Find out how we help resolve complaints about legal expenses insurance.
What is legal expenses insurance?
Legal expenses insurance covers the costs of taking legal action in certain situations. There are two types of legal expenses insurance:
- Before the event (“BTE”) – the policy provides cover for customers to pursue or defend legal action that may happen in the future. These policies can be sold as a standalone insurance policy, but they’re commonly found as an optional extra to home or car insurance.
- After the event (“ATE”) – these policies bought after a dispute has taken place and a customer has already decided to take or defend legal action.
All policies are different, some of the common types of dispute covered in the policy are:
- personal injury
- consumer contracts for goods or services
- property disputes
- employment disputes
Types of complaint we see
We hear from consumers who tell us that:
- their insurer unfairly declined a claim
- there are conflicting legal opinions about whether a claim has reasonable prospects of succeeding
- the claim has been handled poorly or incorrectly by the solicitor instructed under the policy
- there were unreasonable delays in processing their claim
- they weren’t allowed to choose their own solicitor to represent them
Complaints we can’t help with
We won’t be able to help with complaints about the quality of legal advice or the conduct of legal professionals such as solicitors or barristers. If you have a complaint about this, the Legal Ombudsman may be able to help.
How to complain
Talk to your insurer first so that they have the chance to put things right. They need to give you their final response within eight weeks for most types of complaint. If you’re unhappy with their response, or if they don’t respond, let us know.
Bringing a complaint to us is straightforward and won’t cost you anything. We’ll check your complaint is something we can deal with, and if it is, we’ll investigate.
Find out more about how to complain.
What we look at
To help us consider a complaint fairly, we’ll ask you to provide some information. We’ll make our decision about what happened using evidence provided by you, the financial business and any relevant third parties. In reaching a decision, we consider:
- the relevant law
- any regulations that applied at the time
- any industry codes of conduct in force at the time
- the terms and conditions of the policy
We set out general overview of how we handle different types of complaint under a legal expenses policy.
We often see complaints about which solicitor the policyholder is able to choose to represent them. It’s understandable that as a customer, you’ll want a say over who is acting for you. But your insurer may have said that you must use a solicitor they’ve chosen.
It’s common for insurers to have a panel of solicitors with the relevant expertise needed to deal with a claim made under the policy. This is for both commercial and quality control reasons. And the policy will normally restrict a customer to using a panel solicitor, until such time that legal proceedings are necessary.
In most cases, we don’t consider this to be unfair. The arrangements with these solicitors ensure claims are pursued in the most cost-effective way, protecting the limit of indemnity under the policy to pursue the claim and, in turn, the cost of insurance premiums for customers as a whole.
But we may decide it’s fair for an insurer to allow you to choose your own solicitor from the outset where there is a conflict of interest or other exceptional circumstances.
Once the claim has reached a stage where legal proceedings need to be started, for example when negotiations have failed and it’s been decided (by the solicitors involved) that it’s necessary to issue a claim in a court or tribunal – you should then be allowed to choose your own solicitor.
At that point, you should let your insurer know you no longer wish to use the panel solicitor and provide details of your chosen firm. However, your own choice of solicitor isn’t bound by the terms of the insurance policy – as this is a contract between you and your insurer – so your insurer will require the solicitor to agree to their standard terms of appointment, which will set out things like hourly rates and reporting requirements.
A conflict of interest arises when a solicitor is in breach of their code of conduct or would be “professionally embarrassed” if they continued to act.
Examples of this are where the solicitor:
- has previously acted for the opponent
- knows you personally
- has access to confidential information about the opponent
- has made a damaging mistake that would constitute professional negligence, like disclosing privileged material or missing a procedural deadline
We often see customers say that a conflict has arisen where they’ve disagreed with the solicitor’s legal advice or conduct on the claim. But we don’t consider these types of disputes to amount to a conflict of interest.
When an insurer has agreed to instruct a solicitor of your own choice, the insurer will send out their standard terms of appointment. This will set out, amongst other things, the amount they’re prepared to pay the solicitor to handle the claim. In most cases, this will be a set hourly rate.
It’s reasonable for the insurer to have a say over the amount being charged by the solicitor, as they will be responsible for paying the costs. They also have a responsibility to keep claim costs low to protect the limit of indemnity and policy premiums generally.
Most policies will set out the maximum hourly rate the insurer will pay within the terms and conditions. And provided this information has been made clear, we think it’s fair for the insurer to limit what they will pay.
But where a policy doesn’t define the hourly rate, we’d expect an insurer to offer an hourly rate which is reasonable taking into account:
- the nature of the legal case
- the seniority of the solicitor
- the standard rate for a solicitor, which depends on the location the solicitor is based or where the case is being dealt with
- court guideline hourly rates – you can find more information about this on the GOV.UK website
We sometimes see that the amount offered by the insurer is less than the solicitor’s normal charging rate. And whilst some negotiation and flexibility may be needed on both sides, an insurer does have the right to restrict what it will pay a solicitor, so long as the amount offered is not so low as to render the customer’s freedom of choice meaningless.
It’s a condition of virtually all legal expenses policies that any proposed legal action for which a customer makes a claim must have ‘reasonable prospects of success’. We interpret this to mean a 51% or more chance of winning. We don’t consider this policy term to be unfair.
The most common complaints we see are where an insurer has declined a claim because the legal advice says it doesn’t have reasonable prospects of success and the customer disagrees.
Where an insurer has declined or withdrawn funding in a case, it’s not our role to assess the merits of the underlying legal claim. Instead, we’ll look at what information the insurer is relying on when making this decision.
We’d expect them to have obtained advice from a suitably qualified legal professional. And provided the advice is clear, well-reasoned and not obviously wrong, the insurer is entitled to rely on it when making decisions on cover.
Where a customer disagrees with the legal advice, the insurer will usually ask them to obtain independent evidence from a qualified, comparable lawyer to support their view. And where there are conflicting legal opinions, we may ask either the insurer or the customer to obtain a third and final opinion – usually from a barrister – to settle the dispute.
We also see complaints where a claim was declined as not having reasonable prospects, but which went on to settle or win in court. Customers will often tell us this is evidence that the claim did enjoy reasonable prospects.
But we don’t generally think this means the insurer was wrong to decline the claim. They can only rely on the advice and evidence available at the time. And it’s important to be aware that claims will often settle for commercial reasons which don’t always arise from the strength of the case being pursued.
It’s a common condition of virtually all legal expenses policies that a claim must be proportionate to pursue. This means that the legal costs of pursuing the case shouldn’t outweigh the amount in dispute.
We usually take the view that it’s unreasonable to expect an insurer to fund legal action that a prudent, uninsured person wouldn’t fund themselves. For example, it’s unlikely that a reasonable person would spend £1,000 in legal fees in order to recover damages of £100. So we don’t think it’s fair for an insurer to either.
But some policies say it will pay the customer the sum of money in dispute in these circumstances, rather than paying the legal costs of pursuing it. And if the policy terms are unclear on this point, we may ask an insurer to pay the amount claimed for.
Legal expenses insurance, like most insurance policies, is designed to cover unforeseen and uncertain risks, not inevitable or existing events.
Most ‘before the event’ policies will only cover the cost of legal proceedings when the event or dispute has prompted legal action, or came to light, after the policy started.
But this is not always straightforward in the cases we deal with. When dealing with cases like this we need to:
- identify the event that prompted legal action
- consider if you were aware of the event when you took out the policy
We’ll consider the facts of each particular case when making a decision. But it’s important to note that the insured event isn’t when you make a claim, and rarely will it be when you decide to take legal action. It’s the underlying event which has prompted the claim and legal action that will be taken into account.
To prevent claims being made for events that have already occurred, and of which you are already aware, some policies may contain a “waiting period”. This means the policy won’t cover claims for events that arose during a set period after the policy was taken out.
Sometimes we see complaints where the event pre-dates the current policy, but you already had a policy with another provider. We don’t think you should be penalised for changing insurer. So we may need to decide which insurer is fairly liable for the claim based on when it began and when you made the claim.
There are two different types of before the event (“BTE”) legal expenses policies:
- Claims Made policies – these policies cover claims that are made whilst the policy is active. So if the policy expires or lapses, you won’t be able to make a claim even if the event occurred whilst the policy was live.
- Claims Occurring policies – these policies cover claims where the event happened whilst the policy was active. So even if the policy is no longer in force, it will still respond to a claim provided the event arose within the period of insurance – subject to any other policy conditions such as notification periods.
This difference can cause confusion for consumers and businesses alike and can result in complaints.
Customers will often change policies at renewal to get a cheaper price. We see problems where they’ve moved from a ‘claims made’ policy to a ‘claims occurring’ policy, with a different insurer and without a break in cover.
This can cause problems because if a claim is made for an event which started before the claims occurring policy started, but after the claims made policy ended, the customer is often left with neither policy taking ownership of the claim.
Where a consumer contacts us about a complaint like this, we do not consider it fair that a consumer is unable to claim under either policy despite having continuous cover. We usually look at the circumstances of the claim to determine who should consider the claim. This could include:
- Should the ‘claims made’ insurer have known that the consumer might need to make a claim before their policy ran out? If so, has this disadvantaged the insurer?
- Does the policy exclude claims made before it started? If it does, we may decide not to ask the insurer to pick up the claim.
- What’s the earliest the policyholder should’ve known they needed to make a claim? If we believe that a consumer’s earliest date of knowledge was after a policy started, we may ask the insurer to honour the claim.
We often see complaints about how a claim has been handled by an insurer or solicitor.
Insurers are required to deal with claims promptly and fairly. And we’ll look into whether they’ve done so. But we’re mindful that legal action can be a lengthy, complex process. There are also the restrictions of court timetables to consider.
We can’t look at the actions of a solicitor. And we wouldn’t usually hold an insurer responsible for the way a solicitor has dealt with the legal case. This is because solicitors have their own regulations and complaints process, and they fall under the remit of the Legal Ombudsman (for England and Wales or the equivalent body in other UK regions).
But if a customer has raised concerns about the solicitor to their insurer, we do expect an insurer to intervene in order to get clarification of what’s happened and to help get the case back on track.
If we find that there has been a failing in the claims handling which the insurer is responsible for, we may ask them to apologise. And in some circumstances, we may decide that compensation should be paid for distress or inconvenience or financial loss.
Many legal expenses policies say that a policyholder must notify their insurer of a claim as soon as they become aware of an event which may give rise to legal proceedings. Failure to do so may result in the insurer declining the claim.
When we see complaints of this nature, we’ll want to understand whether the insurer has been prejudiced by the late notification. This can be a significant issue, because failing to act as quickly as possible can adversely affect a legal case, for example, where issues involve:
- the preservation of evidence
- difficulties in tracing witnesses
- witnesses being less able to recall information
- time bars (the time limits within which the claim must be made)
- the legal requirement to avoid ‘inordinate and inexcusable’ delay not being satisfied
- the build-up of interest and costs
It’s the insurer’s responsibility to show that they’ve been prejudiced. And we’ll look at the evidence and decide whether they were entitled to reject the claim or limit their liability to certain costs.
But if we don’t think there has been any detrimental impact by the late notification, we usually decide that it isn’t fair for the insurer to decline a genuine claim on this basis alone.
After the event policies insure legal actions for events that have already happened. They’re usually taken out around the time that the legal action begins. These policies are used when there isn’t any before the event (“BTE”) cover or if it’s run out.
ATE policies are taken out to support a conditional fee agreement (also called ‘no win, no fee’) between a solicitor and their client. This means that the solicitor will charge a fee only if their client's action is successful.
But it doesn’t cover all costs. For example, it may not cover money paid to third-party experts in preparing the action, or the other side's legal costs. So an ATE policy might be taken out to cover the risk that the client’s action is unsuccessful or results only in a partially favourable award of costs.
ATE policies can involve a large premium. Paying this premium can sometimes be deferred or paid with a loan. This isn’t a recoverable legal cost (the losing party can’t be ordered to pay it) but the client would have to pay it out of any damages they receive.
When taking out an ATE policy, the customer should be made aware of any conditions or limitations to the cover, as these are likely to be more specific or unusual to what we see under a BTE policy. So it’s important to read through the documents prior to taking it out, and to discuss any concerns with the solicitor or insurer.
Putting things right
If we find you’ve been treated unfairly, we'll ask the insurer to put things right. This usually involves putting you back in the position you’d be in if things hadn’t gone wrong.
For example, if we decide the insurer has unfairly declined your claim, we may ask the insurer to reimburse any legal fees you have already incurred without the benefit of the policy in place.
We’ll also consider whether you’ve experienced any distress or inconvenience as a result of what the insurer did wrong and whether we think it’s appropriate to award compensation.
Read more about how we award compensation.
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Information for financial businesses
If you’re a financial business looking for information to help you resolve complaints or want to find out more technical information, you can find more detail about complaints about legal expenses insurance in the business section of our website.