When an accident at work happens, specialist legal advisers are often instructed straight away to provide assistance in dealing with any investigations undertaken by the police and Health and Safety Executive (HSE). This is usually followed by a notification of the accident to the company's insurers.
However, insurers will often resist attempts by the policyholder to choose its own lawyer and insist that in order for the policyholder to gain the benefit of its legal expenses insurance cover the specialist legal adviser must be replaced by the insurer's own panel lawyers.
This guide explains why insurers cannot dictate who can provide legal representation, and will help policyholders insist to insurers that they are entitled to appoint whomever they wish.
Why is freedom of choice important?
A potential conflict of interest can arise between an insurer and its policyholder in both civil and criminal matters.
In civil matters, the insurer is generally responsible for funding the policyholder's legal fees and any compensation awarded against the insured. There is therefore an obvious commercial incentive for the insurer to concentrate its efforts on reducing compensation to its lowest achievable level while at the same time using the cheapest legal advisers.
In criminal matters, including health and safety prosecutions, the insurer may be responsible for paying the policyholder's legal fees but not for either the prosecution costs awarded by the court or any fine imposed. Therefore there is no commercial incentive for the insurer to encourage spending on specialist lawyers in an effort to reduce the level of fine or damage to the policyholder's reputation. The policyholder's reputation may not be protected by this approach, and in addition it may not be given specialist advice on how to present similar occurrences in the future by a panel lawyer.
The Insurance Companies (Legal Expenses Insurance) Regulations provide a policyholder with the authority to choose who it wishes to instruct as its lawyer under a legal expenses insurance contract or whenever a conflict of interest arises. A conflict of interest will usually arise where the insurer is providing different types of insurance cover, usually both legal expenses and another class of insurance. In such circumstances the Regulations cannot be excluded and a policyholder will be entitled to instruct whomever it wishes as its lawyer.
This is supported in the Solicitors Practice Code: a solicitor's agreement with a third party's restriction on client choice could compromise the solicitor's independence, and may not be in the best interests of a client.
Although the law appears clear-cut, insurers often refuse to accept that the Regulations apply as this would effectively mean that insurers would be prevented from imposing their own panel of lawyers on their policyholders and be unable to control the supply of legal advice and legal costs. Insurers also argue that insurance policies are difficult to understand and that only its panel lawyers are able to understand the issues involved.
On other occasions insurers insist that they will only indemnify the policyholder at a rate equivalent to the panel lawyer's rate or refuse to agree to meet the costs of the chosen solicitor, even though this refusal to provide indemnity for those costs unfairly restricts the policyholder's choice of legal representation. Whilst this approach has been endorsed by the courts, the Court of Appeal has held that if the rate of remuneration is so low as to render the insured's freedom of choice meaningless, the policy term could be considered void.
Although there may be no question that a panel lawyer is capable of representing the insured in many circumstances, the position is clear: where an insurance company provides general insurance and legal expenses insurance, then it must also provide the freedom for the policyholder to choose its own lawyer.
This becomes even more significant where a substantial amount of work has already been undertaken in investigating the background to the matter, or in taking steps to avoid a prosecution, before the insurer considers whether it wishes to engage a panel lawyer's services. There will be no conflict of interest between the policyholder and the insurer if the policyholder's own lawyers are retained. In addition, such independent lawyers will normally have the necessary expertise and knowledge of the issues and the policyholder's business. It would clearly be inappropriate to instruct lawyers from an insurer's own pre-selected panel after investigations had begun, and it would be generally advisable therefore for insurers to agree to the appointment of the policyholder's choice of lawyer.
The Financial Ombudsman Service has confirmed the above points and also recommended that it is appropriate to use the policyholder's own solicitor in any cases where there is a suggestion of a conflict of interest, or in large and complex matters. Therefore, if an insurer insists on a panel lawyer, the policyholder may be able to refer the matter to the Financial Ombudsman Service. Alternatively, policyholders with a large influence over insurers can of course insist on selecting their own legal advisers failing which insurance cover will be bought elsewhere.
The message to policyholders is clear: do not be afraid to exercise your freedom of choice.