BTE, freedom of choice and panel rates

On 12th December 2012, the Court of Appeal handed down judgment in the case of Christine Brown-Quinn v Equity Syndicate Management [2012] EWCA 1633, overturning the decision of Burton J, at first instance given a year ago.

The case is instructive reading, as it represents a major defeat for the practices of many BTE insurers, who seek to restrict their policy holder’s freedom to choose a lawyer. Although the case confirms that a BTE insurer, can limit the costs they pay to a non-panel firm whether by prescribed hourly rates or otherwise, by way of contractual stipulations in the policy itself, this latter point could be regarded as trite in any event.

The Insurance Companies (Legal Expense Insurance) Regulations 1990 state in regulation 6:

(1) Where under a legal expenses insurance contract recourse is had to a lawyer (or other person having such qualification as may be necessary) to defend, represent or serve the interests of the insured in any inquiry or proceedings, the insured shall be free to choose that lawyer (or other person).

(2) The insured shall also be free to choose a lawyer (or other person having such qualifications as may be necessary) to serve his interests whenever a conflict of interests arises.

(3) The above rights shall be expressly recognised in the policy.

As is well known, BTE insurers maintain panels of solicitors, many of whom are instructed on discounted rates, or partial CFA arrangements, and who may pay referral fees to the BTE insurer for receipt of instructions.

Disputes often arise between a policy holder and a BTE insurer, when they wish to to instruct a non panel firm. Relying on decisions of the ombudsman, BTE insurers may argue that until proceedings are issued, there is no scope for the application of the principle of freedom of choice.

The Court of Appeal does not seem to have been troubled by this argument, and indeed dealt with the notion that there could be any contractual restriction on the freedom of choice, in round terms:

8. The facts of this case have revealed that the insurers exhibit an insouciance to theirobligations under the Directive and the Regulations which leaves one quite breathless. The Regulations (and the Directive) make it entirely clear that the insured’s freedom to have the lawyer of his choice is to be expressly stated in the contract made with the insured. What the contracts in the present case provide in General Condition 2.3 is almost the opposite:- “We may choose not to accept the choice of representative” to which is then added “but only in exceptional circumstances” which are left completely undefined.

9. To make matters worse General Condition 5 provides that if the insured’s appointed representative refuses to continue acting or is dismissed. “the cover we provide will end at once, unless we agree to appoint another appointed representative.” This provision was highly relevant to the cases of Ms Brown-Quinn and Ms Baxter who wanted to continue to instruct the same person after that person had left the firm whom they originally instructed. That was an entirely reasonable wish on their part and yet the insurers in pre-trial correspondence relied on this clause, in clear breach of the Regulations, to argue that they would not pay any of Webster Dixon’s fees, thus denying the insureds the freedom of choice the existence of which they ought to have made clear in the contract.

There seems little scope left for the argument, that until there are “proceedings”, the BTE insurer can restrict the choice of representative: an argument that was in any event logically threadbare, given the need for necessary work and advice a long time prior to any proceedings might be contemplated.

In terms of the hourly rates which were recoverable, the Court of Appeal having accepted the withdrawal of a concession made in the hearing before Burton J, permitted the BTE insurer to argue that their liability to pay, was limited to the rates provided for in the policy:

23. I would hold that, if one has regard solely to the terms of the policy of insurance, the insureds are entitled to recover the non-panel rate set out in the standard terms and conditions and no more; they are, however, entitled to recover at least those rates. If that means that they have to pay more to their chosen solicitors and arrange some other way to make such payment, that will then be their decision.

The decision is significant. The effect of this decision will simply be to accelerate the destruction of the BTE sector as currently constituted, based as it is on a model of restrictively worded policies and receipt of referral fees.

Instead post April 2013, should see the reconstruction of the sector, as there will remain a clear and pressing need for insurance of this type, to cover own costs in terms of disbursements and any potential liability for adverse costs.

This may in turn, lead to a greater use of policies where cover is only supplied for own disbursements and adverse costs, with the policy holder’s own lawyers required to work on a CFA or perhaps a partial CFA, in those cases where there is a potential for costs recovery.

It could also lead the emergence of a new type of policy, under which solicitors firms who undertake to meet a client’s liability for costs post April 2013, will wish in turn to re-insure that liability by purchasing a BTE policy for their firm’s liability.