summary of complaint Mr N complains about the Gresham Insurance Company Limited s requirement for his chosen solicitors to enter into a Conditional Fee Agreement (CFA). Claims for legal expenses are handled on the business behalf by DAS Legal Expenses Insurance Company. All references to DAS include the insurer, Gresham Insurance Company Limited. background to complaint The background to this complaint is set out in my provisional decision dated April 2013 (copy attached). Briefly, I found that it was unfair for DAS to impose a requirement for Mr N s chosen solicitors to enter into a Conditional Fee Agreement (CFA) as opposed to the limit of indemnity of 50,000 he thought he had available. I proposed that DAS indemnify Mr N s solicitors costs from the date that it was in a position to confirm cover, such costs to be assessed if not agreed, reimburse counsel s fees and pay interest at 8% simple per annum on any part of these costs that Mr N has already paid, from the date of payment to the date of reimbursement. responses to provisional decision Both parties have responded. DAS said that at the time the complaint arose the imposition of a CFA was not considered unreasonable by our service: It would be unfair for DAS to be penalised for practices that were accepted and deemed reasonable at the time by the FSA, our industry and FOS. It also says that it is not fettering Mr N s freedom of choice, as it accepted his solicitors in principle and if they continued to refuse to act under a CFA he had the choice of a panel solicitor or another non-panel solicitor that would act under a CFA. DAS says that this is supported by the Court of Appeal decision in Brown-Quinn where the Judge commented that a legal expenses insurer has the right to apply restrictions and controls, in line with regulation and legislation, as long as it does not render the insured's freedom of choice meaningless. In any event we do not believe we are restricting freedom of choice by insisting that non-panel firms agree terms on the same basis as our preferred firms. However, despite that, DAS agreed that there had been delays and poor service and therefore agreed to provide indemnity in line with my provisional decision. Mr N has also responded. He has said that his solicitors provided supporting documentation on his behalf which would have assisted in us dealing with his complaint and therefore asks that those costs be reimbursed. He has also confirmed that his counsel s fees have already been reimbursed. Mr N has also informed us that he successfully appealed the decision to strike out his legal claim and the matter is now progressing. He would therefore like confirmation from DAS that his costs will be covered going forward. K822x
my findings As I explained in my provisional decision, my decision does depart from our previous approach to similar complaints. However, our approach to complaints does evolve over time. I am required to determine complaints by reference to what is, in my opinion, fair and reasonable in all the circumstances, having regard to the law and good industry practice. In my opinion, it is not fair or reasonable to require Mr N s chosen solicitor to act under a CFA which would mean none of their costs would be indemnified when the policy purports to cover all [his] reasonable and necessary legal costs up to 50,000. Although I considered that a fair and reasonable interpretation of the policy terms would mean that the complaint should be upheld, I also considered that the imposition of the CFA would fetter Mr N s legally protected freedom to choose his own solicitor. Whilst I am not bound by the law, I do have to have regard to it. I therefore took account of the outcome of the Brown-Quinn case but did not consider that it supported DAS in this instance. Although the Court of Appeal determined that the insurers in that case were obliged to pay no more than the non-panel rates, it did not determine that the amount offered by an insurer would always be acceptable. In addition, that case concerned a dispute about the hourly rate to be paid to the non-panel solicitor rather than the requirement of a CFA. The judge in that case, also said that the amount offered should not be so low as to render the insured s freedom of choice meaningless. DAS has said that Mr N had a choice of panel solicitors and therefore his freedom to choose was not rendered meaningless. However, I am not persuaded by this. It seems to me that a choice of panel solicitors is not sufficient and is effectively rendering his freedom to choose meaningless. In any event, DAS has agreed to indemnify Mr N for the costs already incurred, in line with my provisional decision. It has suggested that it will have those costs assessed by its costs draftsman. For the avoidance of doubt, it is my decision that if the costs in terms of hourly rate and work carried out cannot be agreed then they should be assessed by the court. Mr N has submitted that his solicitor s costs of completing the complaint form and supporting statement should be reimbursed, as it would have assisted our understanding of his complaint. However, he did not require professional representation to bring his complaint to us. We are used to dealing with complex issues and how we deal with complaints does not depend on how well they are presented to us. The outcome to this complaint would not have been any different if Mr N had presented it himself without representation. It therefore remains my decision that it is not appropriate for these costs to be reimbursed. As to the costs of the appeal and of proceeding with the claim, DAS is entitled to consider these as new aspects of the claim and so I cannot make any finding as to whether they should be indemnified in the context of this decision. Mr N can return to us if he is dissatisfied with any decision made by DAS about these matters. 2
my decision For the reasons set out above, it is my decision that I uphold this complaint. I direct DAS Legal Expenses Insurance Company to: - indemnify Mr N s solicitors costs (including costs of completing the quality management report and subsequent correspondence) from the date that it was in a position to confirm cover, such costs to be assessed by the court if not agreed; - reimburse counsel s fees, if not already paid; and - pay interest at 8% simple per annum on any part of these costs that Mr N has already paid, from the date of payment to the date of reimbursement. Harriet McCarthy ombudsman 3
COPY PROVISIONAL DECISION summary of complaint Mr N complains about the business requirement for his chosen solicitors to enter into a Conditional Fee Agreement (CFA). Claims for legal expenses are handled on the business behalf by DAS Legal Expenses Insurance Company. All references to DAS include the insurer, Gresham. background to complaint Mr N contacted DAS in September 2011 to make a claim for legal expenses in respect of a professional negligence action against his former solicitors. DAS initially declined Mr N s claim, as it said that it was not covered by the policy. However, it subsequently arranged for the matter to be reviewed by its panel solicitors. They advised that although the claim might be covered it would be excluded because proceedings had already been issued and the policy only covered proceedings agreed to or authorised by DAS. Mr N complained again and there followed a debate about whether he had had continuous legal expenses cover for the period in which the legal claim arose. This was resolved and in December 2011 DAS sent a Quality Management Report (QMR) to Mr N s own solicitors for them to complete. The QMR was returned but DAS requested further information. In March 2012 DAS informed Mr N s solicitors that the only element of the claim it would consider was in respect of damages but that it did not consider that there were sufficient prospects of success a pre-requisite of cover under the policy. Mr N s solicitors obtained counsel s opinion his advice was that this was a consumer dispute which was covered by the policy and he assessed the prospects of success as better than 55%. As a result of this, DAS confirmed in April 2012 that it accepted the claim and was prepared to appoint Mr N s solicitors to act. It sent them Terms of Appointment to be signed, so that indemnity under the policy could commence. However, the terms of appointment required Mr N s solicitors (and counsel) to act under a CFA, which they refused to do. Mr N wants his solicitors to be able to act on its standard terms and they have made the following submissions on his behalf: Regulation 6 of the EU Council Directive 2009/138/EC and the decision in Brown-Quinn v Equity Syndicate Management Ltd [2011] means that DAS cannot impose unreasonable obligations on them that effectively deprive Mr N of his freedom to choose his own lawyer. The terms of appointment conflict with the ordinary meaning of the terms of the policy which provide cover against all reasonable and necessary legal costs charged by the appointed representative. If they act under a CFA, then no costs would be payable by the business The policy does not contain any requirement that the appointed representative had to accept the case on a CFA. This case is not appropriate for a CFA. Mr N wants confirmation that his chosen solicitors will be appointed to act at their usual rates. 4
Our adjudicator considered the complaint and concluded that it should succeed. She recommended that the business should appoint Mr N s solicitors on an hourly rate basis akin to the relevant county court rate, and backdate cover to the date when the original terms of appointment were sent. DAS did not agree with the adjudicator s conclusion. Its submissions include the following: Its CFA, unlike an ordinary CFA, would also cover disbursements properly incurred by the appointed representative. The CFA terms are its standard terms, and are non-negotiable and appeared to be technically suitable for the contract dispute. It does not consider it reasonable for it to have to pay other solicitors on its panel to review the case and advise whether they would accept it on a CFA basis as suggested by the adjudicator. It has already provided this from one solicitor and this should be sufficient, it is now for Mr N to provide evidence why the case is not suitable for a CFA. In any event, clause 2(f) of the policy provides that the appointed representative would be appointed on the standard Terms of Appointment, i.e. on the same terms as those for their panel solicitors. Since April 2010 all its panel solicitors have been appointed under a CFA. However, the policy still provided a benefit as far as legal costs were concerned because, having accepted the claim, the insurer would be responsible for paying the opponent s costs if Mr N lost the case and was ordered to pay them. Under a CFA, a greater proportion of the limit of indemnity would be available to meet such a liability. If the solicitors were not willing to agree to the CFA, the claim could be referred to panel solicitors. In addition, it highlights that in earlier decisions, ombudsmen have upheld DAS inclusion of CFAs in the terms of appointment. Since the adjudicator issued her assessment, Mr N has also asked for reimbursement of his legal costs in establishing his solicitor s appointment on normal reasonable terms (which they put at approximately 1,500 plus VAT, although I am not sure if this includes counsel s fees). my provisional findings I have considered all the evidence and arguments from the outset, in order to decide what is fair and reasonable in the circumstances of this complaint. We have previously taken the view that an insurer would not normally be obliged to pay more than its panel solicitors would charge, in order to fulfil its obligations under legal expense insurance policies such as Mr N s; and that it could refuse to indemnify the policyholder s own choice of solicitor, if they do not agree to those terms, including a CFA. However, I intend to depart from our previous approach. In reaching this conclusion I have had regard to all the circumstances of this case as well as the recent decisions of the High Court and the Court of Appeal in the case of Brown-Quinn & Others v- (1) Equity Syndicate Management LTD & (2) Motorplus LTD [2011]. Mr N was already a co-claimant in court proceedings when the claim was submitted. I therefore consider that DAS acted reasonably when it offered Mr N the freedom to choose the solicitor appointed under the policy. Gresham Insurance s primary obligation under the policy is to provide indemnity for: all reasonable and necessary legal costs charged by the appointed representative and agreed by us. The policy terms which govern choice of solicitor and standard terms of appointment are ancillary to that. I tend to agree with the High Court in the Brown-Quinn case that it would not be fair and 5
reasonable to deny indemnity to a policyholder entirely, simply because their solicitor and insurer cannot agree terms. The Court of Appeal determined that the defendant insurers were obliged to pay the appropriate nonpanel rates to their insureds but no more. However, the Court of Appeal did not determine that the amount offered by an insurer would always be acceptable and it was not considering the issue of a CFA. The judge commented that a legal expenses insurer has the right to restrict what it would pay to a non-panel solicitor, except if the remuneration it is prepared to offer is so low as to render the insured s freedom of choice 1 meaningless: any alleged insufficiency of remuneration has to be such as to render the insured's freedom of choice meaningless before any provision as to reimbursement of a solicitor's costs and expenses in the contract can be struck down. The Court of Appeal went on to decide that there was no evidence that other solicitors were not prepared to conduct the cases for the non-panel rates offered and so it felt unable to say in that case that the insurers could not restrict indemnity to the non-panel rate. In the present case which I am considering, DAS says that all its panel solicitors act on a CFA basis, therefore Mr N has the freedom to choose any of those solicitors. I do not find it particularly surprising that more than one panel solicitor would have taken on the case for a CFA, given that the business will have similar arrangements with all firms on its panel whereby they recoup losses they make on some cases with gains they make on others. However, the Court of Appeal did not decide that a choice of panel solicitors would be sufficient not to render an insured s freedom of choice meaningless. I am not satisfied that the choice of panel solicitors is sufficient to not render Mr N s choice meaningless. I am required to determine complaints by reference to what is, in my opinion, fair and reasonable in all the circumstances, having regard to the law and good industry practice. In my opinion, the imposition of such a limit is not fair or reasonable. DAS insistence on a CFA which means that it is not indemnifying any of Mr N own solicitor s costs at all is effectively limiting the cover to paying disbursements and third party costs only (ie any order made by the court that Mr N has to pay his opponent s costs). Although the policy purports to provide, I understand, 50,000 limit of indemnity for each claim, it seems to me that DAS is seeking to impose different terms, which only became apparent when Mr N sought to exercise his right to use his own solicitor. DAS accepted the appointment of Mr N s own solicitor in principle. However, it seems to me that insisting on them entering into a CFA, effectively made him choose between forgoing the cover he thought he had or accepting the panel solicitor. I cannot accept that it was either fair or reasonable for DAS to impose a CFA as opposed to the limit of indemnity of 50,000 Mr N thought he had available, and only when he sought to exercise the right to use his own solicitor. I do not consider that the business should fund Mr N solicitors regardless of cost - it is still for them to demonstrate that their costs are reasonable and necessary, as required by the policy. I also accept that it is not unreasonable to want to have terms of appointment agreed with the solicitor. 1 EU Directive 87/344/EEC, implemented in the UK by the Insurance Companies (Legal Expenses Insurance) Regulations 1990 (as amended), which provides a general and obligatory freedom for the insured to choose a lawyer where any legal inquiry or proceedings have been issued. 6
So, although I have decided that Mr N s indemnity under the policy should not be limited in the way proposed by Gresham Insurance, I am unable to decide whether his solicitor s fees are reasonable. This is not an area which is appropriate for this Service to determine. Our adjudicator recommended that the costs should be based on the appropriate court guideline rate. However, I cannot endorse that either, although it would seem to me to be a reasonable reference point. In my opinion, the best evidence of the reasonable and necessary legal costs incurred would be by way of court assessment.such an assessment would determine reasonable and proportionate costs, in terms of hourly rates for the relevant fee earners and time spent. I agree with the adjudicator, however that indemnity should be backdated to the date that the claim should have been accepted which I understand was in November 2011 - as all that followed seems to me to have been secondary to establishing that Mr N had a valid claim under the policy. As to the costs of establishing their appointment I agree that the counsel s fee should be reimbursed, and that Mr N s solicitor s costs of completing the QMR and subsequent correspondence should also be reimbursed, with interest on any part of those costs that have already been paid. However, Mr N did not require professional representation to bring his complaint to us and so I do not consider that any costs incurred in his solicitors dealing with the complaint should be reimbursed. I understand that since the adjudicator issued her assessment. Mr N legal claim has been struck out and he is currently considering whether to appeal. For the avoidance of doubt this decision does not determine any liability on the part of the business to indemnify in respect of the appeal, which will have to be assessed for prospects separately. my provisional decision For the reasons set out above, I am minded to uphold this complaint and (subject to the remaining terms and conditions of the policy) require Gresham Insurance to: - indemnify Mr N s solicitors costs from the date that it was in a position to confirm cover, such costs to be assessed if not agreed; -reimburse counsel s fees; and - pay interest at 8% simple per annum on any part of these costs that Mr N has already paid, from the date of payment to the date of reimbursement. Harriet McCarthy ombudsman 7