The Spanish General Directorate of Insurance and Pension Funds (hereinafter DGSFP) regularly drafts the so-called Technical Guides in which it clarifies to the insurance companies operating in Spain the criteria, practices and procedures considered as appropriate in order to comply with its supervisory regulations.
Since 2015, the DGSFP has published five of these guidelines, the latest being the Technical Guide 1/2018, published in July 2018, on good practices in legal expenses insurance.
Technical Guide 1/2018 is divided into two sections:
- One related to good practices applicable to legal expenses insurance in general.
- Another related to the good practices applicable to the legal expenses insurance in the field of Motor Insurance.
For reasons of space and methodology, we will also divide our commentary on the above referred Technical Guide into two parts following the criteria adopted by the DGSFP itself.
(a) Good practices regarding legal expenses insurance in general.
• Unfeasible or reckless defence / claim clause.
Most insurance contracts that include legal expenses coverage also include a clause whereby the insurer can renounce to continue with the legal defence of the assured if having analysed the case, it considers that it is unfeasible, unjustified or that the amounts claimed by the assured are disproportionate to the damages suffered.
The above referred clauses have been generally recognized by the Supreme Court as valid, as long as they are interpreted in the most beneficial way to the assured. In addition, and regarding theses clauses, the DGSFP considered good practices:
- That when the insurer decides to consider the provision of legal assistance as unfeasible or reckless, this decision must be duly justified in a broad and detailed manner.
- Likewise, in the scenario referred to in the previous paragraph, the assured must be informed if, in accordance with the policy, the expenses of the claim will be reimbursed up to the limit established in the contract or if said reimbursement is conditioned to the assured continuing the defence of his claim with his own means and obtaining a favourable result.
• Arbitration clause.
It is considered by the DGSFP as good practice to include in the legal expenses policies an arbitration clause whereby, if the assured elects to request it, all the disputes in relation with the contract will be subject to arbitration.
• Legal Expenses in case of conflict of interests.
Directive 2009/138/EC – Solvency II – put a special emphasis on protecting the rights of policy holders in legal expenses insurance especially, in scenarios in which there is a conflict of interest with the insurer.
This protection was already granted in our legal system by the Spanish Law on Insurance Contracts art. 76. d) and f). In this article, it is established that the assured is free to appoint a lawyer of his choice in these cases involving litigation (civil, administrative, etc.). Furthermore, when there is a conflict of interest between the insurer and assured, this right of election will take place from the time of the conflict, including pre-litigation.
When is it considered that there is a conflict of interest? When the legal expenses insurer is also covering the opponent of the assured either in legal expenses or in any other branch.
Therefore, considering the above, the DGSFP considers it good practice that, in all those cases in which there is a conflict of interest, insurers must immediately inform the assured of the existence of such conflict, the origin of said conflict and the right of the insured to choose his own lawyers.
On the other hand, numerous legal expenses insurance contracts establish very low financial limits for those cases in which the insured proceeds to appoint a lawyer of his choice. In practice, this may be a limit to the effective exercise of the right of choice of the assured as the sums granted may not be sufficient to cover all expenses linked to a possible legal action.
Therefore, the DGSFP considers it good practice that the sum insured must be sufficient to guarantee the effective exercise of the rights of the assured regardless of whether he has decided to appoint a lawyer of his choice.
Finally, the DGSFP considers it equally good practice, in those cases in which there is a conflict of interest, the reimbursement of the defence expenses, irrespective of the result obtained by the assured. As well as anticipating certain procedural expenses (experts, PoA, etc.) at the request of the assured.
To be continued…