Legal expenses insurance policies usually contain a clause that entitles the insurer to withhold or withdraw funding for legal proceedings if there are no "reasonable prospects of success". If the insurer has rejected a claim on this basis, we expect it to have acted on professional advice.
In the first instance, insurers often use members of their own staff – who may or may not be legally qualified – to assess claims and give advice. If these staff consider that a claim should be pursued, the normal practice is for it then to be passed to an outside firm of solicitors on the insurer’s panel.
The panel solicitors ought to have appropriate expertise in the relevant area of law. If – in their independent, expert opinion – the claim does not have a "reasonable prospect" of success, this is usually a sufficient basis for the insurer to refuse funding. Sometimes there will also be an opinion from a barrister. Expert evidence of this nature is highly persuasive and we would only ask an insurer to disregard it if the legal advice was:
We interpret "reasonable prospects" as a 51% or better chance of success. Many consumers rate their chances more favourably than the legal advisers do. However, as they are not lawyers, their views will rarely (if ever) outweigh the experts’ legal opinion.
It is important to remember that a case that is estimated to have only – say – a 35% chance of succeeding, and that the insurer therefore declines to fund, might actually succeed if the consumer is able to pursue it with private funding. When this happens, consumers sometimes argue that the fact they have won "proves" that the insurer made the wrong decision when it refused funding. This argument is flawed, because an insurer can only act on the expert advice it has at the time; no insurer is blessed with the gift of hindsight.
Another issue in legal expenses insurance is whether it is economical for the insurer to fund the proceedings. Many policies – but not all – contain a provision allowing the insurer to refuse funding if the cost of the proceedings is likely to be far greater than any possible recovery. For example, if the amount claimed is only £100 but bringing the case to court is likely to cost more than £1,000, it seems reasonable for the insurer to refuse to pay for the case to be pursued. Indeed, the courts do not encourage litigation that is "disproportionate".
A number of policies give the insurer the right in these circumstances to pay the consumer the sum of money at stake. However, where the policy does not contain this specific provision, the insurer cannot be forced to pay-off the consumer (although it will sometimes offer an ex gratia payment).
Sometimes, a consumer wants to go to court to get an injunction to stop someone doing something, rather than in the hope of getting a money award. In such cases, advice will normally have been given as to the likelihood of the court granting the injunction. Most of these cases concern disputes between neighbours – and the courts are generally reluctant to grant injunctions in these circumstances, partly because they are particularly difficult to enforce. The adviser will usually have assessed the damages that a court is likely to award rather than granting an injunction. We can set that assessment against the estimated costs, in order to decide if the legal action is economically viable.
As with all complaints, it is important that legal expenses complaints are brought against the appropriate firm. Because these policies are often added on to other insurances – such as household contents – the complaint may sometimes be brought, mistakenly, against the household insurer rather than the legal expenses insurer. The "firm", for our purposes, is the insurer which underwrites the legal expenses policy. So even if the underwriters have appointed agents to administer the policy, the complaint must still be set up against the firm which insured the customer in the first instance. This applies even if the agents also underwrite other legal expenses policies and/or reinsure the policy complained about.
For further information about our stance on choice of solicitors in legal expenses cases, see issue 26 of ombudsman news (March 2003).
After Mrs T lost her job, she made a claim under the legal expenses section of her household policy as she wanted to pursue an action for unfair dismissal against her former employer.
The insurer agreed to investigate the claim. It instructed one of its panel solicitors to review the evidence and give an opinion on the merits of Mrs T’s proposed action. The solicitors concluded that the case had reasonable prospects of success, so they entered into pre-action negotiations with the other side. These resulted in an out-of-court settlement, which was endorsed by the employment tribunal.
Mrs T felt that she would have received a higher amount if the dispute had been fought out face-to-face before the tribunal. She therefore complained to us that the insurer and/or its solicitors had prejudiced her case by refusing to provide the further funding that would have been needed for this.
We were satisfied that the insurer had acted on the independent advice of legal professionals. There was nothing to indicate that the advice was patently wrong or based on factual errors.
The solicitors had settled for less than their original estimate, but this was because their assessment of the prospects of success had changed as the case proceeded. New evidence and arguments had become available which had influenced the solicitors’ opinion about the case. Such a change of view is not unusual or improper, given the complex and uncertain nature of litigation.
Moreover, although we did not reveal this to Mrs T, the solicitors’ files indicated real concerns that she would make a poor witness. In our view, this was a legitimate consideration for the solicitors when deciding whether or not to settle out of court.
After injuring herself at work, Miss E made a claim on her legal expenses insurance as she wished to pursue a case against her employers for negligence. The insurer’s panel solicitors advised the insurer to reject the claim, on the basis that it had no reasonable prospects of success. Miss E felt that the insurer’s legal advice was flawed. She therefore instructed her own solicitors, who obtained a favourable opinion from a barrister. However, the insurer refused to consider the matter further, so Miss E complained to us.
While acknowledging the generally subjective nature of legal opinions, we felt Miss E had shown – on the balance of probabilities – that her employers did have a case to answer concerning their alleged negligence.
Given that the barrister was a specialist in the field of personal injury litigation, we considered that her opinion tipped the balance in favour of Miss E. We therefore asked the insurer to:
We also felt that it would be fair and reasonable for the insurer to allow Miss E to continue with her own solicitors (and barrister) even before proceedings were issued. This was because the panel solicitors had been shown to be incompetent, in that they had failed to consider all the relevant legal issues or obtain a second opinion from counsel.
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.