FOS backs non-panel firms

INSURANCE: ombudsman's decisions grant clients choice of solicitors in BTE insurance

The heated debate over choice of solicitor in before-the-event (BTE) insurance has taken a new turn in favour of non-panel firms following two decisions by the Financial Ombudsman Service (FOS).

The news, revealed by the Gazette's sister publication Litigation Funding in its August issue, comes ahead of possible court action over the issue.

In one of the decisions, the adjudicator said it may take a court to decide what constitutes 'proceedings' to trigger a client's right to instruct solicitors.

The decisions found DAS's policy wording insufficiently robust to allow it to insist on the use of a panel firm in a personal injury case where a client instructed her own solicitor before realising she had BTE cover, and that Cornhill Insurance - which runs Lawclub Legal Protection - unfairly fettered a client's choice by refusing to cover the shortfall between costs incurred and recovered when using a non-panel firm.

Having found that DAS's right was not clearly established, the adjudicator considered what constitutes 'proceedings' to activate the client's right under the Insurance Companies (Legal Expenses Insurance) Regulations 1990, and said it may be for the courts to determine the issue.

'However, it seems to me that care needs to be exercised in interpreting the phrase "legal proceedings" as used in the policy,' the adjudicator said.

'My general impression is that policyholders would tend to interpret this phrase more widely than the narrow interpretation favoured by [DAS].

'I think it likely that most policyholders would tend to understand legal proceedings in a wide context of formal communications between lawyers representing the parties.'

DAS has asked the ombudsman to reconsider the ruling.

Assistant general manager Tony Buss said it was 'legally incorrect' as the decision was not made purely on the wording.

In the Cornhill case, the adjudicator told the complainant: 'It is also my view that to refuse to allow you to instruct solicitors unless they agree to waive such costs or you agree to pay them privately does unfairly fetter your choice of legal representation.'

Tony Dyas, claims controller at Lawclub, said the case raised issues about its policy wording.

The Association of Personal Injury Lawyers (APIL) has obtained leading counsel's opinion which a spokeswoman said supports a broad right of choice for clients.

She said APIL was considering whether to support a case through the courts for a declaration.

She added: 'In spite of these judgments, the ombudsman has made it clear that he doesn't make the law so there is still room for misinterpretation, and we are worried that the regulations aren't clear enough.

We hope to be talking to the government about the possibility of secondary legislation to clarify the regulations.'

Neil Rose