Sarwar v Alam was a road traffic accident, passenger against driver case.

The parties were friends in the same household.

The claimant passenger took out an after-the-event insurance (ATE) policy.

After the claim settled, the liability insurers refused to pay the premium because of the availability of a before-the-event (BTE) policy, namely one held by the driver, which, within its terms, covered passengers.

Neither the parties nor the liability insurer were aware of the existence of the BTE policy until costs-only proceedings were initiated.The BTE policy reserved 'full conduct and control of any claim or legal proceedings' and restricted the claimant's entitlement to instruct his own solicitor.On the first instance appeal, the circuit judge decided for the defendants.

The claimants appealed to the Court of Appeal.

The Court of Appeal upheld the appeal, deciding that representation arranged by the opponent's insurer within a BTE policy to which the claimant was not a party, and where the opposing insurer had reserved full conduct and control, is not a reasonable alternative to taking out ATE insurance.However, as well as deciding the central issue in the case, the court provided guidance on the extent of the enquiries that a solicitor should make into the existence of BTE insurance.

The Court of Appeal expressly limited these comments to 'a relatively small personal injuries claim in a road traffic accident' with a value of less than £5,000.The court considered that, in small-value RTA cases, the availability of a BTE policy could be relevant to whether or not incurring the expense of an ATE premium was reasonable and thus recoverable.

They held that solicitors are 'not obliged to embark on a treasure hunt' but should investigate BTE policies belonging to the client, a spouse or a partner.

The court suggested that solicitors should send standard letters to claimants requesting sight of relevant do cuments before the first interview.

If such enquiries do not resolve the issue, further enquiries might be necessary.The court added that enquiries should be reasonable and proportionate to the value of the case.

The overriding principle is that the claimant and the solicitor should act reasonably.

The court also said that 'the availability of ATE cover at a modest premium will inevitably restrict the extent to which it will be reasonable for a solicitor's time to be used in investigating alternative sources of insurance'.Where the policy is held in the name of the driver whose consent is needed for the passenger to use it, the passenger should seek this consent.

The policy will not be appropriate if consent is not forthcoming.

If the driver is likely to be an opponent, then the claimant would not be required to use the policy if it is in similar terms to the one in the Sarwar case.Once relevant enquiries have been made, the solicitor should refer the claimant to the BTE insurer if 'there are no features of the cover that make it inappropriate'.

An example given was insufficient cover where there are a number of possible claimants.Law Society perspectiveThe Law Society welcomes the court's decision on the main issue in the case.

However, it is unfortunate that the court did not accept the Society's contention that there is a strong public interest in maintaining the client's freedom of choice, which should prevail over any implied requirement to use even BTE insurance held in the claimant's name, at least unless certain minimum conditions were met.The Civil Procedure Rules imply that the availability of a BTE policy can be relevant in considering whether an ATE policy is reasonable.

This is an unusual provision.

It has not generally been the case hitherto that a method of funding is rendered unreasonable by the fact that individual claimants may have an alternative available.The Sarwar case focused attention on the close economic links between liability insurers and BTE providers who are often the same insurer.

The practice of BTE insurers of limiting claimants' freedom to instruct a solicitor of choice, and the insistence that either the case is dealt with by the BTE provider's claims department or by a nominated solicitor on a restricted panel, makes it even more important that the interests of the client are protected.In the Society's view, the availability of a BTE policy should be taken into account only in limited circumstances and cannot be regarded as a suitable alternative unless:-- The claimant has a reasonable choice of solicitor (for example, any Society personal injury panel member);-- The BTE insurer pays reasonable fees (that is, normal party-and-party rates), and;-- The policy provides for the freedom for the instructed solicitor to conduct the litigation on its merits rather than being subject to direction by the BTE insurer.However, the court in Sarwar did not give great weight to these considerations in the context of low-value RTA claims.Guidance for practitionersIt remains to be seen how future courts will deal with these issues.

In the meantime, solicitors will obviously wish to follow the guidance set by the court.When faced with the existence of a BTE policy, solicitors should check whether the policy is suitable for the client's needs.

In particular, they should consider terms of the policy that might impact on the client's ability to claim on the policy.The issue in the case was whether an ATE premium can be recovered against a losing defendant.

Clients retain the freedom to ch oose their lawyers and to select whatever method of funding they wish.

Solicitors and their clients may wish to consider whether to pursue a case with ATE even where the client holds a BTE policy.

But where this happens, the client would have to be clearly advised that he may not be able to recover the premium from the other side unless he could show real doubt over the suitability of the BTE policy.If the client and solicitor decide that using the BTE policy is an appropriate course of action then the solicitor may wish to contact the BTE insurer and confirm that he can run the case on behalf of the client.

The Insurance Ombudsman may be able to provide a view on whether it might be appropriate, in the circumstances of a particular case, for the client to retain the services of the solicitor of choice.