Question Mark and Many Arrows - Choices

Businesses facing a regulatory investigation need access to specialist lawyers right away. In a crisis, the regulators will begin investigating at once so immediate legal assistance is vital to protect the interests of a business and its senior management team.

Use of panel lawyers

Most businesses have employer’s liability (EL) and public liability (PL) insurance and many nowadays also have directors and officers insurance (D&O) to provide cover when there is a problem.

Historically, insurers have often insisted on using a predetermined panel of lawyers to deal with any claims. Panel lawyers usually have an agreement with the insurance company to provide legal representation for insured businesses at an agreed and often reduced fee in return for the volume of work they can expect to receive as a result. This can cause an obvious conflict when the insured business wishes to use its own lawyers and the insurer insists that they use one from the “panel”. 

The fundamental question is whether insurers can insist on a panel lawyer? Recent case law would suggest that the answer is no.

The legal bit

Regulation 6 of the Insurance Companies (Legal Expenses Insurance) Regulations 1990 states; “where under a legal expenses insurance contract recourse is had to a lawyer…to defend, represent or serve the interests of the insured in any enquiry or proceedings, the insured shall be free to choose that lawyer… the above right shall be expressly recognised in that policy”. (the Regulation).

A recent case

The question of an insured’s freedom to choose its own lawyer was addressed by the European Courts of Justice in a recent case[1] which case arose out of an unfair dismissal claim brought by Mr Sneller. A policy of insurance was in place to cover his legal expenses but the insurer, DAS, argued that in the circumstances of Mr Sneller’s case a lawyer was not needed to pursue his claim.

The Court disagreed with DAS and found in favour of Mr Sneller. The judgment was significant in the context of an insured’s right to choose its lawyer. The Court said, “the insured person’s right to choose his lawyer cannot be restricted to situations in which the insurer decides that recourse should be had to an external lawyer… in that regard it must be borne in mind that [the Regulation]… which concerns the rights freely to choose a representative, is a general application and is obligatory in nature”.

Freedom of choice

Although the facts of this case dealt with the right to have a lawyer in the first place, the principles applied in the judgment of the Court have real meaning in the field of EL, PL and D&O insurance and freedom of choice. The judgment is also consistent with the approach taken by the UK Court of Appeal in the another case[2] in which the Court said that a refusal by the insurer to accept a non-panel lawyer because its rates exceeded those of panel lawyers, breached the Regulations. Although the Court did say that the insurance company was only required to reimburse the insured at panel rates, this should not be a barrier to freedom of choice over the lawyer. It would be open to the chosen lawyers to negotiate rates in line with those of panel firms or for the insured to simply pick up the shortfall. Either way, it is a small price to pay compared with the benefit of having specialising trusted lawyers fighting your corner.

Businesses need to understand that they have this freedom of choice, even in the face of hostile insurers. The sooner specialist lawyers are involved, the sooner they can support the business and start fighting their corner with the regulators…funded by the insurers!

For more information, email blogs@gateleyuk.com.

[1]           Sneller v DAS C-442/12B

[2]           Brown-Quinn v Equity Syndicate Management Limited [2012] EWCA Civ 1633


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.