Legal protection insurers are there to support their customers. The extent of what insurers can do to help policyholders is determined by national legislation. However, in general, legal protection insurers provide legal services, give legal advice, represent their clients in court and out-of-court and cover litigation costs, regardless of whether the insured is the claimant or the defendant.
Besides national legislation, EU Directive 87/344/EEC (hereafter: the Directive) equally applies to legal protection insurers. This Directive’s main goal is to protect the insured in a particularly sensitive situation, i.e. in times of crisis when he or she is exposed to a legal conflict and, thus, extremely vulnerable. To this end, in certain circumstances, the Directive obliges the insurer to grant to his insured the right to select a lawyer of his choice who takes on the insured’s case from the insurer, continues to manage the procedure on behalf of the insured and, if necessary, represents him in court and out-of-court. RIAD members comply with the principle of the free choice of lawyer and are committed to avoiding and solving any conflicts of interests with their insureds as laid down in the Directive.
However, appointing a ‘free choice’ lawyer on every case from the very beginning would lead to prohibitive costs. A study, commissioned by RIAD and delivered by SEO Economic Research in 2008, proves that costs incurred by the appointment of a ‘free choice’ lawyer are 3 to 6 times as high as the costs of handling a case in-house or by a panel lawyer, costs which would otherwise need to be passed on by way of higher premiums for the consumer. Legislators, regulators, actuaries and first and foremost insurers are aware of this effect and therefore neither the Directive nor national laws foresee an unlimited freedom of choice for the insured but they are constructed as a framework which sets out to establish an equilibrium between the protection of the insured and the ability of the insurer to manage claims and calculate the risk.
Recent judgments of the Court of Justice of the EU on the free choice of lawyer
But the Directive leaves a lot of room for interpretation and therefore the free choice of lawyer and its implications have been the source of controversies in the past and discussions will most likely continue in the future. Anyhow, two recent judgments of the Court of Justice of the EU (Eschig vs Uniqa, C-199/08, and Gebhard Stark v D.A.S., C-293/10) deal with the freedom of choice of lawyer according to Article 4(1)(a) of the Directive, the most topical provision, and provide some guidelines for its application.
In the Eschig v Uniqa case the Court clarified that the insurer cannot take the place of the insured and exercise the right of choice himself in mass claim cases. In Austria it had been common practice, where a large number of insured persons suffered loss as a result of the same event (mass claim cases), that the insurance company itself determined the lawyer who would represent the cases of all the insured persons concerned. This was clearly out ruled by the Court. But the Court equally established that Article 4 (1)(a) has a restricted application and only provides for the right to freely choose a lawyer where an inquiry or proceedings are initiated, while, once triggered, the right does not depend on the occurrence of a conflict of interest, has an obligatory nature and must generally be applied. (see also RIAD’s interpretation of the judgment).
In Gebhard Stark v D.A.S. the Court ruled that Article 4(1) of the Directive does not prohibit legal protection insurers from restricting the payment of costs incurred in connection with the defence of an insured person. Subject of the proceedings were an Austrian legal provision and contract clauses, based on this provision, to the effect that the insured person may only select as legal representative authorised professionals who have their residences at the place of the court or administrative authority before which the proceedings at first instance are to be conducted. The Court decided that such a local restriction was admissible since it reflected the insurer’s right to manage his costs, on condition that it related only to the extent of the cover of the lawyer’s costs and the actual reimbursement provided by the insurer was sufficient because, otherwise, the insured person’s freedom to choose his lawyer would be affected.
Conclusions to be drawn from the judgments
RIAD Members welcome the fact that the Court of Justice of the EU has increased the degree of legal certainty for insured persons as well as for insurers regarding the scope of the free choice of lawyer, in particular according to Article 4(1)(a) of the Directive.
In Eschig vs Uniqa the Court has clearly established that the insured’s freedom to choose a lawyer according to Article 4(1)(a) of the Directive is restricted to the issue of inquiries and proceedings. Consequently, the Directive makes the appointment of a lawyer to represent the insured only obligatory after this point in time (this is without prejudice to more stringent national rules).
The Court explicitly allows insurers to restrict their cover provided that this does not render the free choice of lawyer meaningless and establishes that Member States retain a large margin of discretion when transposing the Directive, i.e. they can introduce mechanisms which help insurers to manage their costs effectively.
Read more: Reflections of the French RIAD Section on legal protection insurance and the free choice of lawyer (fr,en)
 Directive 87/344/EEC on the coordination of laws, regulations and administrative provisions relating to legal expenses insurance which has been replaced by Directive 2009/138/EC (Solvency II Directive)
 With the sole exception of Germany where the system works nevertheless because lawyers’ fee are subject to strict tariffication allowing insurers to know exactly in advance how high expenses for lawyers’ remuneration will be
 Now Article 201 of Directive 2009/138/EC
 see number 50 of the judgment