Legal Ombudsman: "easy" to see legal expenses insurance becoming compulsory

Sampson: consumer confusion regarding legal insurance

It is “easy” to imagine a world where legal expenses insurance becomes mandatory in the same way that car insurance is, the Chief Legal Ombudsman claimed today.

Adam Sampson said this could be one fall-out from the Legal Aid, Sentencing and Punishment of Offenders Act 2012.

Writing in the Legal Ombudsman’s annual report, he said: “Whereas financially planning for many types of legal scenario was unnecessary in the days of state support, it will become increasingly par for the course.

“One can easily imagine a world in which legal insurance becomes mandatory in the same way car insurance has. We’re not there yet, but increasingly legal insurance is bundled together with contents and car insurance policies, while firms often take out policies on behalf of customers. Insurance could soon be the most sure-fire way of knowing you’ll be able to attain legal representation should the time come.”

He said recent research by YouGov found that around 27% of people felt themselves likely to pay for legal expenses cover, if it were offered at between £50-£100 a year.

“Conditional fee agreements (CFAs) and fixed prices will perhaps be the biggest enabler of premium legal services, however, since they allow customers to budget effectively and offer some protection against unforeseen costs,” Mr Sampson said, pointing to YouGov’s finding that more than 60% of people who had used a lawyer in the last year were either charged a fixed fee or had used a CFA, whereas hourly fees were paid by just 17% of people.

“But, as many of the complaints we receive show, there are also risks. We have published research that highlights consumer confusion regarding legal insurance and what is actually covered under certain policies. And we see many complaints regarding oversights, loopholes and issues with small print in contingency fees. Indeed, the lines are not always clear cut and this leaves room for some lawyers to take advantage.”

Mr Sampson said “further confusion may be just around the corner” with the emergence of damages-based agreements (DBAs).

“We are yet to see what sort of complaints a DBA might give rise to but lawyers have expressed some concerns about litigation cases being funded in this way… since the agreements are fraught with uncertainty about how much may be recoverable compared to the relative amount of time being invested to see a case through. We will monitor this development closely.

“Failing insurance or contingency fees, we could see legal loans and overdrafts become the norm as more financial institutions move into the market. Whether this would be significant for us or the Financial Ombudsman Service (FOS) remains to be seen. We are already working closely with FOS to establish where jurisdiction lies on a number of legal expenses insurance-related complaints.”