Legal expenses insurance can be used to both fund and support a professional negligence claim. However, it is certainly not suitable for all claims, as we explain in this practical guide.
What is legal expenses insurance?
Legal expenses insurance (also known as legal protection insurance or professional fee insurance) is a type of insurance cover that may be purchased online or through a broker, either as a stand-alone policy or as an extension to the cover provided under another policy.
It is intended to indemnify a policyholder against the legal costs and/or expenses that they incur and/or the legal costs and expenses that their opponent in litigation incurs and for which the policyholder becomes liable.
What are the different types of legal expenses insurance?
There are essentially two types of cover:
The first is before-the-event (BTE) insurance. This class of policy is taken out before a claim or dispute arises and provides a fixed amount of cover for a policyholder’s own legal costs and, where liable, those of an opponent. It is often combined with other insurance cover, such as with a motor insurance or home insurance policy, but may be underwritten by a different insurance company. As an ‘off the shelf’ product, it is both widely available and easily accessible. Moreover, and because both the level of cover and legal support provided by it is relatively limited, the policy premiums tend to be extremely modest and usually paid in full in advance. Cover lasts for the duration of the ‘host’ policy or for a fixed period, which in either case is typically 12 months from inception.
The second is after-the-event (ATE) insurance. This class of policy is taken out by the claimant party after a claim or dispute arises. In the event that the policyholder’s claim fails, it provides a fixed amount of cover for (i) the costs incurred by the policyholder’s opponent and for which the policyholder is liable; and (ii) the litigation expenses that the policyholder has incurred but cannot recover from an opponent. It is usually arranged through a specialist insurance broker, with legal advice in support, and as a stand-alone policy. Because the level of cover can run to hundreds of thousands of pounds, premiums are often relatively high and, in some cases, tens of thousands of pounds. The premiums can also be self-insuring, so that they only become payable if the claim is successful. Cover under these policies lasts for the duration of the dispute, rather than for a fixed period of time.
As BTE cover is by far the more common of the two types of legal expenses insurance, it alone will be the focus of this guide and our further comments below.
What claims does BTE legal expenses insurance cover?
It is important to appreciate that legal expenses insurance policies are not subject to minimum terms and do not provide a minimum or universal level of cover. Although the cover provided by two or more policies may be similar or overlap, each policy is likely to be different. In some cases, the level and scope of cover can be significantly different.
Typically, BTE policies will cover:
- Employment disputes;
- Contractual / consumer disputes;
- Personal injury claims;
- Property disputes.
So far as professional negligence claims are concerned, the most relevant of these is likely to be the cover available for contractual disputes. This is because many, but not all, professional negligence claims arise out of a breach of the professional’s retainer.
How do I find out if I have BTE legal expenses insurance?
There is a material distinction between having legal expenses insurance cover and qualifying for protection under the terms and conditions of the policy.
As a starting point, you should examine the schedule and wording to any existing insurance policies that you have, particularly any home insurance or motor insurance policies, to see if legal expenses insurance is included. If you retain a broker to arrange insurance cover for you, it may be advisable to consult with that broker.
Assuming that you have legal expenses insurance, the next step is to consider the terms and limitations of the policy. In relation to the cover available for contractual disputes, this is typically conditional upon:
- The events giving rise to the claim occurring within the period of the policy;
- The prospects of succeeding with the claim being at least 51%;
- The contract subject to the claim being personal in nature and not connected with the policyholder’s profession or business;
Before accepting any claim against the policy and affirming cover, your insurer will undoubtedly wish to satisfy itself that you have complied with the terms and conditions of cover. In doing do, it may require you to independently obtain a legal opinion on the merits of your claim.
How much financial cover is usually available?
This is usually confirmed in the schedule to the relevant insurance policy. Typically, the financial cover is limited to £50,000, although other policies may provide £100,000 of cover as standard. Whether this is sufficient to meet all costs and potential liabilities will depend on the circumstances (and, in particular, the value and complexity) of the case.
Can I choose my own solicitor?
Regulation 6(1) of the Insurance Companies (Legal Expenses Insurance) Regulations 1990 – which implements the European Legal Expenses Insurance Directive 87/344/EEC – provides that where under a legal expenses insurance contract recourse is had to a lawyer in any inquiry or proceedings, the policyholder shall be free to choose that lawyer.
In guidance provided subsequently, the Financial Ombudsman Service has determined that the entitlement of policyholders to choose their own solicitor arises from the point that legal proceedings need to be started – ie when negotiations have failed and it has been decided, by the solicitors involved, that it will be necessary to issue proceedings to progress the legal case. Until that stage, the policyholder must use the legal adviser chosen by the insurer.
As a high proportion of professional negligence claims are resolved without the need to commence legal proceedings, this represents a real and significant limitation on the cover received by policyholders for this category of claims.
Most legal expenses insurance policies will provide that even where the right to choose an alternative legal adviser arises, the insurer will not pay any more to an alternative lawyer than it would have paid to its preferred legal adviser. As the amount that insurers pay to their preferred lawyers is often very low, this can and does give rise to a shortfall, requiring an additional form of funding.
What problems commonly arise with BTE legal expenses insurance cover?
According to the Financial Ombudsman Service, the most common complaints that it receives from policyholders concern:
- The choice of solicitors;
- Disputes about the prospects of success; and
- The poor handling of claims.
However, it reports that other areas of complaint are:
- Insurers deciding not to meet the expenses of proposed legal action;
- Disagreements between legal professionals about the prospect of a successful outcome;
- An insurer’s preferred legal adviser handling a claim badly;
- Insurers rejecting a claim because the policyholder failed to notify it correctly.
So far as the conduct of claims by firms on the insurers’ panel of preferred legal advisers is concerned, there are numerous internet forums commenting on this. While the standard of service will not be poor in every case, frequent criticisms include:
- A high turnover in the number of people dealing with the claim;
- A lack of knowledge and experience on the part of the person conducting the claim;
- The fact that the person conducting the claim is not a qualified solicitor;
- The unreasonable delays that arise in responding to client correspondence;
- A poor standard of written and verbal communication;
- A failure to keep clients informed about developments in their claim;
- The absence of meaningful advice on the conduct of the claim;
- A lack of independence from the insurer, who is treated preferentially as the paymaster and the more important client.
How suitable is BTE legal expenses insurance for professional negligence claims?
Professional negligence claims are not commonplace and so it is not surprising that such claims are not cited alongside the other, more routine, domestic disputes that are given as examples of the contractual claims frequently dealt with under legal expenses insurance policies and which include disputes over:
- The purchase of motor vehicles and caravans;
- Defective kitchen appliances;
- Consumer goods purchased from high street and online retailers;
- Defective workmanship by tradesmen.
Nevertheless, for low value professional negligence claims, particularly those worth up to £10,000 where legal fees cannot generally be recovered even if the claim is successful, legal expenses insurance offers an efficient way of funding a claim and, potentially, a commercially attractive alternative to retaining a solicitor privately.
However, for higher value and more complex claims, where the commercial dynamic is very different and the financial advantages of legal expenses insurance are less pronounced, this form of funding may prove much less attractive when weighed against the alternatives. In such cases, policyholders might well consider that there is much greater value in retaining not just a qualified and experienced solicitor, but one who specialises in professional negligence claims, to advise and represent them.
Where you are minded to exercise your freedom to instruct a solicitor of your choice, either independently from your legal expenses insurance policy or where proceedings need to be started, you may find the following guide of some assistance: How to find the Best Professional Negligence Solicitors
What steps should I take if I do wish to rely on BTE legal expenses insurance?
The first step is to notify the claim to the relevant party. Legal expense insurance policies, like many other policies, set out important requirements for notifying claims. These usually address both the procedure for notifying a claim and the time-frame for doing so.
Some policies will provide a helpline number, sometimes monitored by a third party, which must be used to notify a claim, while others will provide an address to which notice must be given in writing. In either case, the process is usually clearly stated and unambiguous.
However, issues more commonly arise in relation to the deadlines specified for notification. Some policies will require notice to be given ‘as soon as reasonably possible’, which may vary in practice depending on the circumstances of the particular case and be subject to differences of opinion. Alternatively, or additionally, the policy might stipulate a specific period of time within which notice must be given and which may appear more certain. Nevertheless, this too can lead to debate as to which events are to be regarded as triggering the commencement of it.
If you fail to comply with the notification requirements of the relevant policy, insurers may be entitled to reject your claim.
What alternatives are there to legal expenses insurance?
Legal expenses insurance is only one of a variety of different funding options potentially available to claimants in professional negligence claims. More information about these alternatives can be found in the following guidance on our website: Fund a claim
Invariably, each funding option has its own advantages and disadvantages, the relevance of which will depend on the circumstances of the individual and the claim. Therefore, it is advisable to carefully consider each option, as well as the potential to combine options, before making any election.
Further legal assistance
As professional negligence solicitors we act for clients nationwide, to resolve claims against a wide range of professionals.
If you would like to arrange an initial consultation with us, free of charge or commitment, please do not hesitate to contact us on 0800 195 4983 or by email at mail@pnclegal.com.
At PNC Legal there is much more than just the fact that we specialise exclusively in resolving claims for professional negligence that sets us apart from most other solicitors.
