchmark against which other products are judged.In considering other types of insurance, solicitors may wish to point out that there are schemes that cover both sides' costs that do not require a conditional fee agreement, and that there are other 'after the event' insurance schemes that apply individual premiums as well as delegated authority schemes.

Solicitors should make it clear to clients that they are not acting as brokers.With ALP, solicitors should point out that they do not have a financial interest in advising on that product.

However, practitioners will probably want to explain that they are members of the ALP panel and offer ALP because for the particular type of case it is, in their view, the most appropriate scheme, as it gives the most freedom to their professional judgment in advising the client.

It can be stated that the solicitor only puts their CFA fast-track cases with that scheme.

For multi-track cases there is a choice, as there are other options in terms of non-CFA after-the-event insurance.Solicitors obviously have to be aware of their duties under the regulations, and will need to explain the position reasonably to the client.

However, it should not be thought that the obligation is unduly onerous, and does not extend to giving detailed comparative advice regarding specific products.

Solicitors will need to be aware of the types of product available, and should beware that it is likely to be a fast-moving market-place.

Practitioners may find a subscription to Gazette journal Litigation Funding valuable.David Hartley is head of the private client team, and Gareth Phillips is policy adviser, at the Law Society policy directorate