A London law firm has won a High Court battle against three legal expenses insurers in a judgment that may have significant ramifications for claimant lawyers acting for clients with legal expenses insurance (LEI) when the firm is not on the insurer’s panel.

Webster Dixon won a ruling that an insurer cannot reject a policyholder’s choice of lawyer purely because the firm charges higher rates than those set out for non-panel firms in the insurer’s terms and conditions.

Mr Justice Burton said insurers’ non-panel rates could serve as a ‘comparator’ in assessing whether a rate was reasonable.

But he said the court should also consider the location of the firm, its specialism, the complexity of the claim and its importance to the claimant, the strength of the arguments in defence and the nature of the work, which might require senior solicitors or partners.

The availability of other firms to do the work at a lower rate should also be taken into account, Burton said.

Webster Dixon’s status as a specialist London firm that was fully qualified to deal with the ‘difficult issues in dispute with substantial defendants’, was likely to mean that the non-panel rates would carry less weight as a comparator, the judge said.

Burton acknowledged the ‘obvious importance’ of insurers’ ‘powerful submissions’ that forcing insurers to pay higher rates to non-panel firms might lead to an increase in premiums or make it ‘uneconomic’ for insurers to offer LEI.

The insurers also argued that claimants with LEI could become ‘a substantial target for predatory solicitors, who will take steps to snap them up, so as to be able to… charge their usual rates, with the confidence that such clients, unlike the majority, will be able to pay’.

Webster Dixon’s joint managing partner Michael Webster said the judgment ‘is of great significance to the industry. It has clearly established that insurers cannot insist on their own non-panel rates to prevent freedom of choice for the consumer; law firms can charge higher non-panel rates provided they are reasonable. Many insurers will be forced to change their terms and conditions of engagement with non-panel firms.’

However, LEI insurer DAS said the judgment would not provide a ‘blank cheque’ to policyholders. Kathryn Mortimer, head of legal services, said: ‘While the circumstances behind this judgment are interesting, I don’t think they are particularly representative. It is worth remembering that the Insurance Companies (Legal Expenses Insurance) Regulations 1990 protect the right of policyholders to choose a lawyer to handle their claim only once proceedings have been issued.

‘The judgment stops considerably short of telling solicitors that they can expect to be paid at their usual rates,’ she added.

Law Society chief executive Desmond Hudson said: ‘Freedom of choice of solicitor under a legal expenses insurance policy should mean just that. The Law Society’s view is that freedom of choice of solicitor should apply from the moment the claim arises.

‘While the judgment does not appear to go this far, it does have potentially important implications for the profession and the public. We are studying the judgment urgently and considering what action, including intervention, the Society might take.’