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UK insureds free to choose their own solicitor

A UK court has ruled that insureds are not restricted to using an insurer's panel solicitor and are entitled to be covered for all "reasonable" legal costs endured, even if they exceed the rate stated in their policy.

The case, heard in the commercial division of the UK High Court by Mr Justice Burton, involved three claimants who challenged Equity Syndicate Management Ltd (ESML)'s refusal to pay the legal expenses when the insured chose alternative solicitors to the ones on the insurer's panel.

Each claimant, represented by Colin Wynter QC and Thomas Cordrey in this case, had argued separately that due to the complexity of their case - in one instance against a large global investment bank - higher legal fees for expert advice were required to ensure fair representation.

All three claimants had chosen either from the outset or after initially seeing a panel solicitor to instead instruct law firm Webster Dixon to fight their case.

However, the price Webster Dixon charged for its services was not in line with the hourly rate of £125 plus VAT outlined in the claimants' policies for non-panel solicitors.

The claimants' argument rested on the effect of the Insurance Companies (Legal Expenses Insurance) Regulations 1990 - a law passed down from the European Commission that enshrines an insured's right to choose its own legal representative.

Yet ESML argued that it was not liable for costs that broke with the terms of a contractual agreement.

As a matter of law, it also argued that the courts should not take steps to discourage the provision of before the event (BTE) insurance in a climate where access to justice is being constrained by the reduced availability of legal aid.

It also cited the potential end of after-the-event insurance policies and conditional fee arrangements if, as appears likely, the UK government implements the Jackson review's proposals on civil litigation costs.

Furthermore, ESML argued that the level of premiums charged to insureds was calculated using the assumption of the special rates negotiated with the panel solicitors and the defined rates available for using a non-panel solicitor.

In his ruling, Justice Burton trod a cautious path that gives a mixed result for both insurers and insured. He argued that should an insured chose his or her own solicitor, this "shall not of itself constitute the taking of an unreasonable step".

However he added: "It seems to me both inevitable and right that there should be consideration of the reasonableness of the fees charged by the lawyer selected by the insured by reference to the existence of the panel of solicitors prepared to act at panel rates, and to the existence of the non-panel costs."

But reference to the panel rates and non-panel costs would be done as a comparator and not as a starting point, he added.

Michael Frisby, a dispute resolution partner at law firm Stevens & Bolton LLP, said that the case offered a "troubling judgment" for insurers offering BTE policies.

"It re-enforces the principle that an insured has the right to choose their own lawyer once proceedings have begun and attempts to limit that choice will not succeed.

However, there is a sting in the tail for insureds and it also leaves a potential problem for BTE insurers' current business models," he said.

Frisby explained that insureds may find their policies do not indemnify their full legal costs, while insurers may be obliged to pay "reasonable" rates, "even where they are higher than those charged by panel solicitors and higher than the rates assumed when underwriting the risk".

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