Legal Expense Insurance

by Daniel Menell

Pursuing any type of legal claim can be an expensive business, and a claim for compensation following a personal injury accident is no different. Although the conditional fee agreement you will enter into with your solicitor means that if the case is lost, you will not be responsible for their fees, the agreement offers a claimant no protection at all for the defendantís legal costs incurred in defending the personal injury claim.

Thus, if you lose the claim, you will be personally responsible for the defendantís legal fees. A claim of moderate complexity taken to a contested trial could easily land you with a bill for £15,000-£30,000 in defendantís legal fees. A lengthy complex trial perhaps with a number of medical or other experts and you could be looking at several times this figure. Back in the Legal Aid days, the Legal Aid Board would have picked up the tab for your failed case. Now, we have Legal Expense Insurance, commonly abbreviated to LEI.

There are two types of LEI insurance available to offer protection, Before the Event (BTE) and After the Event (ATE).

Research published in late 2007 by The Ministry of Justice revealed that less than one in four consumers had heard of either BTE or ATE legal expense insurance. Despite this, research also estimates that around 28 million adults in the UK, almost 60% of the population, have a BTE policy, and that the percentage was set to increase further in coming years.

You may very well have BTE insurance and not even realise it. It is often included for example as part of your motor insurance premium. Some insurers even automatically add the cost of the premium to your quote or renewal and will only remove it if you specifically ask them to do so. You may have a BTE policy attached to your home buildings or contents insurance. Or maybe as one of the benefits of being a holder of a particular credit card or bank account. Doubtless it is only a matter of time until shopping at the large chain supermarkets means youíre covered by a BTE policy.

But what exactly is BTE insurance and why do you need to know about it?

Well, unusually for the law, the clue really is in the name. Before the Event insurance. The "Event" would be an accident giving rise to the possibility of pursuing a claim. "Before" simply means that the insurance was taken out before the event occurred.

ATE, After the Event insurance by contrast is an insurance policy arranged by your solicitor specifically to cover the particular accident you have suffered and for which you wish to claim compensation.

When you phone up a lawyer to discuss a new case, and assuming the case has some merit, you are likely to be asked whether you have BTE insurance. Hopefully, the lawyer will also explain what that means. If you are told however that you have a BTE policy, you may very well find that your case is referred by those insurers to a solicitor with alarming speed. Before you know it, youíll be sent a claim form to fill in, a mountain of paperwork, and the ball will be rolling without your having had any involvement at all in the selection of the lawyer who will be representing you. It isnít a good idea to lose control of your claim at this crucial initial stage, and you can read more about that in a separate article on "third party capture" as it is known.

The chances are that you may be told by your BTE policy providers that you are only covered if you allow them to refer your case to one of their panel of solicitors. Iím not suggesting the solicitors might not do a first class job for you, but the less you leave to chance the better.

The fact however, is that you are at liberty to instruct whoever you want to take the case on for you. You do not, whatever you may be told, have to use your BTE providers panel solicitors, and in fact, if and when your case comes to have Court Proceedings issued, your BTE providers then have to provide legal expense cover for you, whoever you have instructed to act for you.

So, letís assume that you have a BTE policy in place. If you do then fine, you can if you wish accept a referral to the providerís panel solicitors. They will assess whether they feel your claim stands a greater than 50% prospect of success and if it does, they will accept instructions to act under the BTE policy, and continue to act so long as that threshold is met. Alternatively, you can still select your own lawyer to act for you. That lawyer can take advantage of the BTE policy cover once proceedings are issued. There is no real risk on costs before issue of proceedings, as costs can only be ordered to be paid by a Court.

Should you not have a BTE policy in place, then your lawyer will discuss obtaining an ATE policy to cover your potential liability for the defendantís costs should you lose the case. In some cases, where it may be inconceivable that the case could be lost, you may be advised that taking out insurance is not even needed. However, I would advise against this practice, and in todayís market there is no reason at all not to set up an ATE policy at an early stage. Even in straightforward cases, things can and do sometimes go awry and if they do, youíll be glad you had the cover.

There are many different ATE providers. Firms undertaking personal injury work will inevitably have established business connections with such providers. Some firms use just one provider, some use a number and may advise that one provider or another is more suitable for your particular case. When ATE policies emerged, it was fairly common for a lawyer to ask their client to pay for the policy up front. Cases were assessed on an individual basis and a tailor made quote provided. The providers would undertake their own risk assessment of the case based on the information given by the lawyers. Clearly, the trickier the case, the more expensive the premium, and often, the providers declined to even quote as they were not prepared to take on the risk. There has been enormous change in the sector, and the position now is that many providers allow solicitors to undertake the risk assessment (on the basis that a solicitor is unlikely to be accepting instructions on a hopeless case). Importantly, many offer deferred premiums, which means that the premium doesnít have to be paid until the case is successfully concluded. If you win the case, then the defendant is liable to re-imburse to you the cost of the policy. Therefore, the cost of the policy has never come out of your own pocket. Also, many policies are self-insured, which means that if the claim fails, the cost of the policy is paid to you as a benefit of the policy, which of course means that it has cost you nothing.

An important point to remember however, is that whatever method of funding is in place, be it union or LEI, you will only enjoy continued financial cover so long as your lawyer feels your claim stands a greater than 50% prospect of winning. And that makes it essential that you instruct a lawyer at the outset with whom you are happy, and in whose opinion, whatever that may be as the case progresses, you can feel confident.

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