Can't afford to go to court? Neither, it seems, can legal insurers. What is needed is some radical reform.

Some might suggest that insuring lawyers' fees is a mug's game. The public is being told by the Government that legal costs insurance is the answer to compensate for insufficient legal aid. Only the very poor and the very rich can afford to go to law. Anybody in between is expected either to do it through a commercial entity or to buy a magic policy which will provide the funds.

Insurance is not necessarily any more effective than any other attempt to find a rich sugar daddy to back a legal whim. Lawyers are expensive; some are much more expensive than others. The legal costs insurance policy assumes that all charge at roughly the same rate and provide roughly the same service. This is of course quite incorrect because experts provide as a rule excellent service but at rather high prices. The not-so-expert and the less experienced may well find themselves out of their element and having to spend a great deal longer just getting to the same point that an expert would do but charging less per hour. Legal expenses insurance policies usually have a finite limit of anything between œ10,000 and œ25,000 and only cover the cost of the service if there is a reasonable chance of success. The lawyer has to keep the insurer advised of what is going on all the time.

Professional indemnity insurers and insurers of directors and officers liability are those most used to providing legal costs and expenses insurance. Practically every claim against a professional ends up in the hands of a lawyer unless the claim is obviously payable. That is not often the case. The result is that professional indemnity insurers have complained that anything from 40 per cent upwards of what they pay out in losses is in respect of legal costs and expenses of defending their assured. The reason is that if you are appointed to defend another professional by an insurer it has to be done reasonably competently, otherwise the insured will have grounds for complaint.

If that is the case with conventional professional indemnity claims, many of which do not have a similarity of approach, it is even more difficult to control the costs of a neighbour dispute or a dispute with some large commercial undertaking brought by a private individual who feels very strongly about the problem.

The time will come no doubt when one insurer will be paying the legal costs of a layman taking on another insurer over a coverage dispute which the defendant insurer is denying. Are insurers therefore providing the answer and are they controlling satisfactorily the costs of lawyers in these sorts of cases? In doing so, they may well be losing the support of their customers who acquire these policies without reading the small print.

Ultimately contingency or special fee litigation will become a major part of the background to commercial and private litigation for the ordinary middle classes and those who would not qualify for legal aid. Costs should be very carefully controlled on both sides. It should never be allowed to become a means of blackmailing defendant insurers into making payments in unworthy cases.

In due course, a market may grow up for insuring the risk of a plaintiff losing his case and having to pay the defendant's costs. Whether that happens or not will depend upon how anxious insurers are to become embroiled in this situation. But whether an insurer provides a legal costs policy or whether he agrees to insure the risk of the plaintiff losing his case and having to pay the defendant's costs will not obviate the task of the insurer of controlling the costs and expense of the litigation involved. This takes time as well as money.

The answer may be that legal costs insurance is itself not a complete answer. What must be found is a more generous legal aid system. Alternatively, a better method is needed of funding the costs of bringing cases in the best arena for litigation in the world before the best judges in the world. Alternative dispute resolution is good in principle but it is basically a compromise. In compromise, there are no winners. We live in a society in which the legal system looks to provide compensation to those who feel aggrieved. That is what an accusatorial system is about. Compromise is possible but every dispute starts with no compromise in mind. That goes for the expense as well.

Clive Boxer and Kenneth McKenzie

Clive Boxer and Kenneth McKenzie are both insurance partners at international insurance law firm Davies Arnold Cooper.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances from Clive Boxer or Kenneth McKenzie (Tel. 071 936 2222).
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