Pine v DAS Legal Expenses Insurance Company Ltd - the right to choose a lawyer  EWHC 658 (QB)
The claimant was entitled to an indemnity under her legal expenses insurance policy with the defendant insurer DAS in respect of costs incurred in instructing a barrister to act for her on a public access basis. DAS was not entitled to require the claimant to instruct a solicitor to brief counsel.
The claimant instructed solicitors Royds to act for her in a claim against her employers. Royds began proceedings against her for their legal fees and she counterclaimed, alleging that Royds had conducted her claim negligently. She also joined two barristers who had acted for her as defendants to the counterclaim.
The claimant had legal expenses cover from First Assist, and First Assist agreed that the claimant should instruct a barrister, Oliver Hyams, on a public access basis to act for her in the Royds action. The claimant also had a home and contents insurance policy provided by DAS which included cover of £50,000 for claims arising at the same time or resulting from a single cause. Once the limit of indemnity was reached under the First Assist cover, the claimant sought an indemnity from DAS in respect of Mr Hyams’ fees. Unlike First Assist, DAS was not prepared for Mr Hyams to be retained on a public access basis and required the claimant to instruct him through a solicitor.
DAS argued that, although its policy entitled the claimant to choose her own lawyer once proceedings began, it was entitled to reject her choice in “exceptional circumstances”. In its view, the nature of the Royds action, a document-heavy and complex multi-party professional liability claim, combined with the fact that the claimant suffered from chronic fatigue syndrome and would be unable to provide the litigation services required to support Mr Hyams, made this an exceptional case.
The judge concluded that there were no exceptional circumstances entitling DAS to refuse to pay Mr Hyams’ fees. He was satisfied that the claimant was able to conduct her case to the extent that Mr Hyams was prevented from so doing by his professional rules. The courts are increasingly familiar with litigants in person and there was nothing out of the ordinary about the Royds action. These were not exceptional circumstances, any more than a case where an insured wished to instruct solicitors who were not prepared to enter into a standard form of agreement with DAS would be.
The issue of the ambit of the right of an insured to choose their lawyer under legal expenses insurance rumbles on like a grumbling appendix. If the recent exchange in the Law Society Gazette between the president of the Law Society, Linda Lee, and DAS’s head of legal services, Kathryn Mortimer, is anything to go by (2 and 17 March), the dispute is no nearer resolution. The present case is therefore welcome since it offers judicial guidance on the acceptable limits on the right to choose a lawyer.
The present decision does not, however, tackle the main area of dispute which concerns the point at which an insured becomes entitled to choose a lawyer. The problem arises from the wording of Regulation 6 of the Insurance Companies (Legal Expenses Insurance) Regulations 1990 which states:
“Where under a legal expenses insurance contract recourse is had to a lawyer (or other person having such qualifications as may be necessary) to defend, represent or serve the interests of the insured in any inquiry or proceedings, the insured shall be free to choose that lawyer (or other person)...”
Legal expenses insurers such as DAS have taken this as meaning that the insured is entitled to choose its lawyer only when an inquiry or proceedings are commenced (unless there is a conflict of interest). Such an interpretation ignores Regulation 5 which gives “…the insured person the right to entrust the defence of his interests, from the moment that he has the right to claim from his insurer under the policy, to a lawyer of his choice …”. The effect in practice of this interpretation could be to prevent the insured from choosing their lawyer where a panel firm has been used before the commencement of proceedings, since it may be unrealistic for the insured to change lawyers at that point.
These Regulations implemented Council Directive 87/344/EEC. It was common ground in the present case that the court should have regard to the Directive if it was necessary to eliminate any ambiguity in the Regulations. In 2009, the European Court of Justice (ECJ) reviewed the effect of the Directive in Eschig v UNIQA. The ECJ held that UNIQA could not rely upon a provision in its policy which entitled it to select the lawyer in the case of a mass claim or group action.
On 12 August 2010, the Financial Services Authority (FSA) published a revised version of a letter originally sent by Ken Hogg, FSA Insurance Sector Director, in July 2010 to legal expenses insurers. The letter asked them to inform the FSA by 30 September 2010 of the actions they had taken, following Eschig, to ensure that the terms of their legal expenses insurance complied with the Regulations (http://www.fsa.gov.uk/pubs/other/lei_190710.pdf).
The revised version of the letter included two footnotes. The first explained that Eschig dealt specifically with the question of whether an insurer is entitled to select the legal representative of all insured persons, where a large number of insured persons suffer losses as a result of the same event. The second qualified the statement that “It is important to note that freedom of choice arises before the commencement of any inquiry or proceedings”, explaining that the freedom in Regulation 6 was interpreted in Sawar v Alam as being triggered at the time when efforts to settle a claim by negotiation have failed and legal proceedings have to be initiated. When it becomes clear that recourse is to be had to legal proceedings and litigation is pending, then the insured may instruct a lawyer of their choice.
These issues are particularly topical given the Government’s go ahead to the implementation of the Jackson proposals to end the recoverability of success fees and after the event (ATE) insurance premiums from the losing party. BTE insurance is going to become all the more important once conditional fee agreements lose their allure and precisely when the right to choose a lawyer arises will become critical. In his final report Jackson LJ noted that the Law Society considers that any extension of BTE insurance should be subject either to insurers agreeing that the definition of "proceedings" should include pre-action protocol procedures, or clarification of the Regulations. He did not make a formal recommendation, but he did express support for an amendment to Regulation 6 to the effect that the right to choose a lawyer arises when a letter of claim is sent.
The present decision indicates that the courts are unlikely to be sympathetic to attempts by legal expenses insurers to rely on exceptions to the right to choose in their policies. Since the claim in question was a professional negligence claim, it should also dispel the impression that, until the Jackson reforms come into effect, this issue is of real significance only in personal injury cases. BTE insurance is going to be of relevance to all claimants and their solicitors in future. In particular, the court will have to change its past approach to the use of BTE insurance in complex claims such as clinical negligence cases, as illustrated in Woolley v Haden Building Services Ltd. There the claimant’s solicitor was held to have been justified in entering into a CFA and ATE policy at an early stage without checking the terms of the claimant’s household contents insurance policy to see whether it included legal expenses insurance for bringing a mesothelioma claim. The guidance laid down in Sarwar v Alam was held not to apply to larger claims of this type because the policy limit of £50,000 would have been insufficient and entering into a CFA and ATE policy after the limit had been exhausted would have led to a significantly higher ATE premium.