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Don’t believe home legal expenses insurers

Is it time for the imprisonment of some leading insurance company executives?

The excellent legal blogger Kerry Underwood has recently reminded the readers of his blog that Before the Event insurers, particularly home legal expenses insurers, seem to think that they can break the law with impunity and still do so on an almost daily basis.

The problems stem from the cosy relationships that the insurers have with “panel solicitors”, i.e. solicitors that they cherry pick on the basis that the insurers can call the shots in terms of the amount of work undertaken and, in particular, the price they can charge for the work. It is not at all unusual for panel solicitors, desperate for the work, to agree a fixed fee of, say, £1500 to deal with an employment tribunal claim when no such restriction exists in the insurance policy. Typically, the blurb promoting the insurance cover offers legal expenses cover of up to £20,000 or even £50,000, but the reality is quite different.

Of course, the obvious problem for the consumer is the level of service provided when the lawyer is operating under such constraints. For example, is a solicitor likely to advise a client to proceed with a fully contested claim or to settle at the earliest opportunity and perhaps for much less than the claim is worth, bearing in mind that he is paid the same amount in both scenarios?

If that were not enough the advent of “alternative business structures” has led to situations where some of these law firms are actually owned by insurance companies. In these cases there is an even greater incentive to keep the work “in house”.

And what of the principle of freedom of choice of legal representation, which many would regard (quite properly in my view) as an essential democratic right?

Mr Underwood has highlighted NatWest (Home Legal Expenses Department) as a repeat offender when it comes to the unlawful imposition of restrictions on a person's freedom to choose their lawyer. Unfortunately, the Financial Ombudsman Service is no help at all since the advice on its website wrongly states insurers can appoint panel solicitors “for legitimate commercial and quality-control reasons”.

Well that’s ironic isn’t it, bearing in mind that, as I’ve pointed out, there are good reasons to suspect that panel solicitors may provide a substandard service. It is also wrong as a matter of law. According to a European Directive, implemented by the Insurance Companies (Legal Expenses Insurance) Regulations 1990, consumers do have the right to choose their own lawyers. Those lawyers may have to negotiate payment rates with the insurer but, if necessary, the difference between the rate paid by the insurer and the lawyers’ standard rates can be covered by a “no win lower fee” agreement.

The Court of Appeal has not held back in its criticism of insurers who blithely continue to mislead their clients: “It is very difficult to view all this conduct as the conduct of reasonable and responsible insurer”, adding that it viewed the insurer’s behaviour with “distaste”.

Lord Justice Longmore made his dissatisfaction abundantly clear: “It is quite wrong that, despite the warning shot delivered to legal expenses insurers by this court… insurers should many years later be issuing policies which do not comply with the Regulations”. And yet, to this day, insurers blithely continue to do so.

Mr Underwood is evidently exasperated and proposes radical action:

"It is… time that insurers who deliberately lie and draft illegal policies are prosecuted for contempt of court. Imprisoning a few directors of Before-the-Event insurers for a couple of weeks will end the practice.”

He has equally short shrift for the Financial Ombudsman Service and Ombudsmen in general:

“It is time all Ombudsmen were abolished.They are a waste of space, woefully ignorant and very expensive and are harming this country and the rule of law.”

So, if you are told by your legal expenses insurer that you have to use a panel solicitor, tell them that they are wrong. Print off and keep a copy of this article with your insurance documents. Make sure that you exercise your right to choose your own solicitor. Here at Canter Levin & Berg Solicitors, my colleagues and I will be pleased to represent you under your home expenses policy and we will make sure that our priority is, above all, looking after your interests.

By Martin Malone