Legal expenses insurance - Claimant solicitors acting for insured having policy of legal expenses insurance

Brown-Quinn and another v Equity Syndicate Management Ltd and another company and other cases: Queen's Bench Division, Commercial Court (Mr Justice Burnton): 21 October 2011

The claims were brought by or in respect of three clients of WD, a firm of solicitors, against certain defendant insurance companies (the defendants) who offered 'before-the-event' (BTE) legal expenses insurance. The three clients, CBQ, CJ and JB (the insured), had various employment and discrimination claims against other parties, for which they wished to bring or continue proceedings with the benefit of the BTE insurance, using the services of WD.

The defendants retained a panel of solicitors (panel solicitors), with whom they had negotiated reasonable fees for acting for their insured. CJ instructed a non-panel solicitor, WD, from the outset (outset cases). CBQ and JB were both referred to panel solicitors by the defendants from the outset, but in each case the case-handler left the panel solicitor and joined WD (transfer cases). CBQ and JB wished to follow the case-handler to WD and thus to transfer their instructions to WD.

The position initially taken by the defendants was that, in respect of both the outset and transfer cases, they were entitled to insist that, if the insured did not wish to instruct a panel solicitor, any other solicitor of the insured's choice must not charge more than the rates prescribed by their 'Terms of Appointment for Non...Panel Solicitors' (terms of appointment). The terms of appointment included a provision stating that the insured's entitlement to recover reasonable costs in cases would be subject to an hourly rate of £125 plus VAT, in the case of CJ, and £139 in the case of CBQ and JB (non-panel costs).

The rates which WD sought to charge were much higher than the non-panel costs and the defendants' initial position was that they would not cover the insured in respect of their proposed claims and proceedings if they were to instruct WD, unless WD agreed the non-panel costs. The defendants subsequently rejected that position in relation to the outset cases and contended that, under the BTE insurance policy (the policy), they were obliged to cover only such fees as were, in the absence of agreement, assessed pursuant to an assessment under CPR 48.3.

The policy also contained the following provision: 'If an appointed representative refused to continue acting for you or if you dismiss an appointed representative... the cover we provide will end at once, unless we agree to appoint another appointed representative' (clause 5). In relation to the transfer cases, the defendants' position was that the insured had no entitlement to change solicitors and expect the fees of the new solicitor to be covered. CBQ, JB and WD (the claimants) brought proceedings seeking declaratory relief.

The defendants contended that, for an assessment under CPR 48.3, the starting point should be the rate of £125, or £139, per hour as contained in the non-panel costs. Further, that an assessment of what was reasonable under CPR 48.3 should take place in the light of and by reference to those figures, effectively such that they should only be departed from if such rates could be shown to be unreasonable.

The claimants submitted that that amounted to a fetter upon the right of the client to choose his solicitor, in breach of the Insurance Companies (Legal Expenses Insurance) Regulations 1990, SI 1990/1159 (the regulations). The principal issues that fell to be determined were: (i) in relation to the outset cases, what the correct approach was to an assessment under CPR 48.3 of the reasonableness of the legal costs incurred by the insured who had chosen to instruct WD, a non-panel solicitor, as its authorised representative; (ii) in relation to the transfer cases, whether clause 5 was an enforceable provision and whether the freedom to choose a lawyer was limited to one choice; and (iii) in relation to the transfer cases, whether the defendants' refusal to agree to the choice of WD was unlawful. Consideration was given, inter alia, to CPR Pt 44.

The court ruled: (1) In the absence of agreement between the insurer and a firm which had been accepted de facto as authorised representative, but which would not accept the insurer's non-panel costs, any assessment of costs due pursuant to CPR Pt 48 would address the non-panel costs, not as a starting point, but as a comparator.

It would be necessary and right for the court assessing the costs due pursuant to CPR Pt 48 to take into account the availability of any other suitable firms on lesser rates negotiated with the insurers, but there would also fall to be taken into account: (i) the location of the chosen solicitors; (ii) their specialisation, and in particular, any special qualifications for taking on the instant claim; (iii) the complexity of the claim; (iv) the importance of the claim to the insured; (v) the substance and strength of the proposed defendant to such claim; and (vi) the nature of the work required to be carried out, in particular whether it should sensibly be carried out by senior solicitors or partners, whose rates would inevitably be likely to be greater than the hourly rate provided for in the non-panel costs (see [25] of the judgment).

In the instant case, the correct position was that the insured's entitlement to recover legal costs would fall to be assessed, in the absence of agreement, under CPR 48.3, not as restricted to the provision for £139 or £125 per hour, but taking it into account. The end product was a hybrid, neither an ordinary assessment, only taking account of the factors in CPR Pt 44, nor an assessment specifically adopting the rate of £139 per hour and only moving away from it if persuaded to do so.

The assessment would be one in which the existence of the lower rates as reasonably available would need to be established and, once established, they could and would be used as a comparator by reference to what had in fact happened (see [23], [27] of the judgment).

So far as the outset cases were concerned, the following declaratory relief, inter alia, would be appropriate: WD's fees for acting as appointed representative would be assessed pursuant to CPR Pt 48, in accordance with the terms of the policy, not restricted by the non-panel costs provided for in the terms of appointment, but such that; (a) reference might be made in the course of such assessment to such non-panel costs, if and as appropriate, in the course of the assessment of the reasonableness of WD's fees; and (b) the choice of WD by the insured had not of itself constituted the taking of an unreasonable step by the insured, or a breach of any term of the policy (see [28] of the judgment).

Truscott v Truscott, Wraith v Sheffield Forgemasters Ltd [1998] 1 All ER 82 applied; Erhard Eschig v UNIQA Sachversicherung AG [2009] C-199/08 considered; Pine v DAS Legal Expenses Insurance Co Ltd [2011] All ER (D) 296 (Mar) considered; Stark v DAS Oesterreiche Algemeine Rechtsschutzversicherung AG [2011] C-293/10 considered.

(2) With regard to the transfer cases, the freedom to choose a lawyer was not limited to one choice and clause 5 had been in breach of the regulations. There might be a case in which it might be appropriate for an insurer to argue that there was no breach of the regulations in refusing to accept a substitute appointed representative. The court was however entirely satisfied that to stand on an alleged absolute right to cancel by reference to clause 5 would amount to a breach of the regulations.

There was no basis upon which the regulations could be interpreted to arrive at a conclusion that the freedom of choice of the client was limited to one selection or 'election' at the outset (see [32], [35] of the judgment). Clause 5 would be construed so as to incorporate an implied term that the defendants' agreement to the new appointed representative could not be unreasonably refused (see [35] of the judgment).

(3) On the facts, the continued refusal by the defendants to provide cover in the case of JB, and insofar as it arose in the case of CBQ, had been unreasonable (see [35] of the judgment).

Colin Wynter QC and Thomas Cordrey (instructed by Webster Dixon LLP) for the claimants; Dr Mark Friston (instructed by Horwich Cohen Coghlan) for the defendants.