The law in relation to legal expenses insurance is set out in EU Directive 87/344/EEC (“the Directive”), which is implemented in the UK by the Insurance Companies (Legal Expenses Insurance) Regulations 1990, as amended.
The Directive provides a general and obligatory freedom for the insured to choose a lawyer where any inquiry or proceedings have been issued. This right to choose has been recently examined in the case of Gebhard Stark v DAS Österreichische Allgemeine Rechtsschutzversicherung AG, when the European Court of Justice considered whether local lawyer clauses in legal expenses insurance were contrary to Article 4 of the Directive.
In this case, the legal expenses insurer sought to limit the cover for costs to those normally invoiced by a lawyer established in Vienna, rather than to the higher costs of the local lawyer instructed by the Claimant. Austrian civil procedure provides for a single flat rate for the remuneration of certain services provided by a lawyer in civil law disputes but the rate is doubled where the lawyer provides the service at a place other than his chambers.
Despite the clear wording of Article 4(1) that the insured is free to choose any lawyer or other appropriately qualified person in any ‘inquiry or proceedings’, the court held that the local lawyer clause did comply with Article 4. In particular, the court considered whether the restriction imposed on the payment of those costs effectively rendered impossible a reasonable choice of representative by the insured. Whether or not there was any restriction was held to be an issue for the national courts.
In this case, as the Claimant “would be deemed to bear only the costs relating to the distance between the chambers of his lawyer and the place of the court having jurisdiction”, it did not appear to be such as to hinder the Claimant’s freedom to choose his own lawyer.
This decision was a clear victory for insurers and was welcomed by the International Association of Legal Protection Insurance (RIAD) as, “… it clearly shows that the insured’s interests, consumer protection and cost management measures of insurers can be attuned.”
Whilst this short Directive on legal expenses has not given rise to much case law over the last 20 years, with the proposed cuts in the Legal Aid budget, it is likely that more people may turn to legal expenses insurance, making it vital to ensure that the Directive, and in particular Article 4 regarding the right to choose a lawyer, is being properly implemented.
Insurers should be wary of practices which could be construed as restricting the insured’s choice of lawyers, as these may fall foul of the Directive. For example, in Germany, claimants are referred to a call centre where lawyers who have entered into an agreement with the insurance company are recommended. A recent instance of the Directive being applied in the UK resulted in the Claimant being granted a declaration allowing her to choose her own legal representative, namely a public access barrister, rather than being obliged to comply with the insurer’s insistence that the barrister be instructed through a solicitor of her choice.