9 December 2013

ECJ: Legal expenses insurers must let insured choose lawyer

The European Court of Justice has ruled that legal expenses insurers must always allow the insured to choose a lawyer in court or administrative proceedings. Legal expenses insurers will have to amend the terms of their policies if they limit the free choice of a lawyer.

Following a referral by the Dutch Supreme Court in the matter of Sneller v. Das, the ECJ ruled on 7 November 2013 about the scope of an insured party’s freedom to choose a lawyer. According to the ECJ’s interpretation of Article 4(1)(a) of the Legal Expenses Insurance Directive, insured persons in court or administrative proceedings should always be entitled to choose a lawyer under their legal expenses insurance. The free choice of lawyer may not, therefore, be limited to situations where the insurer believes that an external legal adviser should be engaged or where legal representation is mandatory. Dutch insurers often include one of these limitations, or both, in their terms and conditions. The ECJ’s ruling means that those limitations are contrary to Article 4(1)(a) of the Directive and to section 4:67 Wft, the Dutch statutory provision based on it.

From now on, legal insurers offering their insured parties only a limited choice of lawyer will have to amend their policy terms and allow all insured parties to choose a lawyer in court or administrative proceedings. However, the ECJ ruled that Article 4(1)(a) of the Directive does not prevent the insurer from imposing limits on the amount of the costs qualifying for cover. But it should not, as a result, become practically impossible for an insured party to make a reasonable choice of lawyer. The insurer and insured are free to agree on a higher level of reimbursement at a higher premium.

Legal insurers that have to revise their policy terms as a result of the ECJ’s ruling may consider offering alternatives to their insured parties. For example, they may set a maximum insured amount for the costs of (external) legal assistance, or offer 100% coverage for all lawyer fees at a higher premium. Insurers should be aware that a revision should not cause the free choice of lawyer to become illusory.