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NOVEMBER 2011

It has become common for household insurance policies to include legal expenses insurance. Insurance companies normally have a panel of their preferred solicitors who undertake work on behalf of the insured party, usually at very substantially reduced hourly rates. The result of this practice by insurers has been for insured parties to have their right to choose a solicitor eroded - a right which is guaranteed by European law.

There is a potential conflict between the interests of the insurance company and those of the insured by virtue of the fact that insurance policies generally limit the rates at which solicitors instructed by the insured customer may be paid. In order to work within the constraints of the low rates set by the insurer, panel firms may need to delegate much of the work to assistants who are not legally qualified or to very junior solicitors. In practice the limitation on hourly rates will generally mean that the customer is restricted to choosing a panel firm, as other solicitors are unlikely to be willing or able to undertake the work at the allowed rates.

However in the recent High Court decision of Brown-Quinn and another v Equity Syndicate Management Ltd and another [2011], Burton J granted a declaration that an insurance company was not entitled to refuse the appointment of the customer’s choice of solicitor on the basis that the solicitor's proposed hourly rates were above those specified in the policy.

Burton J made it clear that customers are entitled to instruct solicitors of their own choice and to expect that their reasonable fees will be covered under their insurance policy.  The decision applies to a change of solicitor during a case, as well as to the initial appointment of a solicitor.

The court also found that the reasonableness of the legal fees incurred during a successful insurance case (where the losing party is ordered to pay the insured party’s costs) should be assessed pursuant to the Civil Procedure Rules as in other cases, and that the legal costs recoverable from the losing party are not restricted to the insurance company’s prescribed rates - although the prescribed rates may be a factor which is taken into account in determining whether the rates claimed are in fact reasonable.

This decision is likely to have significant consequences for insurance companies, who will seemingly now need to change their practice of only allowing low hourly rates which effectively prevent their customers from choosing their preferred solicitors.

Nick Cook
Solicitor

If you would like any further information about the issues raised in this article please contact Nick Cook (ncook@gdlaw.co.uk), or any other member of Goodman Derrick LLP’s dispute resolution team on 0207 404 0606.  

This guide is for general information and interest only and should not be relied upon as providing specific legal advice.