Brown-Quinn v Equity Syndicate Management Ltd – insured’s right to choose a lawyer (2011) EWHC 2661 (Comm)
For the second time this year, the High Court has considered the limits on an insurer’s right to control the insured’s choice of lawyer under a before the event (BTE) legal expenses insurance policy. On this occasion issues arose as to the relevance of the insurer’s prescribed rates for their panel solicitors where the insured wished to instruct a non-panel firm, and the entitlement of the insured to change solicitors.
Earlier this year in Pine v DAS Legal Expenses Insurance Co Ltd the court held that the claimant was entitled to an indemnity from her insurers in respect of costs incurred in instructing a barrister to act for her on a public access basis. DAS was not entitled to require her to instruct a solicitor to brief counsel.
In the present case, three claimants had all instructed a firm, Webster Dixon, to conduct their employment and discrimination claims. Webster Dixon was not on the defendant insurer’s approved panel of solicitors and charged higher rates than those paid to panel firms. One claimant instructed Webster Dixon from the outset whilst the other two wished to follow their case-handlers when they left the panel firm to join Webster Dixon during the course of the case. These were described respectively as “outset cases” and “transfer cases” in the judgment.
Initially the insurers said that they would not cover Webster Dixon’s costs unless they agreed to act for the flat hourly rate of £125 (later increased in the transfer cases to £139) specified in their “Terms of Appointment for Non … Panel Solicitors” (the non-panel rate). They subsequently abandoned this argument in respect of outset cases, contending at the hearing that, in reliance on the policy terms which required fees to be kept “as low as possible”, the assessment of reasonable costs payable under a contract in accordance with CPR 48.3 should only depart from the non-panel rate if the rate could be shown to be unreasonable.
As for the transfer cases, the insurers contended that the insured is entitled effectively to only one “election” under the Insurance Companies (Legal Expenses Insurance) Regulations 1990 (the Regulations) and thereafter there is no longer the freedom of choice that there has to be at the outset to comply with the Regulations. There was no entitlement to change solicitors and to expect the fees of the new solicitor to be covered. Clause 5 of the policy provided that, unless the insurers agreed to the transfer, the cover would end.
- The claimant was entitled to choose a non-panel solicitor who would not act at the non-panel rate. Such a step could not of itself constitute the taking of an unreasonable step or a breach of any term of the policy.
- The fact that the chosen solicitor’s rates exceeded the insurer’s non-panel rate did not constitute “exceptional circumstances” within the meaning of the policy so as to entitle the insurer to refuse to accept the appointment.
- The claimant was entitled to recover fees in respect of that solicitor in accordance with the terms of the policy, not restricted by the non-panel rate but with reference to it.
- When assessing the claimant’s entitlement to recover costs under CPR 48.3, the court should take into account the non-panel rate, not as a starting point but as a comparator. It should consider the availability of suitable solicitors ready to act at the non-panel rate, with reference also to the factors identified in Wraith v Sheffield Forgemasters Ltd. This enables the court to take account of the policy term permitting the recovery of reasonable fees and the policy requirement that the insured keep the costs as low as possible.
- The freedom to choose a lawyer is not limited to one choice. The Regulations (and the EC Directive they implement) cannot be interpreted so that the freedom of choice of the insured is limited to one selection or election at the outset.
- Clause 5 of the policy as it stands was in breach of the Regulations. An implied term should be read into it that the insurers’ agreement to a transfer will not be unreasonably refused.
- Examples of a reasonable transfer include where the initial firm has ceased to exist or has closed the relevant department, where there is a substantial and reasonable disagreement between client and solicitor, and where, as here, the case handler has moved to a new firm.
- An objection to a transfer simply on the basis that it would cost the insurer more clearly results in a conflict of interests entitling the insured to choose a lawyer under Regulation 6.
As predicted in the April 2011 Insurance Update, the courts are proving to be unsympathetic to attempts by legal expenses insurers to rely on exceptions in their policies in order to limit the insured’s right to choose a lawyer. The BTE insurers in this case (Equity Red Star at Lloyd’s and ULR Norwich) urged the judge to consider the potential wider consequences of his decision. They referred to the need not to discourage BTE insurance since access to justice is already restricted by the limited scope of legal aid, and the Jackson reforms are likely to make after the event (ATE) insurance and conditional fee agreements considerably more unattractive and therefore progressively more unavailable.
They went as far as to say that if the court allowed non-panel firms to be instructed and to have their fees covered by insurance, subject only to assessment under CPR 44, it would be bound to render it uneconomic for insurers to continue providing BTE insurance, at least without a considerable increase in premiums. They also warned against encouraging predatory solicitors, who would take steps to snap up claimants with BTE insurance, if the solicitors knew that they would be able to charge their usual rates and recover them from insurers.
This is somewhat reminiscent of the situation the courts found themselves in early in the life of the funding regime permitting the recovery of success fees and ATE premiums from the losing party. In Callery v Gray the Court of Appeal was assisted by representations from the Association of Personal Injury Lawyers, the Association of British Insurers, the ATE Insurers' Group, Claims Direct Ltd, the Motor Accident Solicitors' Society and the Law Society. Arguments as to the effect their decision would have upon the development and survival of the ATE insurance industry, and therefore the success of the new funding system, influenced the approach they took to the recovery of premiums and success fees. The House of Lords refused to interfere with their decision as a matter of principle, but it is clear from several of the opinions that there was disquiet about the role the courts were being required to play. Lord Hoffman stated (prophetically, as events have turned out):
“I must express some doubt as to whether the questions which arise in these appeals are capable of solution by the traditional method of adjudication by costs judges, subject to guidance from the Court of Appeal. It may be that they are not justiciable and require a legislative solution.”
And Lord Scott put his finger on the problem when he said:
“Your Lordships cannot know what will be the consequence for the ATE insurance market if premiums payable under ATE policies that have been taken out where there is no real risk of litigation, and therefore no real risk of the occurrence of the event insured against, are ruled to be irrecoverable from defendants.”
In the present case, the judge was similarly faced with arguments based on policy requiring him to predict the effect of his decision on the BTE market. However, there was an important distinction between his task and that facing the courts in Callery v Gray, namely the requirement to give effect to the Regulations. This meant that, while the judge said that he was taking the policy concerns into account when devising the approach to be taken to the assessment of reasonable fees under CPR 48.3, the outcome made few concessions to the defendant BTE insurers. They have lodged an appeal, with a hearing window before the Court of Appeal between April and October next year. The Law Society has said that it will continue to take an active interest in the case and would like to know of any occasion when an insurer has denied a client the right of freedom of choice of solicitor. The Society is seeking a test case to challenge the contention that an insured’s right to choose their solicitor only arises once proceedings have been issued.