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Legal Expenses Insurance after Sneller/DAS

In the Dutch legal expenses insurance (LEI) business it is common practice for LEI insurers to have panel solicitors for court work and in-house lawyers for most out-of-court work and small claims court cases. Where legally allowed, insurers would rather work with in-house counsel. Practising solicitors were understandably not keen on this competition from LEI insurers on the market for legal services. Recently, they found the CJEU to be on their side.

On request of the Dutch Supreme Court, the CJEU rendered a preliminary ruling in case C-442/12 (Sneller/DAS) holding that:

  1. “Article 4(1)(a) of Council Directive 87/344/EEC of 22 June 1987 on the coordination of laws, regulations and administrative provisions relating to legal expenses insurance must be interpreted as precluding a legal expenses insurer which stipulates in its insurance contracts that legal assistance will in principle be provided by its employees from also providing that the costs of legal assistance provided by a lawyer or legal representative chosen freely by the insured person will be covered only if the insurer takes the view that the handling of the case must be subcontracted to an external lawyer.”
  2. “The answer to question 1 will not differ depending on whether or not legal assistance is compulsory under national law in the inquiry or proceedings concerned.”

The second ruling offers an important clarification of the scope of the freedom of insurers to choose the lawyer of their choice: this freedom to choose also applies in cases where legal representation is not required. Thus, where small claims court rules allow litigants to represent their own case, LEI insurers would typically want the insured to be represented by an employee or panel lawyer rather than a solicitor. The CJEU ruling clearly allows the insured to choose an independent solicitor irrespective of what the LEI insurer wants.

I have argued elsewhere (in Dutch) that from a market diversity perspective, more competition between solicitors and LEI service providers would be beneficial provided safeguards for a level playing field, quality assurance and complaints procedures are instated. In the Dutch context at least, it makes perfect sense for LEI insurance companies to offer ‘in kind policies’ as an alternative to ‘reimbursement policies’.  As long as consumers know what they are buying and the aforementioned safeguards are in place, what could be wrong with a bit of competition?

So, I confess that the CJEU preliminary ruling has dashed my hopes of proper competition between LEI providers and solicitors in those parts of the legal services market where solicitors do not hold a statutory monopoly on legal services.

Meanwhile, one could ask whether the 1987 Directive should not be subjected to re-assessment. Have the landscape of legal services and the diversity of products and providers not materially changed since the 1980s to deserve an overhaul of the regulatory restrictions on the LEI industry?

For the time being, however, the question is how LEI insurers will review their practices in light of the CJEU ruling.  Undoubtedly, general insurance terms and conditions will have to be amended to reflect the ‘free choice’ principle. But will that suffice to arouse the insured’s awareness? Or are LEI insurers under a duty to actively inform the insured of this ‘free choice’ and what it entails? The Directive doesn’t address this question but the answer may well decide the practical impact of the CJEU ruling in Sneller/DAS.

Moreover, the CJEU ruling will undoubtedly raise further issues. For instance, the German Supreme Court recently held that the ‘free choice’ principle was not violated by a LEI insurer who both recommended certain solicitors from a panel and incentivised the insured by offering rebates to those insureds who chose from that panel list (BGH 4 december 2013. IV ZR 215/12). The question is whether that decision is still tenable after the preliminary ruling in Sneller/DAS

Prof. Willem van Boom

Professor, Durham Law School

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