Right to choose own lawyer not contravened by insurer restricting cover to panel rates

In its ruling the court held that the policyholder, Ms Brown-Quinn, was only entitled to claim back the rates set out in the terms and conditions of her policy with Equity Syndicate Management Ltd. In doing so, it overturned an earlier High Court judgment that the reasonableness of the legal fees incurred had to be assessed under the Civil Procedure Rules rather than the insurance contract.

However regulatory expert Kevin Bridges of Pinsent Masons, the law firm behind Out-Law.com, said that the case was only a qualified victory for the insurer.

"The decision does not undermine the premise that an insured party has the right to choose its own lawyer - in fact, it reinforces that right," he said. "Although it allows insurers to impose panel rates on non-panel appointments, the judge made it clear that this was subject to the principle that these rates not be so unreasonable that they fetter the insured's overriding right to choose."

"This is fundamental, particularly in regulatory cases, such as health and safety or environmental, where the reputation of the insured is at stake and it is the insured, rather than the insurer, who is ultimately liable for any fines that a court might impose. The need for specialist legal advice in circumstances such as these will be crucial and the Court of Appeal has reinforced the importance of the insured's freedom to choose its own lawyer and criticised any attempt by the insurance industry to fetter that right unreasonably."

BTE insurance is taken out by people wishing to protect themselves against potential litigation costs should they be subject to future legal action. BTE insurers usually retain a 'panel' of solicitors, with whom they have already negotiated fees, to represent their client if that happens. However the Insurance Companies (Legal Expenses Insurance) Regulations give an insured party the express right to choose their own lawyer, in accordance with European law.

Equity's insurance contracts provided that the firm could "choose not to accept the choice of [legal] representative ... in exceptional circumstances". They also limited claims for legal fees to a maximum of £50,000 and required the insured to "take reasonable steps" to keep fees as low as possible. On appeal, the firm sought to argue that if legal fees claimed exceeded the rates charged by their panel then no cover at all would be provided, not even up to the level of their prescribed rates for non-panel firms.

In his ruling, Lord Justice Longmore was highly critical of the insurers' "insouciance to their obligations" under European law.

"It is very difficult to view all this conduct as the conduct of a reasonable and responsible insurer but ... the court's duty is to decide the parties' legal rights, whatever the distaste with which it views the behaviour of the parties in the lead-up to the hearing," he said.

"If one has regard solely to the terms of the policy of insurance, the insureds are entitled to recover the non-panel rate set out in the standard terms and conditions and no more; they are, however, entitled to recover at least those rates. If that means that they have to pay more to their chosen solicitors and arrange some other way to make such payment, that will then be their decision."

Referring to European case law, he said that the fact that "some potential insureds may be unable to pay extra to secure the solicitor of their choice can hardly mean that all insureds can always choose any solicitor however expensive he may be and expect the insurers to pay". The correct test was whether the rate the insurer was willing to pay was "so insufficient as to render the insured's freedom of choice meaningless".

Insurance law expert Nicholas Bradley of Pinsent Masons said that the decision would provide a degree of certainty for insurers and solicitors, as well as having important implications for insured parties.

"A balance needs to be maintained between the insured having freedom to choose the lawyer it wants and the insurer's need to control the costs it pays and price its product," he said. "This decision goes part way to providing certainty, but there will be more issues in this area to be resolved through the courts or otherwise."