On 19 July 2010, the FSA sent a letter to UK insurance firms reminding them of the requirement that terms in legal expenses insurance must not detract from, or qualify in any way, an insured's freedom to choose a lawyer.

This requirement is mandated by Council Directive 87/344/EEC on Legal Expenses Insurance (the Directive), as clarified by a ruling of the European Court of Justice on 10 September 2009 in the case of Erhard Eschig v UNIQA Sachversicherung AG. In this case the ECJ held that the Directive sought to facilitate resolution of disputes and protect the interests of the insured, by removing possible conflicts of interest and giving them the right to choose a representative. As a result, Article 4(1)(a) of the Directive was not to be interpreted as allowing the legal expenses insurer, in a class action, to choose the legal representative of all the insured persons involved.

Insurance firms should respond to the FSA by 30 September 2010 detailing what actions they have taken to ensure the terms of their legal expenses insurance policies comply with the Eschig ruling. Click here to view the FSA's letter.