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ombudsman news

issue 89

October/November 2010

disputes involving legal expenses insurance

Legal expenses insurance is most commonly obtained as a low-cost or free addition to a household or car insurance policy but it is also available as a stand-alone policy. Typically, it provides cover for the legal costs that a policyholder might incur in pursuing a dispute relating to personal injury, contracts for goods or services, property or employment. These costs will generally include solicitors' fees, court fees, the fees of any expert witnesses and any legal costs awarded to the other party in the dispute.

Legal expenses policies generally stipulate that any proposed legal action for which a policyholder makes a claim must have a reasonable prospect of success. The policyholder is also usually required to accept any reasonable offer of settlement. And there will be an overall limit to the amount that can be claimed.

When a policyholder puts in a claim under this type of policy, the insurer will assess the proposed legal action and may refer details of the claim to one of the solicitors on its panel of independent legal advisers. If the insurer concludes that the proposed action has little prospect of success, it may simply notify the policyholder that it is not prepared to accept the claim.

The complaints referred to us about legal expenses insurance are relatively small in number and tend to arise most frequently from an insurer's decision not to meet the expenses of proposed legal action. We have featured cases involving legal expenses claims before in Ombudsman news, most recently in issue 47 (July 2005), and our approach remains unchanged.

Understandably, the consumers who refer these complaints to us are usually focused primarily on the underlying legal dispute for which they had made their claim. So we often have to explain that it is not for us to determine the outcome of that underlying dispute. Rather, our role is to decide whether their insurer handled their claim correctly, in accordance with the policy terms and conditions.

88/01
consumer claims for legal expenses to bring unfair dismissal and racial discrimination case

Mr J decided to bring a case against his former employer for unfair dismissal and racial discrimination. He had been dismissed from his job as a school caretaker after being accused of serious misconduct.

As he had legal expenses cover as part of his household insurance policy, Mr J put in a claim for the cost of his proposed action. He was very disappointed when his insurer refused to meet the claim. The insurer cited the policy terms which said that cover was only available if 'it is more likely than not that you will recover damages or will make a successful defence.'

Mr J referred the matter to us after he had complained unsuccessfully to his insurer. He said he had expected 'at the very least' to be able to discuss the case with a solicitor before any decision was reached about paying the claim. He was unhappy that he had not been given that opportunity and he said the insurer had turned down his claim 'without bothering to look at it properly.'

complaint not upheld
We noted that Mr J's policy was clearly written and gave a straightforward explanation of the types of claim that were covered - and of how claims were assessed.

The insurer sent us evidence of the steps it had taken to assess Mr J's claim. After looking at the details of the proposed action, it had sought advice from one of its panel of independent solicitors. The solicitor had reviewed all the evidence that Mr J provided as part of his claim and had concluded that the proposed action 'lacked any reasonable prospect of success.'

There was clear evidence that Mr J's employer had followed all the necessary disciplinary procedures. And before his employer eventually dismissed him, Mr J was given ample opportunity to appeal. The alleged misconduct was of a very serious nature and Mr J had not been able to provide any convincing arguments to refute the allegations - either during the appeal process or subsequently.

Mr J had assumed that after putting in a claim he would have a personal interview with a solicitor, as part of the insurer's claims process. We pointed out to him that there was nothing in the policy terms and conditions to suggest this would happen. We told him there was no evidence that the insurer had failed to give his claim proper consideration. And we saw no reason to question the solicitor's opinion, especially as Mr J had not provided an alternative legal opinion to counter it. We were therefore unable to uphold his complaint.

89/02
consumer claims for cost of legal action against the solicitor who acted for him in his divorce

Mr B was very unhappy with the outcome of his divorce settlement. He thought his former wife had received considerably more than she was legally entitled to get. He therefore decided to sue the solicitor who had acted for him.

As Mr B had legal expenses cover, he put in a claim to his insurer, saying he wished to bring an action against the solicitor for professional negligence.

The insurer turned down the claim, on the grounds that the proposed action had little prospect of success. Mr B then complained to us that he had been 'unfairly denied' funding he was 'entitled to' under his policy.

complaint not upheld
We noted that the policy terms and conditions stated clearly that the insurer would not meet a claim if it thought it unlikely that the policyholder's proposed legal action would succeed.

The insurer sent us evidence that it had referred Mr B's claim to one of its panel of solicitors. The solicitor had carefully reviewed the divorce settlement negotiated between the solicitors acting for Mr B and his now ex-wife. The insurer's solicitor had noted, among other things, that the divorce settlement was disproportionately favourable to Mr B, in view of the assets held jointly by the couple before their divorce.

The insurer's solicitor also noted that counsel's opinion had been sought during the negotiations over the settlement. This had suggested that if the proposed settlement went to court, there was a risk that a 50/50 split of the assets would be imposed.

The insurer's solicitor concluded that the legal action for which Mr B was now claiming expenses stood no reasonable prospect of success.

We did not uphold the complaint. We told Mr B we were satisfied that the insurer had not treated him unfairly. Before reaching a conclusion on his claim, it had arranged for his proposed legal action to be given careful and appropriate consideration.

The insurer told Mr B that if he was able to obtain a clear and well-reasoned independent legal opinion that supported his proposed action, it would reconsider his claim. It would also reimburse him for reasonable costs in obtaining that opinion. We told Mr B this was a fair and reasonable offer.

89/03
consumer claims for legal expenses to recover costs after a car accident

Ms K suffered minor injuries and her car was damaged when she was involved in an accident with another car. The driver of the other vehicle offered to pay £2,500 towards the costs she incurred as a result of the accident.

These costs totalled over £10,000 and Ms K thought the driver of the other vehicle ought to pay half that amount. She thought he was at least 50% to blame, so she decided to pursue legal action against him.

She put in a claim under the 'legal protection' section of her motor policy for the cost of that legal action. In support of her claim, Ms K provided a statement from her solicitor, saying there was a reasonable chance of establishing that the other driver was 50% responsible for the accident.

The insurer rejected the claim. It told Ms K it would only cover her legal expenses if it was more likely than not that all the costs would be recovered from the other driver. Ms K complained that this was unfair, but the insurer refused to reconsider the matter. She then brought her complaint to us.

complaint upheld
We looked at the wording of the policy. This said that claims for legal expenses would be met if 'there are reasonable prospects of recovery from the third party.'

We did not think this was as clear as it should have been. And it certainly did not justify the insurer's view that it would only provide funding if there were reasonable prospects of recovering all the costs from the third party.

Proposed legal action is generally considered to have a 'reasonable' prospect of success where it is thought more likely than not that it will succeed.

In this case, Ms K's claim was for 50% of her losses and her solicitor clearly considered that she was more likely than not to recover that amount. We therefore told the insurer to meet the claim, subject to the other terms of the policy.

89/04
claim made under legal expenses policy for costs of seeking injunction against a neighbour

Mr and Mrs G were trying to sell their house and were concerned that their neighbour, Mrs D, was preventing potential buyers from visiting the property.

Mrs D had a right of way through the couple's garden in order to get access to her garage. The couple said she behaved aggressively towards anyone visiting their house for a viewing. She claimed that these visitors were blocking her right of way and she prevented them parking near the couple's house.

Eventually, Mr and Mrs G decided they would have to take legal action against Mrs D and they put in a claim to their insurer for legal expenses.

The insurer referred the claim to one of the solicitors on its panel. He concluded that no 'damage, trespass, nuisance or interference with rights' had taken place and that Mr and Mrs G were 'merely seeking a declaration of their rights.' As this was not covered by the policy, the insurer rejected the claim.

Mr and Mrs G decided to proceed at their own expense, and in due course their solicitor obtained an injunction, preventing Mrs D from interfering with the sale of Mr and Mrs G's property, including stopping potential buyers from parking on their land. The judge also instructed Mrs D to pay half Mr and Mrs G's legal costs.

The couple then contacted their insurer again. They pointed out that, despite the opinion of the insurer's solicitor, they had been successful in bringing a legal action arising from interference with their rights. They therefore thought the insurer should reimburse them for their unrecovered legal costs.

The insurer refused to pay anything. It said it only funded cases that arose from 'an insured event, as specified in the policy.' Mr and Mrs G then referred their complaint to us.

complaint upheld
We looked at the wording of Mr and Mrs G's policy. This said the insurer would cover the costs of making a claim in a 'dispute arising out of your ownership or occupation of your main home.'

The legal dispute which formed the subject of this insurance claim was essentially about Mr and Mrs G's right to park on their own land - and the extent to which this interfered, if at all, with Mrs D's right of way.

We noted that the court judgment appeared to accept that the acts of Mr and Mrs G's neighbour constituted 'damage, trespass, nuisance or interference with rights'. So we were satisfied that this was a dispute arising from the couple's 'ownership and/or occupation' of their home. It was therefore covered under the policy.

We upheld the complaint and told the insurer to pay Mr and Mrs G an amount equal to the unrecovered costs they incurred in suing Mrs D.

image of ombudsman news

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.