Insurance Policy: Would you like to add on legal expenses insurance?

27 January 2012

Do you know that you can buy (before the event) insurance to cover some legal expenses? An individual has a primary responsibility to pay their lawyer’s fees and not all cases can or will fit into the “no-win, no-fee bracket”.

Legal Expenses Insurance is an insurance policy that will pay for the costs of legal advice and/or the costs of bringing (or possibly defending) proceedings. It can be purchased separately or added on to most household policies (such as buildings or contents) and, in the latter case, many insurers will offer a minimum of £50,000 cover. The policy would likely cover, for example, contract disputes, civil claims, employment etc. and, whilst this amount of cover might not be enough for a whole case, it should be enough at least to obtain advice on your position so that you can decide how best to proceed. Legal expenses insurance is not available for all types of legal work though, such as the legal costs of buying a house or making a Will, and your insurer would need to consider your individual or business needs.

Regulation 6 of The Insurance Companies (Legal Expenses Insurance) Regulations 1990 provides that a person may choose their own lawyer to defend, represent or serve their interests in any inquiry or proceedings. Once proceedings are commenced, a person may instruct their own lawyer, but there has been doubt about the position where proceedings have not yet begun. In 2009, there was a case before the European Court regarding a claim in which an Austrian, Mr Eschig, and his fellow investors wanted to pursue similar financial claims. Mr Eschig was told by his legal expenses insurers that he had to accept the lawyers appointed by them before the proceedings were commenced, but he argued successfully that he should be able to appoint his own lawyer at that stage. Following that decision, the Financial Ombudsman has written (10 June 2011) that despite the Eschig case (which essentially dealt with a class action), “… we do not take the view that the Eschig case affects the right of UK insurers to limit a policy holder’s freedom of choice to the start of proceedings or in case of conflict of interest. However, each case should be considered individually.”

Before instructing a solicitor, the insured should check the terms of the policy carefully and notify the insurer. If an insured has already instructed a solicitor or taken any other step regarding a claim before notifying the insurer, all will not necessarily be lost, and the insurer may still afford cover provided its position has not been prejudiced.

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