Increasing numbers of policyholders have the benefit of legal expenses cover as part of their insurance policy, known as "BTE Insurance Cover (or "Before the Event"). Around half of the UK adult population has the potential to take advantage of an existing insurance policy to pay for their legal expenses if they ever get involved in a legal dispute. Since 1990, when the UK implemented an EC Directive that had been passed 3 years earlier, any policyholder having the benefit of Before the Event insurance cover is free to choose their own lawyer under the terms of their insurance cover, if that lawyer is to defend or represent that person's interest in any "inquiry or proceedings". However, policyholders having the benefit of a BTE insurance cover are frequently instructed by their insurers that, if they wish to be covered for their legal expenses in a dispute, they must instruct one of the firms on the insurer's preferred panel to represent them in the dispute. If the policyholder wishes to instruct an alternative firm of solicitors of his or her own choice, they may find that the insurer will then withdraw cover for legal costs. This often places the policy holder in a quandary. Either they continue to instruct their preferred firm at the risk of having to pay privately for that representation, or they agree to be represented by the insurer's chosen panel firm of solicitors, allowing the insurer to pick up the tab but at the risk of being represented by a firm;
- in an entirely different part of the Country,
- with fee earners that they will never meet, or
- who may be significantly more junior and thus less experienced than the chosen fee earners at their preferred firm.
This situation has come about due to the interpretation applied to the term "inquiry or proceedings" by insurers generally. It has been standard practice for insurers to include within their BTE policies a term along the lines that the policyholder is obliged to allow the insurer to instruct a panel solicitor on their behalf, and their right to choose their own lawyer under the BTE policy only applies once legal proceedings have begun e.g once a Claim Form has been issued. The standard insurers' interpretation of the UK regulations has remained largely unchallenged for a number of years. However, following the European case of Eschig in 2009, there are signs that the position may be about to change. As a result of that case, in July 2010 the Financial Services Authority (the regulator of insurance companies) took the extremely unusual step of writing to all insurers to remind them that any insurance contract which sought to qualify in any way the right of the policyholder to choose a lawyer, would not be compliant with the Law. Further, the FSA noted that a policyholder's freedom of choice arose before the commencement of legal proceedings, and not after. A formal reaction to the FSA letter by insurers has yet to be publicised, so the position at the moment remains unclear. It is possible though that insurers will soon no longer be able to insist on their own panel firm representing a policyholder as a condition of the insurance contract. All policyholders should be aware therefore that, if they have the benefit of a Before the Event insurance policy, and the insurer tells them that they cannot instruct their preferred firm under the terms of that policy, the policyholder may be able to take issue with the insurers' stance.
