The issue of whether an individual who has before-the-event (BTE) insurance is forced to use the solicitors nominated by the insurance company, or whether they have freedom of choice to instruct their own solicitor, is a vexed one about which I get a huge number of enquiries.
The direction of travel of the courts has all been one-way; that is to give freedom of choice to clients to choose their own solicitor, but to enable the BTE insurance company to set limits on the hourly rates and effectively to impose upon those independent solicitors the same terms as would be imposed upon their own panel solicitors.
The latest chapter in this saga is a recent decision of the Court of Justice of the European Union (CJEU) which held that the freedom of choice of an insured person extends to mediation proceedings, as well as substantive proceedings. That decision was given in the case of Orde van Vlaamse Balies and Ordre des barreaux francophones et germanophone v Ministerraad.
An insured person’s right to freedom of choice of lawyer under a legal expenses insurance policy stems from the Solvency II Directive. The key wording, which has thrown up so many cases, is contained in article 201(1)(a) of that Directive. It provides:
“(1) Any contract of legal expenses insurance shall expressly provide that:
(a) where recourse is had to a lawyer or other person appropriately qualified according to national law in order to defend, represent or serve the interests of the insured person in any inquiry or proceedings, that insured person shall be free to choose such lawyer or other person.”
Most recent cases have revolved around the meaning of “any inquiry or proceedings”.
Here, the request was made in proceedings between the Orde van Vlaamse Balies and the Ordre des barreaux francophones et germanophone (the bar associations), and the Ministerraad (Council of Ministers, Belgium), relating to the freedom of an insured person to choose his or her representative in mediation proceedings in the context of a legal expenses insurance contract. The bar associations sought annulment of a 2017 national law as infringing the constitution, when read with the Solvency II Directive.
The CJEU concluded that Article 201(1)(a) of the Solvency II Directive must be interpreted as meaning that the term “proceedings” referred to in that provision includes judicial and extrajudicial mediation proceedings in which a court is involved or is capable of being involved, whether when those proceedings are initiated or after they are concluded.
Previously, in a landmark decision, the European Free Trade Association (EFTA) Court held that the right to choose one’s own lawyer applied at the stage of notification of the claim, or any effort to settle a matter out of court, or any instruction of the lawyer to assess the legal and factual situation, and thus the right arose as soon as a potential cause of action arose. The judgment was a wholesale rejection of the longstanding arguments of insurance companies that freedom of choice only applied once proceedings have been issued.
That decision was in Nobile v DAS Rechtsschutz-Versicherungs AG, where the EFTA Court considered whether provisions in a legal expenses insurance contract were compatible with the freedom for insured persons to appoint a lawyer set out in the Solvency II Directive. In reliance on its terms and conditions, the insurer had declared that it was not obliged to provide cover, as the insured person in question had instructed a lawyer without the insurer’s consent before the start of proceedings.
The court held that article 201(1)(a) precludes terms and conditions in a legal expenses insurance contract that release the insurance company from its obligations under the contract if the insured person mandates an attorney to represent his or her interests, without the consent of the company, at a point in time when the insured person would be entitled to make a claim under the contract. It rejected the argument that the application of the freedom to choose a lawyer was limited to judicial or administrative proceedings. As a result, the court held that the right to choose one’s own lawyer applied at the stage of notification of the claim or any effort to settle a matter out of court, or any instruction of a lawyer to assess the legal and factual situation. The right therefore arose as soon as a potential cause of action arose.
The court also held that it was not necessary for the insured to notify the BTE insurer in advance. A BTE insurer has no right to deny coverage for the potential proceedings in issue because it deemed such proceedings to be unnecessary, or disproportionate or premature. Such a right could motivate the insurance undertaking to reject coverage, which could deprive the insured person of the protection afforded by the legal expenses insurance contract. If DAS’s contract was to be upheld, then the insured person’s right freely to choose a lawyer would consist solely of the possibility of suggesting a lawyer, the acceptance of whom would be, ultimately, at the discretion of the insurance company.
It is incompatible with the Solvency II Directive to accept that an insurance undertaking could be released from its obligations under legal expenses insurance contracts because the insured person breached some terms and conditions. However, that freedom to choose a lawyer cannot extend to obliging member states to require insurers to cover in full the costs incurred by the person instructed to represent the insured person. Limitations of coverage may, for example, relate to a single claim or to the economic value of a claim. However, terms and conditions to limit the coverage may not be such as to render it impossible for the insured person freely to choose a lawyer.
This is an interpretation of an EU Directive. It is likely that the UK will form part of a non-EU European grouping, which includes countries like Norway and Switzerland, once we leave the EU. Any which way, these decisions are likely to remain binding on BTE insurers operating in the UK.
This is a case at the most senior level, stating in the clearest possible terms, that an insured person under a BTE insurance contract has an absolute right to instruct lawyers of their choice the moment the cause of action, or potential cause of action, arises.
In Massar v DAS Nederlandse Rechtsbijstand Verzekeringsmaatschappij NV and Buyuktipi v Achmea Schadeverzekeringen NV and Stichting Achmea Rechtsbijstand, the CJEU ruled that the term “inquiry” included disciplinary proceedings by an employer in relation to an employee. At paragraph 31, the court said:
“Thus, any stage, even a preliminary stage, which is capable of leading to proceedings before a judicial body must be regarded as falling within the term ‘proceedings’ within the meaning of Article 201 of Directive 2009/138.”
At paragraph 33, the court recognised the importance of an insured person having the same representative at the preparatory stage of a case, as well as at the judicial stage.
In spite of the clarity and certainty of these rulings by what is still the highest court governing matters in the United Kingdom, I will no doubt continue to get scores of emails from solicitors telling me that “the insurance company won’t let my client instruct me.”
There is a very short answer: sue.