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Legal Minds

15 September 2014 / by / in

The right to choose

When an accident takes place in the workplace and the HSE knocks on the door, the company affected will want to obtain legal advice early on. Once an accident has happened, the company will need to speak to its insurer or broker to find out whether its insurance will cover these legal costs.

However, it is not unusual for the insurer to say that to gain the benefit of the insurance policy, the company must instruct one of the insurer’s solicitors. This is often referred to as a panel lawyer, meaning the company cannot instruct a lawyer of its choice. If this is not accepted, then the insurance cover will be refused. But can an insurer do this? The simple answer is: no, it cannot.

Regulation 6 of the Insurance Companies (Legal Expenses Insurance) Regulations 1990 provides: “Where under a legal expenses insurance contract recourse is had to a lawyer… to defend, represent or serve the interest of the insured in any inquiry or proceedings, the insured shall be free to choose that lawyer… The above rights shall be expressly recognised in that policy.” This applies to any policy that provides cover for legal expenses, even if this is only part of the terms of the insurance. In other words, these provisions cover Employers’
Liability and Public Liability policies.

The 1990 regulations implemented the European Legal Expenses Insurance Directive 87/344/EEC. A Netherlands case concerning the directive came before the European Court of Justice in Luxembourg in November 2013: Sneller v DAS C-442/12.This was a preliminary ruling concerning an insured person’s freedom to choose a lawyer – article 4 of the directive.

Mr Sneller was dismissed from his job and wanted to bring an unfair dismissal claim against his employer. The DAS policy said that one of its own staff had to be used and an external lawyer could only be instructed if DAS was of the opinion one was required.

Mr Sneller wanted a lawyer. DAS argued one was not required.

The court found against DAS saying: “The insured person must have the freedom to choose his own lawyer… for the purposes of any judicial or administrative proceedings… the objective [of] Directive 87/344/ECC, in particular article 4 thereof, broadly to protect the interests of insured persons… is incompatible with a restrictive interpretation of article 4… such as that proposed by DAS.” Although the issue here was whether a lawyer or non-lawyer provided representation, the decision of the court emphasises the right of the insured person (or company) to instruct a lawyer of their choice.

DAS also argued that insurance premiums would have to rise if an insured person was given the free right to choose. The court said that member states do not have to require insurers to cover all the costs, but that any restriction on the level of costs should not make a reasonable choice of representative impossible.

Level of fees to be paid by insurers and the freedom of choice of lawyer came before the Court of Appeal in the case of Brown-Quinn v Equity Syndicate Management Ltd [2012]
EWCA Civ 1633.

The insurer refused to accept the solicitors appointed by the insured because its hourly rates were higher than those prescribed in its terms of appointment for non-panel solicitors. The court held that a refusal to accept a non-panel firm of solicitors because their rates exceeded those outlined in the insured’s policy for the appointment of non-panel lawyers was in breach of the 1990 regulations. However, it went on to say that the insurer was only required to reimburse legal costs at those rates set out in the policy.

Should an investigation begin, the last thing a company needs to face is discussions with its insurers about the lawyer to be instructed and the rates to be paid. It may well be that the insurer is happy for a non-panel firm to be instructed providing they only pay the same level of fee rates it would pay to a panel firm. Alternatively, the panel lawyer offered by the insurer may have the appropriate expertise in health and safety and the company is content to be represented by them. However, negotiations could be protracted.

Companies, therefore, are well advised to discuss the issue with their broker or insurer when taking out cover. They can either negotiate the terms on which their own lawyers will be instructed or can be satisfied that the insurer’s panel lawyers have the requisite expertise and understanding of their industry. Should they later face an HSE investigation, this will be one less thing to worry about.

Originally published in the December 2013 edition of SHP magazine  –