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ORJ urges legal expenses insurance caution

ORJ has unearthed some concerning cost-cutting practices by a panel solicitor of a leading legal expenses insurer.

Litigation expert Patrick Tedstone, CEO at ORJ, said the discovery has made him question the whole system – and urged anyone using legal expenses insurance in contentious litigation to check their case is being dealt with by an appropriate lawyer.

Legal expenses insurance covers the cost of taking legal action in certain situations, including in litigation involving commercial disputes, personal injury, consumer contracts for goods or services, property disputes and employment disputes.

Patrick said that while insurance can be effective in straightforward cases, people should be cautious in more difficult litigation.

“We made an alarming discovery in a recent case involving legal expenses insurance,” said Patrick. “It’s really made me question the whole system.

“You have to make absolutely certain that your case is being given the appropriate attention. In the case we were involved in, we found out a legal expenses lawyer had told his client that his firm was applying a conventional charge out rate against the policy for all staff depending on experience, starting at £140 per hour for a paralegal and rising to £295 per hour for a partner. However, the legal expenses insurer had secretly capped the law firm’s hourly rate for all staff to just £100.

“Possibly as a result, the panel law firm seemed very reluctant to spend proper time on the case, or to commit high value staff to it. Instead of being assigned significant partner time as our client deserved, the case ended up mainly being dealt with by an unqualified clerk. 

“The 1,565 pages of client paperwork was simply bundled into a file and sent to several barristers by way of competitive tender without being placed in order. There weren’t even any page numbers to the bundle. The barrister selected to review the case was the cheapest, charging less than 25% of the person we thought was the most appropriate barrister included in the tender process.”

Patrick said the worrying discovery was made when ORJ had sight of a file of a solicitor panel member of one of the major legal expenses insurers. The firm’s timesheets detailed how little thought and money had been spent considering the case. 

“Instead of using the £100k of legal expenses insurance that the client had to research and fight the matter – which was worth well over £1 million – the law firm applied only £320 of qualified solicitor time to it,” said Patrick.

“They didn’t read the file or research the matter before they told the client it had no case. As you might expect, the client relied on what it was told. 

“When the client complained years later, he discovered that the chairman of the insurance company was also the chairman of the solicitors who the insurers had recommended.

“If you’re using legal expenses insurance, you should ask specifically for written confirmation your case is being dealt with by a partner, and it’s being researched and read, and that the law firm is acting with a proper level of independence from the insurer. 

“Make sure that the barrister, if any, selected to look at the case is appropriately experienced and instructed. Even more importantly, make sure that the lawyer is focussed on any existing deadlines that the case presents as these may pass, making your position worse.” 

Despite the warning, Patrick said there are times when legal expenses insurance does work well.

He said: “You should get approval from your legal expenses insurer when your case is viewed to have at least a 50% chance of success, so if your lawyer responds to your opponent to say the cover is in place, your opponent should know straight away that you have a firm case.

“It also demonstrates that you have some means of paying if you lose. You’re telling your opponent that this litigation is risk-free for you – and that will certainly worry them.

“It has been estimated that just 4% of litigation goes to court so, if you can demonstrate that you have a solid case it will increase your chances of an early settlement.”

ORJ routinely advises on shareholder disputes, professional negligence, commercial contracts, restrictive covenants and banking disputes. Can we help? Email team@orj.co.uk or call 01785 223440.