Legal expenses insurance: when to use it and when can it help

Some, but by no means all, legal expenses insurance is of little value and relies on the insurer "selling" your injury claim to a solicitor in return for a "referral fee" which means that in damage-only cases where no referral fee is likely to be paid, the policy holder often receives poor service. You need to understand how the system works to make it work for you.

Understanding your Before-The-Event policy for uninsured losses

The vast majority of road users (including pedestrians) already have the benefit of Before-The-Event legal expenses insurance (LEI) although many are unaware of it. Some large fleets do not carry LEI and private motorists for a variety of reasons decline the offer to purchase it with their motor policies.

Frequently, it is bundled in with a motor policy at purportedly no cost, although strictly speaking your motor insurer must specify (under EC rules) the cost of legal expenses insurance and if it is underwritten by the motor insurer, a totally separate division must deal with your uninsured loss claim. The extent to which this is followed is somewhat open to question in regard to some insurers.

Pedestrians may well find that they have cover on a house contents policy.

Is legal expenses insurance any good?

You will probably find that you have up to £50,000.00 worth of legal cover although the likelihood of your needing anything like as much as this is very small indeed.

A good legal expenses insurance policy is extremely useful and generally preferable to an After-The-Event policy (which always has a higher cost) but sometimes what appears to be legal expenses insurance is little more than a legal helpline. All genuine legal expenses insurance is underwritten by an insurer and regulated by the Financial Services Authority, so checks can easily be made.

What does it cover?

Most standard legal expenses insurance sold with motor insurance provides legal expenses to recover property damage to a specified vehicle caused by another vehicle and compensation for personal injury suffered by any passenger.

Where the driver of a vehicle may be partially at fault, any injured passenger may have a conflict of interest and will probably need to be represented by someone other than the driver’s legal representative.

If the driver of the vehicle is wholly to blame, most (but not all) legal expenses insurance policies will cover the injured passengers for a claim against the driver. However, where the legal expenses insurance emanates directly from the driver’s motor insurance company, do ensure that the advice you receive is genuinely independent. Many legal expenses insurance providers will be more agreeable to suitably experienced non-panel solicitor handling your claim in such circumstances.

Do I have to pay anything?

The whole point of having Before-The-Event insurance is to cover you against the risk of paying legal fees.

However, there can be circumstances where you might have to pay if you wish to pursue an element of claim which is not covered or if you fail to give instructions to appointed lawyers or waste costs by, for example, failing to attend an appointment for a medical examination or court hearing, with no reasonable excuse. This may represent a breach of the terms and conditions of the policy.

Independence

One of the problems with legal expenses insurance is that it may not be handled independently of your motor insurance policy and your interests differ from those of your insurers who may be only too eager to settle the other driver’s claim to minimise their exposure to costs and in so doing compromise your position.

There is a greater risk here if your insurance has been purchased directly or on-line rather than via an independent broker.

Always make sure that whoever is acting on your behalf, puts your needs first subject to their being reasonable prospects for success (see below)

Why can’t I use my local or preferred solicitor?

In Damage Only cases (see below), unless your local or preferred firm of solicitors is a specialist in road traffic accident claims (as opposed to personal injury claims), they may not have the relevant experience in this quite complex field to deal with your claim in the most appropriate manner. If they are specialists and you are unhappy with the way your claim is progressing through your appointed legal expenses insurance handler, they may be in a position to insist that they take over.

Where there has been an injury, you can expect to be bombarded with offers of legal assistance from all quarters, normally because your claim will be “sold” to a personal injury solicitor on their panel paying a referral fee (see below) and this applies equally to the vast majority of legal expenses insurance providers and insurers. Consequently, if you want to use your preferred firm however specialist they may be, your legal expenses insurance provider may be reluctant to lose the revenue source of the referral fee.

There is currently much debate about whether this acts against the interests of the consumer and under EC rules, you must normally be allowed to use the legal representative of your choice if court proceedings become necessary.

If your preferred choice of solicitor is well experienced, he or she may well be able to ensure that you incur no liability for costs prior to the filing of proceedings and the majority of cases can be settled long before proceedings become necessary.

If you are using a representative other than the panel solicitor appointed by your legal expenses insurance provider, make absolutely sure that you are not incurring any costs liability or having to pay a percentage of the amount recovered to your representative or any claims management organisation. Also beware of being persuaded to buy any After-The-Event policy if you have adequate Before-The-Event legal expenses insurance.

Referral fees

Referral fees are normally payable only in personal injury claims and are quite permissible under the Law Society’s rules so long as the amount of the referral fee or the broad terms of the arrangement are disclosed by both the solicitor paying the fee and the organisation receiving it.

The majority of motor insurers receive referral fees when their policyholders are injured and the claim is passed to a panel solicitor and this represents a lucrative revenue stream over and above their profit from policy premiums.

Almost all legal expenses insurance providers generate much of their income from referral fees and if any broker, hire company or garage recommends a lawyer a referral fee is usually payable. Any organisation advertising on TV or the Internet is most probably dependent on its income through payment of referral fees.

The reason for all of this is that in any successful personal injury claim, the lawyers’ fees will be payable by the insurer of the person responsible for causing the injury.

Beware of the risk of your claim being “sold” to the highest bidder and satisfy yourself that whoever is handling your personal injury claim has the relevant experience not the biggest wallet whether appointed by your legal expenses insurance provider or otherwise.

Damage only claims

Where there has been no injury, motorists are often given very poor service by their legal expenses insurance providers through insufficient funding and lack of experience.

Where there can be no doubt as to where blame for the collision lies, the non-fault motorist may be offered credit hire (sometimes disguised as a courtesy vehicle) with legal expenses cover included. As the uninsured loss representative will be looking after the interests of the credit hire provider, the Claimant will often see a rapid and quite robust service!

Whoever is dealing with your claim, ensure that it is handled quickly, efficiently and comprehensively. Whilst the recovery of a policy excess and hire are routine, many legal expenses insurance providers may not consider such elements as loss of use, loss of profit (in commercial claims), diminution of value and may suggest compromise settlements (see below) which are inappropriate in the circumstances.

May sure that you ask for copy letters sent to them by your opponents. Often in Damage Only claims, a result will be achieved much quicker if court proceedings are filed but many legal expenses insurance providers are very reluctant to pursue this course as it is more expensive and time intensive. However, if there are reasonable grounds (and delay on the part of the other driver’s insurers may be a good example), that is one reason why you have acquired up to £50,000.00 worth of cover!

In house or Solicitor From Day One

Unlike the situation in regard to personal injury claims, the responsible party pays no legal fees to the Claimant (unless the value of the claim exceeds £5000.00), so the legal expenses insurance provider is usually faced with the least cost option.

The majority of Damage Only claims are handled in-house by the legal expenses insurance provider. Whilst some offer an excellent service, others will use unmotivated and inexperienced very junior claims handlers with minimal training. Claims are somewhat reluctantly passed to lawyers if court proceedings are necessary. These will often be panel firms who also pay referral fees for personal injury claims (see above) and may receive little if any fee for handling your claim.

Some legal expenses insurance providers send your claim to a panel solicitor from the outset (although this is becoming increasingly rare). This is generally preferable as any firm of solicitors appointed must act in their clients’ best interests but often they work unpaid on damage only claims in return for paying reduced or no referral fees for personal injury claims.

In any event, it can be seen that little of the £50,000.00 or so worth of legal cover is actually utilised.

Reasonable prospects of success

Every legal expenses policy will have a clause regarding reasonable prospects. This means that if your claim is bound to fail (for example, colliding with the rear of the vehicle in front), your legal expenses insurance cover will not be invoked. It will cease if it become clear at a later stage that there are no reasonable prospects of succeeding or indeed beating an offer which has been made by the opponent.

Furthermore, you must have a loss to recover. Thus if there was no damage, there is no claim even if your opponent is claiming against you.

Some legal expenses insurance providers will insists that there must be more than 50% chance of succeeding for the policy to operate and that has been known to result in cases which are likely to settle on a 50/50 basis being ruled out.

50/50 or other compromise settlements

Roundabout accidents and head-on collisions where there is no independent witness evidence available will often result in a 50/50 settlement (often wrongly described as knock-for-knock). This means that each party recovers 50% of their losses and their insurers pay 50% of those of the other driver. Both parties No Claims Discounts will be adversely affected.

Sometimes the ratio will be 75/25 or any other combination.

Often a compromise settlement is inevitable, but if your legal expenses insurance provider is strongly recommending this, look closely at the facts. It can easily represent their cheapest option given the very low value of the claim but it may not always be right.

If I have Before-The-Event legal expenses insurance, am I better off with a No Win No Fee deal?

Where you have adequate Before-The-Event legal expenses insurance, it should normally be used. If you are offered a No Win No Fee deal coupled with an After-The-Event legal expenses insurance premium, there is a considerable danger that you may be liable for the cost of the premium as it would not be recoverable from your opponent, unless it was clearly unsuitable.

Always make sure that whoever is acting on your behalf fully satisfies you that you are not incurring any liability for legal fees so long as you abide by the terms and conditions of the policy.

Crashguard

This document highlights both the benefits and pitfalls of legal expenses insurance policies. Some policies provide an excellent service and indeed you may wish to consider that provided by our sister company Crashguard, which provides :-

• Solicitor from Day One service provided by our panel solicitors who are paid fixed fees by the schemes legal expenses insurance providers, LAMP insurance Company. In the event of a claim, they will be contacting you immediately to discuss your urgent needs;
• In non-fault cases, the cover includes up to £500.00 of medical treatment cover and an evidence gathering kit including a disposable camera;
• It is entirely independent of any insurer, the legal expenses insurance provider or any other organisation;
  
• The legal expenses insurance providers, LAMP Insurance Company, do not seek any referral fees although a small referral fee is payable by the panel solicitor to Crashguard to fund the scheme; and
  
• Some Crashguard policies such as Familyguard provide cover for any vehicle driven in Europe by defined family members as well as cover for non-motor related personal injury claims.

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