11 July 2012Print This Post

Ombudsman: legal expenses insurance is a good thing – if only consumers understood it

Sampson: many people don’t know what their insurer will pay for

Legal expenses insurance (LEI) is a good thing in the post-LASPO world but consumers have little understanding of it, the Legal Ombudsman (LeO) warned today.

In LeO’s 2011/12 annual report – a full account of which can be found here on Legal Futures – Chief Legal Ombudsman Adam Sampson also referred to cases in which customers had brought their complaint to his organisation after losing money on unrealistic ‘no win, no fee’ promises and dubious fixed-fee services.

Mr Sampson said before-the-event LEI is expected to fill the funding gaps left by the Legal Aid, Sentencing and Punishment of Offenders Act 2012. However, the results of a YouGov survey commissioned by LeO to find out how much people knew about LEI are “concerning”.

At least 40% of those surveyed had some type of legal insurance cover. However, 74% of them were unsure or didn’t know what financial cover their policy provided and 89% did not know which legal services were excluded under the terms and conditions.

He wrote: “So, many people don’t know what their insurer will pay for: they may not even realise that their lawyer will be reporting to someone else apart from them.

“This degree of confusion notwithstanding, legal expenses insurance is beneficial for the simple reason that it’ll continue to allow people to take legal action when they would not otherwise have been able to afford it. But it can limit choice when the relationship goes wrong and the lawyer prejudges the view the insurer will take.”

He cited the case of a client who used LEI to obtain an injunction against his neighbour for trespass. The panel firm said he needed a surveyor’s report to prove where the boundary separating his land from his neighbours’ actually lay, but decided not to obtain such a report on the assumption that the insurers would not pay for it. This meant the case was not strong enough and so the firm closed its file.

The client then paid for a surveyor himself and as a result of his findings the firm agreed to take on his case again. The client complained, and LeO found that the firm should not have assumed that the insurance provider would not pay for the report. The firm was ordered to apologise and pay £200 in compensation for the inconvenience he had suffered; the client took his business to another solicitor.

“This case highlights the potential for both lawyers and consumers to become confused over what legal expenses insurance actually covers. It also shows how aspects of a legal service may be circumscribed, meaning not all costs are necessarily covered by a legal insurance policy.

“It is possible, if not likely, that the reliance on legal expenses insurance may further confuse the consumer and further confuse their means to redress.

“In this case the fault lay with the lawyer but it will not always be clear to the consumer who it was who decided to discontinue their case that they feel, rightly or wrongly, was a foregone conclusion.”

LeO highlighted the case of Eileen Dunn, from Leicester, was told to pay a firm £15,000 for a personal injury case that never made it to court, despite instructing them on a supposed ‘no win, no fee’ basis. LeO made the firm waive its charges.

Ms Dunn said: “The firm led me along in the belief I had a legitimate case, changed their minds at the last moment saying it wouldn’t stand up in court, and then tried to bully me into paying £15,000. If they had said from the start I didn’t have a case I wouldn’t have pursued it.”

Other case studies showed instances where what appeared to be transparent fixed pricing failed to give real clarity about the true cost to the consumer, which he ascribed in part to the economic pressures lawyers are facing.

Mr Sampson said: “The arrival of new commercial products is generally to be celebrated as it makes legal services more affordable for most of us.

“However, we’ve seen the damage done to the reputation of the financial sector by the mis-selling of complicated products. The payment protection insurance scandal has cost the banking industry billions of pounds. It would be disastrous if the legal sector exposed itself to a similar risk.”

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