Matthew Williams answers the following question: After the event legal expenses insurance - can it be an ‘answer’ to a threatened security application?

1. There are currently over 25,000
in-house lawyers practising
in England and Wales. Over the
last 18 months, the Legal Services
Board (LSB) has examined the legal
regulators’ approaches to regulating
this part of the profession. We know
regulators take different approaches:
some– Solicitors Regulation Authority,
Bar Standards Board, Intellectual Property Regulation
Board – have specific rules for those working in-house, but
the details of these vary between regulators, others – CILEx
Regulation, Council for Licensed Conveyancers - do not
place any specific restrictions on those they authorise and
who work in-house.
The LSB’s analysis revealed that where there are specific
rules they seem to go beyond the minimum level required
by the Legal Services Act (the Act) and do so without
clear evidence of the need for them. One of the drivers
behind the introduction of the Act in 2007 was a desire
to open up the legal services market to meet consumers’
needs more effectively. Concerns have been expressed
that in-house practising restrictions limit innovation in the
market and restrict choice for consumers.
To help address this, the LSB recently published a
statement of policy to support regulators as they make
changes to their approach to in-house lawyers’ practice.
It emphasises the importance of establishing an evidence
base for adopting specific approaches, and developing
rules that are consistent within and across different
branches of the legal profession wherever possible.
If regulators opt to change their approach to regulating
in-house lawyers, the statement stresses the need
to assess and manage any new risks to consumers’
interests that may emerge.
The LSB intends to use these principles in its decision
making processes. We expect the regulators to do the
same when they consider rules for in-house lawyers.
Unnecessary restrictions can increase the cost of
regulation, reduce innovation and have potential to
hamper access to justice. We believe that a more
proportionate approach is needed and we expect the
establishment of these principles to contribute to this goal.
The LSB’s statement of policy on regulatory arrangements
for in-house lawyers (based on section 15(4) of the Legal
Services Act 2007) can be found here:
http://www.legalservicesboard.org.uk/Projects/thematic_
review/pdf/201602_S15_Statement_Of_Policy.pdf
Kate Webb, Head of Regulatory Reviews and Regulations,
Legal Services Board (LSB).
LSB: encouraging
proportionate regulation
of in-house lawyers
Q: After the event legal expenses
insurance - can it be an ‘answer’ to a
threatened security application?
A:Depending on the circumstances
it may be, or may help…
1. ‘Cover v security’– Historically
security for costs focused on the
provision of a ‘payment in’, bank
guarantee or equivalent. Today ATE
policies and derivatives of them are
a prominent feature of the ‘security
debate’. Cover for defendant’s cost is undoubtedly
relevant to ability to pay, but cover is for the insured. A
defendant is not a party to the policy. This juxtaposition
is illustrated in the cases considered in the Harlequin
Property case [2015]1
.
2. The nature of cover provided by a ‘traditional’ policy
means it is unlikely to provide security ‘equal to or better
than’ a payment in/bank guarantee. Nevertheless, it
seems the existence of ATE cover can have a bearing on
security issues in various ways as part of the factual mix.
i. CPR25.13 (2) – ‘threshold’ - It may be relevant as
to whether a threshold condition is satisfied (per
Geophysical on whether there was ‘reason to believe’ a
company would be unable to pay).
ii. CPR 25.13 (1) - discretion - It may be a factor for
the court to take into account in the exercise of its
discretionon whether to award security, or as to ‘how
much’.
3. If a payment in/near equivalent is likely to be required
then, depending on the insurer’s rating, one alternative
may be provision of a deed of indemnity (DOI)
(discussed in Verslot). This is increasingly common in
practice as it provides an insurer/defendant connection,
and disposes of ‘avoidance risk’. Another solution could
be a policy endorsement excluding avoidance rights,
providing for claims payments to a defendant and
covering insolvency issues etc (see Harlequin).
4. Practicalities – As a DOI differs in nature from insurance
an insured can expect to be charged for it. Similarly with
an ‘endorsement solution’, and that charge may be in
the premium (separately identified or not) or on another
basis. If security may be an issue, it is worth flagging this
to insurers with the application for cover and dealing with
it (at least in principle) at that point. If left in abeyance
there can be no guarantee a DOI or other solution will be
available, or if it is, on what terms.
Matthews Williams, Head of AmTrust Law. If you have any
further questions regarding this or would like to discuss
further with AmTrust, please visit our LinkedIn Forum: www.
linkedin.com/company/amtrust-law
1. Harlequin Property (SVG) Limited and anor v Wilkins Kennedy (a firm) 2015 EWCH 1122
TCC (Harlequin)
Al- Koronky and anor v Tie-Life Entertainment Group Ltd and anor [2006] ECCW Civ 1123
(AlKoronky)
Belco Trading Co v Kondo and anor [2008] EWCA Civ 205 (Belco)
Phillips Architects Ltd v Cornel Clark Riklin and anor [2010] EWHC 834(TCC) (Riklin)
Verslot Dredging v HDI GerlingIndustrieVesicherungag AG [2013] EWHC 658 (Comm)
(Verslot)
Geophysical Service Centre Co v Dowell Schlumberger(ME) Inc [2013] EWHC 147 (TCC)
(Geophysical)
ML // April 2016
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