The recent case of Jan Sneller v DAS Nederlandse Rechtsbijstand Verzekeringsmaatschappij NV (2013) seeks to clarify the interpretation of Article 4(1) of Council Directive 87/344/EEC of 22 June 1987 on the insured’s right to choose his own lawyer under a legal expenses insurance policy.
Mr Sneller took out legal expenses insurance with Reaal Schadeverzekeringen NV whereby DAS was to be the company responsible for providing legal assistance cover. The contract provided for cases to be dealt with by DAS’s own staff saving any case which, in DAS’s opinion, must be delegated to an external counsel. In such a scenario, the insured person had the right to instruct a lawyer or legal practitioner of his own choice.
Mr Sneller sought to bring legal proceedings against his former employer for reason of unfair dismissal and expected to be assisted by a lawyer of his own choosing and to have all costs covered by his legal expenses insurer. Conversely, DAS argued that the contract entered into between the parties did not provide for cover of the costs of legal assistance provided by a lawyer chosen by the insured. DAS was only prepared to provide legal assistance to Mr Sneller through one of its own employees who was not a lawyer.
Following the unfavourable decision of the Court of Appeal in Amsterdam, Mr Sneller contested the judgment before the Supreme Court in the Netherlands. The Supreme Court considered that its decision could have certain social consequences that could lead to an increase in insurance premiums by a considerable amount. The court therefore decided to stay proceedings and refer the following questions to the European Courts for a preliminary ruling:
(1) Does Article 4(1) of Directive [87/344] allow a legal expenses insurer, which stipulates in its policies that legal assistance in inquiries or proceedings will in principle be provided by employees of the insurer, also to stipulate that the costs of legal assistance provided by a lawyer or legal representative freely chosen by the insured person will be covered only if the insurer takes the view that the handling of the case must be subcontracted to an external lawyer?
(2) Will the answer to Question 1 differ depending on whether or not legal assistance is compulsory in the inquiry or proceedings concerned?
With reference to the first question, the court held that such a restrictive interpretation of Article 4(1) of the Directive cannot be accepted. The court reasoned that when interpreting any provision of EU Law, it is not sufficient to consider solely the wording of any article in question. The context in which such wording occurs and the objects of the rules of which it is part, must also be taken into consideration.
Accordingly, the court ruled that, following a thorough reading of the relevant provisions of the Directive, Article 4(1) must be interpreted as precluding a legal expenses insurer from imposing in their insurance contracts, that the costs of legal assistance provided by a lawyer chosen by the insured will only be covered if the insurer takes the view that an external lawyer should be instructed to handle the case, as opposed to the case being dealt with by the insurer’s employees.
Nevertheless, the court went on to state that this does not oblige Member States to require insurers to cover all the costs incurred in connection with the defence of an insured person or to prohibit insurers from imposing higher premiums for a higher level of cover for legal assistance costs.
When considering the court’s ruling on the second question, it is important to note that in the proceedings which Mr Sneller wishes to bring against his former employer, legal assistance is not compulsory in the Netherlands. The court held that the answer to Question 1 will not differ depending on whether or not legal assistance is compulsory under national law in the proceedings concerned.
The case serves as a helpful clarification of the interpretation of Article 4(1) of Council Directive 87/344/EEC and confirms that the insured’s right to choose his lawyer cannot be restricted to situations in which the insurer decides that an external lawyer is to deal with the case at hand.
Unfortunately, the judgment omits to discuss the detail of the issue at hand, i.e. whether the insured is able to exercise his right to choose his own lawyer at the pre-action stage or only once proceedings have been initiated. Domestically, the Financial Ombudsman Service has taken the view that, in the absence of a conflict of interest, the right to choose shall only arise once proceedings are issued. Subsequently, insurers seem to have interpreted the Insurance Companies (Legal Expenses Insurance) Regulations 1990, which implemented the Directive in the UK, in the same way.
Nevertheless, the Financial Services Authority (now the Financial Conduct Authority), in a letter dated 19 July 2010, stated that, with regard to Regulation 6 “it is important to note that the freedom of choice arises before the commencement of any inquiry or proceedings”. To date, however, the FOS does not seem to have changed its position.
Ultimately, the UK Court of Appeal in Brown-Quinn v Equity Syndicate Management Ltd (2012) held that certain conditions in a legal expenses insurance contract that restrict the insured’s choice of legal representative are in breach of the Regulations. Interestingly, the court went on to comment that insurers can limit the costs for which they were liable to the insured to their non-panel rates as long as the freedom of choice guaranteed by the Directive “was not rendered meaningless”. This seems to be the widely accepted position held by the UK courts in their interpretation of Article 4(1). Although the UK courts and regulator will need to take heed of the decision in Sneller v DAS, it seems that the current approach taken by the regulator and the courts is already close to that adopted by the European court in Sneller v DAS. The case reinforces the approach that has developed in the UK, namely that freedom of choice of a lawyer cannot simply be blanket barred by legal expenses insurers.