ECJ Endorses Insured’s Freedom of Choice

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Back in 2011, Walker Morris reported on the High Court cases of Brown-Quinn v Equity and Pine v DAS [1], which recognised the right of a holder of before the event legal expenses insurance [2] to choose its own legal advisor, in accordance with Regulation 6 of The Insurance Companies (Legal Expenses Insurance) Regulations 1990 (Regulation 6).

The European Court of Justice considered the same point in November 2013 in the Dutch case of Sneller v DAS [3] and ruled that insurers cannot restrict the freedom of choice of insured persons by insisting on their using panel law firms or the insurer’s in-house staff.

The Sneller case

In Sneller, the question arose as to the correct interpretation of Article 4 (1) of Council Directive 87/344/EEC of 22 June 1987 (the Directive) (which is implemented into the law of England and Wales by Regulation 6).

Article 4 contains an express provision that “where recourse is had to a lawyer or other person appropriately qualified according to national law…that insured person shall be free to choose such lawyer or other person” . The sticking point in this case came as to who decides when the insured should have ‘recourse to a lawyer’. The case concerned unfair dismissal proceedings in the Netherlands, which do not require a lawyer for representation. The insurance company therefore argued that Article 4 (1) did not apply.

The questions referred to the ECJ were:

‘(1) Does Article 4 (1) allow a legal expenses insurer, which stipulates in its policy that legal assistance in inquiries or proceedings will in principle be provided by employees of the insurer, also to stipulate that the costs of legal assistance provided by a lawyer or legal representative freely chosen by the insured person will be covered only if the insurer takes the view that the handling of the case must be subcontracted to an external lawyer?; and

(2) Will the answer to Question (1) differ depending on whether or not legal assistance is compulsory in the inquiry or proceedings concerned?’

DAS’s argument was that Article 4 (1) is a passive provision which insurers are able to control by way of their individual policy contracts. However, the ECJ rejected this argument on the basis that the purpose of the Directive was to protect the interests of insured persons and it would be incompatible with that purpose to apply DAS’ restrictive interpretation. Referring to the preamble to the Directive, the ECJ found that freedom of choice of legal representative was paramount and of general application. As such, the court held that the position would be the same even if legal assistance in the particular inquiry or proceedings was not compulsory under the national law in question.

Implications for Legal Expenses Insurance in the UK

This case therefore confirms at the highest level that any persons covered by legal expenses insurance will be free to choose their own solicitor, whether that may be for reasons of familiarity, locality or expertise.

It is worth noting, however, that, although not presented with this question, the ECJ did make clear that an insurer would not be obliged to necessarily cover the full costs of an individual’s choice of lawyer (and this is not inconsistent with earlier case law in England and Wales). Provided that any thresholds set within insurance policies do not implicitly restrict freedom of choice, for example by being so low as to still preclude any representative other than the insurer’s staff or panel firm, then restrictions may be applied to the levels of legal expenses which will be covered. If the fees of the insured’s choice of lawyer exceed a reasonable restriction, then the excess will likely be the cost of freedom of choice.

[1] Insurer could not dictate choice of solicitor
[2] That is, insurance taken out pre-emptively in respect of the costs of potential future litigation.
[3] Jan Sneller v DAS Nederlandse Rechtsbijstand Verzekeringsmaatschappij NV [2013] EUECJ C-442/12
In the UK, Article 4(1) is implemented by Regulation 6 of the Insurance Companies (Legal Expenses Insurance) Regulations 1990.