It is one up to the legal expenses insurers this week in the ongoing ding-dong over the extent of the insured person’s right to choose a lawyer.

The European Court of Justice delivered its judgment in the Stark case, which the insurers won.

The International Association of Legal Protection Insurance (RIAD) welcomed the decision, which they said 'clearly shows that the insured’s interests, consumer protection and cost management measures of insurers can be attuned'.

I wrote about this case when it was first referred to the Court last year.

The facts are that Mr Stark, who had legal expenses insurance cover, lived in Landeck, Austria, some 600km from Vienna.

On 24 March 2006, he, together with four others, brought an action before the Labour and Social Security Court in Vienna against his former employer.

In order to ensure their representation before that court, Mr Stark and the other applicants freely instructed – not unreasonably - a lawyer with chambers in Landeck.

His insurance policy had a ‘local lawyer clause’.

Such clauses allow insurers to restrict the insured person’s freedom of choice to lawyers that are based in the district of the competent court in first instance – in this case, Vienna.

So, Mr Stark should have gone to a lawyer 600km from his home, to save on reimbursement costs.

That is because in Austrian civil procedure the court fixes the amount of the costs of legal representation on the basis of the federal law on lawyers’ tariffs.

That law provides for higher tariffs if lawyers represent their clients outside the place where they are based.

So Mr Stark’s lawyer from Landeck could charge a higher fee - in fact, the double flat rate rather than the single flat rate - to represent his client in Vienna, and the legal expenses insurer (it was D.A.S.) did not want to pay.

They said that they would be limiting their cover to the costs normally invoiced by a lawyer established in Vienna.

It turned out that the difference in fee was an amount of €3,000 – a not gigantic sum of money in absolute terms, but maybe it was so to Mr Stark.

As a result, the Innsbruck court of first instance questioned whether ‘local lawyer clauses’ in legal expenses insurance policies are permitted.

They come about through article 158k of the Austrian Code of Insurance Contracts which, freely translated, states: ‘2) The insurance contract may provide for a clause according to which the insured shall solely choose persons authorised to represent clients on a professional basis that are based in the city of the court or administrative body that is competent for the proceeding in first instance.’

The point arises for decision because article 4 of the directive on legal expenses insurance (87/344) states that ‘any contract of legal expenses insurance shall expressly recognise that: (a) where recourse is had to a lawyer or other person appropriately qualified according to national law in order to defend, represent or serve the interests of the insured person in any inquiry or proceedings, that insured person shall be free to choose such lawyer or other person’.

The European Court of Justice was therefore asked whether the Austrian law is in compliance with article 4 of the directive.

The Court held that it was in compliance.

In particular, they said: '… freedom of choice, within the terms of Article 4(1) of Directive 87/344, does not mean that Member States are obliged to require insurers, in all circumstances, to cover in full the costs incurred in connection with the defence of an insured person, irrespective of the place where the person professionally entitled to represent that person is established in relation to the court or administrative authority with jurisdiction to deal with a dispute, on condition that that freedom is not rendered meaningless.

'That would be the case if the restriction imposed on the payment of those costs were to render de facto impossible a reasonable choice of representative by the insured person.

'In any event, it is for the national courts, if an action is brought before them in this regard, to determine whether or not there is any such restriction'.

They went on to say: 'Mr Stark was able to choose his lawyer without opposition on the part of his insurer.

Furthermore, Mr Stark would be deemed to bear only the costs relating to the distance between the chambers of his lawyer and the place of the court having jurisdiction, which, subject to the assessment to be carried out in this respect by the referring court, does not appear, as a general rule, to be such as to hinder the freedom to choose his lawyer.'

In other words, provided the shortfall does not hinder the freedom to choose a lawyer – is €3,000 a hindrance? – legal expense insurers can impose such conditions.

I predict the ding-dong will continue.