11.1 Government policy: to welcome greater use of existing BTE polices and the development of the market to expand BTE.
11.2 Problems:
Not necessarily the best funding for the case Restrictions on cover under BTE policies Higher merits tests
Cap on cover
Restriction on choice of solicitor
ATE needed to replace cover when run out Low take up
11.3 The Government has suggested that BTE provides an alternative, cheaper model of legal expenses insurance. This overlooks the restrictions and conditions
that apply to most BTE policies, which make many not fit for purpose beyond the most simple of cases.
11.4 The first problem is that even after prompting, the claimant may well be
unaware of other funding sources, for example a membership organisation or a bolt- on BTE policy attached to his home or car insurance.
11.5 Solicitors are already under a duty to investigate with the potential client what
sources of funding are available to him. The correct position should surely be to permit the best form of funding (if other alternatives are available) for the particular case and client concerned. Any other arrangement brings the risk of detailed defendant‟s enquires, requests for disclosure and the prospect of consequent satellite litigation to establish whether in fact other means of funding was available.
11.6 At the time the funding decision (i.e. ATE or other) is made, the variables may be such that the restrictions on the alternative policy suggest that ATE is the better option, but if the anticipated risks fall away or do not materialise as expected, then the alternative might retrospectively be judged to have been appropriate, but this can only be seen after the event. The biggest risk is to embark on litigation with inadequate cover under BTE, then find that ATE is needed to cover a possible shortfall: this cover would be more expensive than an original ATE policy for the whole of the action.
11.7 It is interesting to note the oral evidence of the Secretary of State to the Justice Select Committee on BTE generally. He said that he did not expect a huge take up
64 of BTE, because people did not think they would be involved in litigation and would not take out insurance on the off chance that they might be. He was sure that BTE cover would not be likely to be comprehensive; it has limitations as to whether it meets what is desirable to cover people for eventualities. The likelihood of continued low take up of BTE is illustrated by the low take up of home contents insurance, despite the risks of theft and burglary, which are more obvious than the risk of litigation to most homeowners.
11.8 This view was supported in a well argued article (New law Journal 14/1/11) by Prof. John Peysner and Dr Angus Nurse, who concluded that BTE:
“...is unlikely to be the cure all solution to access to justice.”
11.9 In a report prepared on behalf of the MoJ on BTE Insurance (The Market for BTE legal expenses insurance July 2007) Dr Oonagh McDonald concluded that: "there may be a problem with some families with limited budgets but above the eligibility limits for legal aid, who may not buy an add on policy, but in the event of an accident, they may not be covered and will need to access justice then. BTE is obviously preferable but ATE may still be required".
11.10 BTE insurers operate in an extremely competitive market that is geared to BTE cover being sold as an inexpensive add-on to mainstream insurance. This demands low BTE premiums that are achieved only by restricting cover. The entire focus is on providing cover for low cost and low frequency risks so that low premiums can be maintained. In many cases, this proves to be inadequate for the policyholder.
11.11 So even if such alternative funding exists, the restrictions on cover under
the policy may be such that it provides little or only limited protection from the possible risks in the case. Such restrictions may include a cap on the amount the policy may underwrite; an unnecessarily high merits test requirement; or a
restriction on which solicitor may be instructed (though such restrictions may be subject to future legal challenges).
11.12 This can mean an imposed panel solicitor, whose geographical location at a distance from the claimant can lead to poor service or lack of communication; the imposition of restrictive terms of appointment; and restrictions on freedom of choice and detailed reporting requirements.
11.13 This is illustrated by the way liability insurers use their BTE cover policies. For an additional fee, a motorist can have added to his or her policy BTE legal expenses insurance. If the insured then claims on that policy for legal assistance, the liability insurer will refer the insured to one of its panel firms- who pay a referral fee to the liability insurer for the privilege of taking the case. In 2008, the BTE market, predominantly liability insurers, generated £447m in BTE premium income (to
65 which could be added the significant revenue generated by referral fees) for a seriously inferior product from the consumers‟ viewpoint. Only £53million was paid
out in external claims. In contrast, in 2008, the ATE market generated just £96m in premium income.
11.14 From inception, the claimant may face lack of cover for a breach of policy condition, or an excluded event. BTE will not cover industrial disease claims, many clinical negligence claims, group actions, claims against financial institutions, defamation and mid to large contract disputes. The limits of indemnity are insufficient to pursue complex or high value cases (BTE LOI is generally from £25-£50,000) often proving to be completely inadequate. BTE is aimed at low value, predictable cost cases only.
11.15 The wider use of ATE is needed because BTE insurance cover is so restrictive and therefore unsuitable for supporting certain types of claim. As litigation progresses, BTE insurance cover does not provide adequate protection and more often than not when BTE providers are approached to provide additional cover or authority they decline and come off risk. There are restrictions or exclusions set out within the cover provided. So the risk is to embark on litigation with inadequate cover under BTE, only to find that ATE is needed to cover the possible shortfall: inevitably, this cover would be more expensive than an original ATE policy for the whole of the action. Top up limits of £50,000 ATE (opponents‟ costs only) are
common.
11.16 As an example, DAS 80e dealt with a claim against a package tour operator, where the client had BTE cover with a limit on indemnity (LOI) of £25,000. Proceedings were issued and the case was listed for trial, so the claimant‟s solicitors asked for top up cover with an additional £30,000, to ensure the client was fully protected. The premium for this was £12,222, inc. IPT. The case subsequently settled successfully without going to trial. If the case had not had BTE cover and had been submitted to 80e under their delegated scheme, the ATE premium would have been only £1,727.25 inc. IPT, for £100,000 of indemnity. The top up premium reflected the additional risk created by the lateness of the application and the potential for the ATE insurer‟s position to have been prejudiced prior to their involvement. There was also a heavier overhead due to having individually to assess and rate the premium which would not have been incurred if the case formed part of the greater basket of risk within a delegated scheme.
11.17 The use of BTE is widespread in continental Europe, where the problems of BTE are apparent. BTE premiums in Europe are expensive. Basic family legal
cover costs approximately €250 pa (including a €500 excess for each claim). In many cases, this would be more expensive than ATE under our current system. And whilst the Government wishes to promote BTE, without the contribution of referral fees underpinning the costs of BTE ( see section x below) , the price of the BTE element would have to rise significantly from around £30 per policy to
66 European levels. This in turn would mean take up would substantially be reduced, the opposite of what they wish to see. The cost and the excess deter many households from buying it. Embedded products provide limited cover as shown particularly in France and Scandinavia, mirroring the UK experience. The objective in Scandinavia was to lower the Legal Aid burden and this has proved to be unsuccessful. ARAG Norway believes it is far inferior to how ATE operates in the UK, particularly for high damage/high costs cases.
11.18 In Germany, only BTE (and not ATE) insurance is available. Despite BTE being a mature insurance market, only 2/3rds of the population choose to purchase the insurance. The remaining 1/3rd, who are mainly the most disadvantaged, have no such cover. The penetration rate of 2/3rds has peaked so the prospect of this improving is extremely unlikely. Because of this, there is a polarisation of those who have access to justice, with those with means to pay for BTE able to pursue their rights and those without it excluded.
11.19 The appendix 5 research also confirms this trend, with uptake of BTE in personal injury claims being in similar proportion, and comparatively few at the lower end of the income scale with BTE policies. Less well off people do not see insurance as a spending priority, as also evidenced by the low take up of household contents insurance by poorer households.
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