The free choice of lawyer comes with a price tag which actually limits access to justice

The free choice of lawyer (Article 201(1)(a) of Directive 2009/138/EC) is again subject of legal proceedings in the Netherlands and – if the Financial Services Disputes Committee’s (Kifid) decision of 31 March 2021 [] is upheld – it will have a severe impact on the legal protection landscape which, in the long run, will not be beneficial for the insured. The Kifid decided 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. This decision omits the wording of the Directive which explicitly relates the free choice of lawyer to the initialisation of administrative or judicial proceedings. As a consequence, it would apply the free choice of lawyer to the entire extrajudicial phase, irrespective of the existence of any kind of proceedings. This decision is not binding yet. The legal protection insurer appealed the decision and the Appeals Committee’s hearing is schedule for 13 September 2021.

The Kifid 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.

In its decision of 14 May 2020, the CJEU referred to its decision 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 Directive which evaluates autonomously the importance of the legal protection instead of respecting the literal wording of the Directive.

The Kifid applied the judgment of 14 May 2020 and interpreted the concept of ‘preliminary phase’ from that judgment. In its decision Kifid even goes one step further than the CJEU because it completely detaches the right to choose one’s lawyer from the initiation and/or existence of any 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 the term ‘preliminary phase’ does not imply that the legal protection insured must 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.[2]

The consequences of this decision, if upheld and possibly confirmed by the CJEU, threaten to be drastic, not only for Dutch legal protection insurers but also for insurers in other EU countries and for consumers. If the insured makes use of his freedom of choice, which he can do from the moment the insurer has provided cover, the insurance policy functions purely as cost insurance and Article 200(4)[3] of the Directive becomes the only option for legal protection insurers to manage their claims. The possibility to provide benefits in-kind[4] would become largely illusory.

There are important interests at stake: in the Netherlands, with a system of relatively high lawyer fees and modest insurance premiums, a pure cost insurance is practically unaffordable. Also in other EU countries, it is unrealistic to assume that a free choice of lawyer that extends to the entire extrajudicial phase, without any possibility of the insurer to manage its costs, can be paid easily. A substantial increase in the premium and/ or own contribution for the legal protection insured seems almost inevitable.

To conclude: expanding the freedom of choice does not automatically mean that legal protection insured parties will also benefit from this. For instance, there are lessons to be learned from government funded legal aid: fewer lawyers are willing to take on these cases because their fees are cut as a result of reduced government funding. It must be prevented that the same happens in the case of legal protection insurance. If higher premiums and/or own contributions are inevitable, access to justice might be obstructed. Or there is the possibility that the cost ceilings in legal protection insurance policies will be reduced to such an extent that, just as with funded legal aid, fewer and fewer lawyers will be willing to handle legal protection insurance cases. The irony, then, is that freedom of choice will lead to the right of free choice of lawyer becoming purely fictional.

[1] The English wording is ‘inquiry’.

[2] 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 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.

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

  • separate management: the insurer operationally separates legal protecion from other insurance business;
  • outsourcing of legal protection to an independent claims settlement office;
  • 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.

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

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