Before-the-event (BTE) legal expenses insurers cannot reject a policyholder’s choice of a non-panel solicitor because the lawyer will not accept payment on their rates, the High Court has ruled.
The ruling, won by London law firm Webster Dixon, marks a major success in the long-running battle over the extent to which BTE insurers can fetter their insured’s choice of solicitor.
There were three test cases involving employment disputes – an area of particular expertise for Webster Dixon – and the insurers Equity Red Star of Lloyd’s and ULR Norwich ( EWHC 2661 (Comm)). Mr Justice Burton ruled that BTE insurers cannot stop policyholders instructing non-panel firms because the lawyers’ rates are higher than those stipulated by the insurers.
Here the prescribed rates were £125 and £139 (depending on the insurer); Webster Dixon put forward hourly rates for a partner or associate (grade A/B) of £274, for a solicitor £210 and for a trainee solicitor £105.
Though the insurers told Webster Dixon they would not agree to the firm acting, it continued to do so.
After concessions during the trial, the insurers’ argument focused on the contention that, on assessment, their prescribed fees should be the starting point in deciding what is reasonable.
However, the judge decided that insurers’ rates can only be used as a “comparator”. He said: “I suspect that in this case, where the insured made a choice of specialist solicitors, in London, fully qualified to meet the difficult issues in dispute with substantial defendants, an assessment would be likely to treat such comparator as of less weight.”
Burton J also considered the situation where an insured instructed a non-panel firm on the insurer’s rates, but then transferred the case to another firm which rejected those rates. The insurers argued that they could refuse cover if this happened, but on the facts the judge said they could not. “The freedom to choose a lawyer is not restricted to one choice,” he said.
Webster Dixon partner Michael Webster said insurers had used the charge-out rate issue as a “stick to beat lawyers with for many a year”. He said the ruling was very important for establishing that insurers cannot decline cover on this basis and for establishing the basis on which fees would then be assessed by the court.
The insurers in the case “refused to agree to what we considered to be reasonable rates and left us with no choice. We had to issue [proceedings] to protect our position”.
Mr Webster said the onus was now on the Financial Ombudsman to take action and issue policy guidance to insurers, or face “a litany of cases”.