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BTE insurers need only pay non-panel firms “appropriate” rate, says appeal court


Court of Appeal: freedom of choice must not be meaningless

Legal expenses insurers are obliged to pay non-panel law firms an “appropriate” rate – but no more – to ensure policyholders have a meaningful freedom of choice of solicitor, the Court of Appeal ruled yesterday.

However, the important decision on before-the-event (BTE) cover raises questions over how such a rate is established, the lawyer at the centre of the case has said.

In October 2011, the High Court ruled [2] that BTE insurers could not reject a policyholder’s choice of a non-panel solicitor because the lawyer would not accept payment on their rates.

In the case, the prescribed rates were £125 and £139 (depending on the insurer); London firm Webster Dixon put forward hourly rates for a partner or associate (grade A/B) of £274, for a solicitor £210 and for a trainee solicitor £105. Mr Justice Burton decided that insurers’ rates could only be used as a “comparator” when it came to assessing costs.

However, though highly critical of policy wording that appeared to restrict freedom of choice, the Court of Appeal in Brown-Quinn & Anor v Equity Syndicate Management & Anor [2012] EWCA Civ 1633 [3] said insurers can seek to limit the costs for which they are liable to the insured provided that the freedom of choice guaranteed by the underlying European directive is not rendered meaningless.

Lord Justice Longmore said: “A court determining whether the remuneration offered by the insurance policy is so insufficient as to render the insured’s freedom of choice meaningless would have to have evidence of such insufficiency before it could avoid or strike down any provision in an insurance contract relating to the level of costs and expenses payable in respect of a solicitor’s services.”

However, he said that in this case the evidence was “meagre in the extreme”. The judge explained: “We were not directed to any evidence before the judge that solicitors (other than Webster Dixon) were not prepared to conduct the cases of the insureds for the non-panel rates of £125 (rising to £139) per hour.

“In the absence of such evidence it does not seem to me to be possible to say that the insurers cannot rely on their terms of their contract restricting the insured’s indemnity to the non-panel rate. It is not enough merely to point to rates set out in the HM Courts and Tribunals Service publication Guideline Rates for Summary Assessment.”

Anticipating criticism that it might be difficult for an individual insured to obtain such evidence, he said: “The problem is only likely to surface after the individual insured has been to see a solicitor and a discussion about how any potential litigation is to be paid for has already occurred. In such circumstances a solicitor will already be involved and, if the requisite evidence is available, it will not be too difficult for that solicitor to find it.”

As a result, Longmore LJ concluded: “I would therefore set aside the order of the judge and declare that the defendant insurers are obliged to pay the appropriate non-panel rates to their insureds but no more.” He said that if the client was prepared to pay the difference, that was a matter for them.

Webster Dixon partner Michael Webster said he was “extremely disappointed” by the decision and is considering whether to challenge it. He referred, as the court did, to the European Court of Justice’s ruling last year in Stark, which said freedom of choice becomes meaningless “if the restriction imposed on the payment of those costs were to render de facto impossible a reasonable choice of representative”.

Mr Webster said the appeal court ruling did not provide the basis on which this can be established, arguing that there needs to be “an objective method to decide when a rate renders that reasonable choice meaningless”.