Insurers cannot fetter your right to instruct your lawyer of choice in the aftermath of an accident.
It's a fact that accidents happen from time to time. In criminal proceedings the prosecution does not have to prove that an offence was committed deliberately or sometimes even negligently. The exposure of someone to a material risk (i.e. more than merely fanciful or trivial) is enough to secure a conviction.
Fines for prosecutions in the Crown Court can be substantial, especially for larger organisations, with greater attention currently being paid to turnover in the period before an accident when the court decides what will be sufficient to "punish" shareholders.
Generally, for a fatality, a minimum fine of £100,000 can be expected. If there is a corporate manslaughter charge, the sentencing guidelines provide that the fine will be not less than £500,000. Prosecution costs, especially where a not guilty plea is maintained, can also be a substantial element of any punishment. Prosecution costs and any fine imposed will not be indemnified by either employers' or public liability insurance. Both affect your bottom line directly.
Seek specialist legal support and advice from the outset
The first 24 hours after an accident are critical. The course that the case takes can be influenced, and involving specialist lawyers with the appropriate experience and expertise to provide support from the outset may deflect potential charges and enforcement notices. Co-operating with a police or Health and Safety Executive (HSE) investigation doesn't stop you from compiling your own evidence and statements and building a defence to possible charges. In many cases it will help to minimise the impact of what has occurred.
When criminal charges are a possibility, one of the first steps to take is determining whether legal costs may be indemnified under an employer's or public liability policy. These policies may provide an indemnity for civil liability for damages (subject to any policy deductible that may apply). Insurers must be notified as quickly as possible though as late notification can jeopardise the policy cover. Following notification, insurers often seek to impose their own panel solicitors to help you through any police and/or HSE investigation.
This should be considered very carefully. The important point to remember is that a policyholder has an unfettered legal right to choose its own legal advisors.
How does this unfettered right arise?
The following points are worth noting:
- Regulation 6 of the Insurance Companies (Legal Expenses Insurance) Regulations 1990 allows a policy holder the right to choose a lawyer "to defend, represent or serve the interests of" the insured in any inquiry or proceedings". In addition, such right must be expressly recognised in the policy. These Regulations transpose into English law the provisions of Council Directive 87/34 EEC (since superseded by the Insurance Directive 2009/108/EC) (the Directive) on legal expenses insurance.
- In considering the Directive's application in the UK, in Brown-Quinn v Equity Syndicate Management Limited  (Quinn) the Court of Appeal held that the insurer could not refuse to accept the insured's choice of solicitor, even where the insured's solicitor's remuneration rates exceeded the insurer's panel rate. However, the insurer could limit the costs for which they were liable to the insured under the legal expenses policy to their panel rate unless the insured could demonstrate that the panel rate allowed made it impossible for them to make a reasonable choice of legal representation so as to make the freedom of choice guaranteed by the Directive "meaningless". That was not the position in that case but could be in others. This case drew on the earlier European Court of Justice (ECJ) ruling in Stark-v-DAS  which allowed an insured the right to choose their own lawyer although, in that case, they had to bear the additional amount of the fees charged by their nominated lawyers.
- Most recently, in Sneller -v- Das (Netherlands) [November 2013] (Sneller) the ECJ made it clear that an insured's right to choose their own lawyer cannot be inhibited or restricted by legal expenses insurers. However, as in Quinn, the ECJ also stated that member states were not obliged to require insurers, in all the circumstances, to cover in full the costs incurred in the defence of an insured person unless that freedom of choice was rendered meaningless by, for example, restricting costs which effectively denied the insured the reasonable opportunity to choose an appropriate representative of their choice. In other words, the parties were free to negotiate further terms, including the insured paying a higher premium. We do not believe that will be an issue in the majority of health and safety cases.
What questions remain unanswered?
- It is unfortunate that neither Quinn nor Sneller have addressed when the insured's right to choose their own lawyer actually arises. Is it at the pre-action stage or only once proceedings have been commenced?
In the UK, some insurers, and the Financial Ombudsman Service, appear to interpret the right to choose as only arising once actual proceedings are issued. From the insured's point of view though they want cover from the start of the matter, which in health and safety cases will be from the time that the incident occurs. Restricting a policy holder's right to choose their lawyers until issue of proceedings can be unfair to the insured as by that stage it may well be difficult, if not impossible, to change lawyers.
This effectively means that insurer panel instructed lawyers retain conduct of cases. The absence of case law on this point means that this unsatisfactory state of affairs remains outstanding and we would advise all businesses to check the policy wording and ask the "what if..." question to determine what costs cover is in place and from when and whether your insurers would try and fetter your right to choose. You are in a better position to negotiate on those sorts of terms in advance of needing the cover.
- If the position isn't clear from the policy, you should have the confidence to push back and question the insurer's interpretation of when the right to choose commences. Regulation 6 is clear: the right to choose your own legal advisors is an unfettered one. An insured faced with this predicament could, for example, approach the Financial Conduct Authority (FCA) which is tasked with regulating the financial services industry in the UK. The FCA has the power to force insurers to remove unfair contract terms from their policy wording.
- It is worth noting that on 25 April 2014, the Law Society launched the first half of a major survey on legal expenses insurance because they too are concerned that some insurer practices may be restricting consumer choice, including the right of an insured to choose their own lawyer.
Is it really important?
Yes it is. In health and safety cases where serious criminal prosecutions can arise, the insurer under the terms of a legal expenses insurance policy is normally only responsible for payment of the legal fees of the insured. The policy will not cover any court imposed fine. That means that the insurer, in reality, has no, or little, commercial incentive to:
- use specialist lawyers to assist the insured in reducing the level of any fine that you have to pay;
- pursue any viable defence (since a change in rules last year means that a successful defendant will generally be unable to recover defence costs except in very limited circumstances);
- protect your public reputation or help you to manage the internal morale issues that often arise following a serious accident,
- provide training and support to prevent a similar recurrence in future.
The reality is that these sorts of cases can be complex and require specialist advice immediately after an incident has occurred and well before the insurer has to decide whether the matter has to be referred to one of its panel firms.
Still not convinced?
In January 2014, the Criminal Division of the Court of Appeal delivered two important sentencing decisions in relation to fines to be imposed in health and safety and environmental cases (R v Sellafield Ltd and R V Network Rail Infrastructure Ltd). The court rejected the defendants' submissions that in these sorts of cases, where an early guilty plea had been entered, fines of £700,000 and £500,000 were only appropriate for consideration by the sentencing court where there had been a disaster or fatality, neither of which had occurred in these cases.
The Court of Appeal held that where a corporate defendant has a turnover in excess of £1 billion then, on an early guilty plea, the sentencing court had a duty to investigate and give due consideration to the structure, annual turnover, profitability of the corporate entity and remuneration packages offered to its directors. Only then could an objective decision be made as to the correct level of fine to be imposed to ensure that the need for compliance is brought home to directors and shareholders alike to prevent a recurrence in the future.
Our experience is that both Magistrates and Crown Courts are asking these questions of all sizes of defendant and on all manner of health and safety and environmental cases on sentencing issues with the result that fines are increasing.
What should you be doing?
- Check your insurance policy wording very carefully to determine exactly what level of legal expenses cover you have for criminal cases, establish whether your insurers will allow you to choose your own appropriately qualified legal advisers to advise you, and from when that cover commences.
- If the policy seeks to restrict your right to choose your own lawyer from the commencement of proceedings then take this up with your insurers and consider referring the matter to the FCA and the Financial Ombudsman Service. Arguably, insurers are in breach of statutory requirements, both national and European, and what they seek to impose is an unfair contract term. Nowhere is this more important than in health and safety matters where the right legal assistance needs to be in place from the very start.
- Where a policy is due for renewal be prepared to negotiate direct with the insurers and where necessary shop around for the best deal even if that means having to pay a slightly higher premium to get what you want to protect your interests.
- Do not simply accept an insurer's insistence that you use one of their panel firms or face losing indemnity under the policy. Where necessary get support from your preferred lawyers, from the FCA and Financial Ombudsman Service to be able to retain your preferred lawyers, particularly so where serious or fatal injuries have been sustained, or the risk posed has the potential to be significant and where those specialist lawyers have been involved right from the start.