Confirmed: Legal Protection Insurers may Support Clients with Services in Kind

The right of the free choice of lawyer was subject of a decision on 29 October 2021 in the Netherlands. The Appeals Committee of the Financial Services Disputes Committee (Kifid) overruled a decision of 31 March 2021 []. It decided that the right to free choice of lawyer (Article 201(1)(a) of Directive 2009/138/EC) is not unlimited but there must be a connection with an administrative or judicial procedure. The ruling established that the insurer rightfully rejected a claim for compensation of lawyer’s fee because the lawyer’s services in this case were not related to any inquiry or proceedings. The Appeals Committee’s decision is contrary to the decision of March 2021 by the Complaints Board of Kifid which stated that a legal protection insured has a right to free choice of lawyer from the moment he or she has a conflict covered by the insurance policy. LPI (Legal Protection International aisbl) welcomes the appeal’s decision, because it is in line with existing EU law, benefits consumers and will make it possible for legal protection insurers to continue providing services in kind and maintaining their business models.

EU Case Law

This decision is the most recent outcome of a sequence of rulings of the Court of Justice of the EU (CJEU), starting with Eschig (C-199/08) in 2009, continued with Stark (C-293/10) in 2011 and Sneller (C-442/12) in 2013. Its motivation is founded on the latest decision of the CJEU of 14 May 2020 (Case C-667/18) which concerned Belgian non-judicial and judicial mediation procedures. In its decision of 14 May 2020, the CJEU ruled that legal protection insured persons can choose their legal counsellor (and claim the costs thereof from the insurer) during out-of-court and court mediation procedures. It thus extended the notion of ‘court proceedings’ to the ‘preliminary amicable phase’ during which the free choice of lawyer must be applied.

The CJEU’s decision of 14 May 2020 referred to its own rulings in cases Massar (C-460/14) and Büyüktipi (C-5/15) where it had decided that the particular out-of-court administrative procedure in which Massar and Büyüktipi where involved qualified as ’administrative proceedings’ in the sense of Article 201(1)(a) of Directive 2009/138/EC[1] and, consequently, gave a right to free choice of lawyer. For the Court’s decision it was decisive that the proceedings in question had substantial legal consequences for the insured and therefore it considered that the free choice of lawyer was necessary to safeguard the interests of the insured persons. In essence, with the ruling in Massar and Büyüktipi, the CJEU laid the foundation for an excessively broad interpretation of the notion of ‘administrative proceedings’.

The Complaints Board’s Interpretation of the Free Choice of Lawyer which the Appeals Committee declined

The Complaints Board applied the judgment of 14 May 2020 and interpreted the concept of ‘preliminary phase’ from that judgment. The Complaints Board even went one step further than the CJEU because it completely detached the right to choose one’s lawyer from legal or judicial proceedings: it ruled that legal protection insured parties may choose a legal assistance provider for the entire extrajudicial phase, provided there is a ‘conflict’. It thus concluded from the CJEU’s judgment that, at any stage which may eventually lead to court proceedings, an insured must have the possibility to choose his or her own external lawyer as legal representative. Consequently, in the opinion of the Complaints Board the term ‘preliminary phase’ does not imply that the legal protection insured must already be involved in some kind of ‘procedure’ in order to be entitled to a right of free choice of lawyer and to reimbursement of the costs.[1]

Free Choice of Lawyer is not unlimited!

The Appeals Committee comes to the conclusion that there is no unlimited right to free choice of lawyer. It stated that, according to the European Directive, the right to free choice of lawyer is restricted to judicial or administrative proceedings. Therefore, it concluded that the explanation given by the Complaints Board is not in line with the European Directive since a legal protection insurer can limit, outside judicial or administrative proceedings, legal protection insurance to legal assistance in-kind. In this case, this restriction was mentioned in the conditions of the insurance contract.

What is meant by legal proceedings?

The Appeals Committee interpreted the term ‘legal proceedings’. It ascertained that the specific circumstances of the case, the context as well as the scope of the European Directive must be taken into account in order to determine whether or not there is a legal or administrative proceeding. It also established from the judgements of the CJEU that the specific features of a procedure established under national law have to be considered in this respect. It concluded that in this particular case there was no judicial or administrative procedure and, consequently, no cover for lawyer’s fee under the legal protection insurance contract. The insurer therefore rightly rejected to reimburse the costs.

The consequences of this decision

The outcome of this case is positive for consumers and insurers alike. Moreover, the Appeal Committee’s decision, contrary to the Complaints Board’s decision, does not omit the wording of EU law but is based on a sound interpretation of the European Directive.

If the Appeals Committee had upheld the decision of the Complaints Board, legal insurance would be reduced to function purely as cost insurance and Article 200(4)[2] of the Directive would become the only option for legal protection insurers to manage their claims. Consequently, the possibility for insurers to provide legal assistance in-kind[3] would become illusory. In the Netherlands, with a system of high lawyer fees and modest insurance premiums, this would have had severe consequences because a pure cost insurance is practically unaffordable. It is also unrealistic to assume that a free choice of lawyer that extends to the entire extrajudicial phase, without any possibility of the insurer to provide services in-kind and/or manage its costs, could be paid easily in other EU countries. A substantial increase in the premium, higher contributions by the insured and/or substantial reductions of cost ceilings would most likely be inevitable.

In a nutshell, unlimited freedom of choice comes with a price tag which actually limits access to justice; it does not automatically benefit consumers because it most likely leads to higher insurance premiums, a rise of own contributions, and severe reductions of cost ceilings. Under these circumstances, legal insurance would neither be attractive nor affordable for consumers. Consequently, consumers, who are not eligible for publicly funded legal aid, would be left without means to cover costs of legal assistance which would limit, if not deny their access to justice. Therefore, the Appeals Committee’s decision is a victory for access to justice and for average consumers who are not wealthy enough to pay costs of legal assistance out of their own pockets and, at the same time, are not eligible for legal aid paid by the government.

[1] The case concerned a complaint from a consumer, an athlete, who had a dispute about a published article with, in her opinion, inaccuracies and incorrect quotes. She had hired a specialised lawyer and contested the publication. She applied to her legal protection insurer, DAS, for reimbursement of her lawyer’s fees. DAS wanted to reimburse lawyer’s fees from the moment the consumer started a court procedure. However, this did not happen and DAS rejected the request for reimbursement. The consumer, relying on the judgment of the CJEU of 14 May 2020, argued that she had coverage for her lawyer’s costs based on the right of free choice of lawyer.

[2] Article 200 (2)-(4) of Directive 2009/138/EC provides the legal protection insurer with 3 options how to manage claims:

(2)    separate management: the insurer operationally separates legal protection from other insurance business;

(3)    outsourcing of legal protection to an independent claims settlement office;

(4)   extensive free choice of lawyer: the insured can directly choose a legal service provider when he is covered, within the cost coverage described in the policy.

[3] See Article 198(1)(b) of Directive 2009/138/EC