The High Court has ruled in test proceedings, that two “before-the-event” legal expenses insurers erred when they declined to cover the legal fees of a firm of solicitors that was not on the insurers’ panel.1

The insurers had refused cover on the basis that the rates of the non-panel solicitors exceeded those prescribed in the insurers’ “Terms of Appointment for Non…Panel Solicitors” (£125 per hour, later increased to £139 per hour)(the Non-Panel Rates).

The insurers argued that they were only obliged by the policy to cover such fees as were (in the absence of agreement) assessed as “reasonably incurred, and…reasonable in amount” pursuant to the Civil Procedure Rules paragraph 48.3 (CPR 48.3). The insurers asserted that this assessment should take place by reference to the Non-Panel Rates, effectively arguing that these rates should only be departed from if they could be shown to be unreasonable. The insureds argued that this amounted to a breach of their right under the Insurance Companies (Legal Expenses Insurance) Regulations 1990 to choose a solicitor.

The High Court ruled that any assessment of the “reasonableness” of costs pursuant to the CPR 48.3 would address the Non-Panel Rates as a comparator, but not as a starting point. It listed other factors which should also be taken into account as follows:

  • the availability of any other suitable panel firms;
  • the location of the solicitors chosen by the insured;
  • their specialisation, and in particular any special qualifications for taking on the instant claim;
  • the complexity of the claim;
  • the importance of the claim to the insured;
  • the substance and strength of the proposed defendant to such claim; and
  • the nature of the work required to be carried out.

Mr Justice Burton concluded his judgment by stating that the choice by an insured of his own lawyer did not “of itself constitute the taking of an unreasonable step“.

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1(1) Christine Brown-Quinn (2) Webster Dixon LLP v (1) Equity Syndicate Management Ltd (2) Motorplus Ltd: Webster Dixton LLP v (1) Equity Syndicate Management Ltd (2) ACM ULR Ltd: (1) Janine Baxter (2) Webster Dixon LLP v (1) Equity Syndicate Management (2) Motorplus Ltd [2011] EWHC 2661 (Comm)