Beware of Legal Expenses Cover

“The use of Third Party claims management companies have achieved media attention for all the wrong reasons. Claims farming and credit hire deals have increased claims costs for insurers and ultimately therefore for all of the insuring public”.

The above is a quote from a circular issued by a leading Insurance Brokerage in Northern Ireland and it will be noted that this Brokerage takes strong exception to the manner in which Insurance Brokerages in general are selling motor insurance policies. It is increasing the cost of motor insurance. What the Brokerage has in mind is a situation which we find ourselves confronted with on a daily basis.

When contacted by clients about a road traffic accident, the first issue we generally have to deal with is not the circumstances of the accident but the situation that clients have gotten themselves into as a result of the activity of their insurance brokers. The clients do not know what is going on or who is dealing with what. They are generally totally ignorant of the legal and financial consequences of an Agreement they have signed for the hire of a car. Normally what has happened is that the insurance broker has in fact referred the client to what is known as a claims management company, probably Motor Insurance Services (MIS) or a similar company. These companies have nothing whatsoever to do with the client’s own insurance company. They are separate outfits with which the insurance broker has an agreement to refer cases – as a result, the Broker will be paid a referral fee by one of these companies.

This referral fee can amount to hundreds of pounds. Some can be increased, depending on the length of time a vehicle is hired from that company by the innocent party. The confusion clients find themselves in has been commented upon by a High Court Judge in one of the numerous cases that have come before the courts concerning these two companies. The Judge said “I consider that the arrangements (Between MIS and Open & Direct) were structured in such a way she would not appreciate the different identities and different commercial interests of the various companies involved” (There was) “a separate commercial arrangement between Open and Direct Insurance and Motorists Insurance Services Limited. In fact Motorists Insurance Services Limited is a company unconnected to her insurers and carries on its own business as a credit hire and credit repair company”. The court went on to say that “the interests of the agent (MIS) was to make a financial profit by hiring a car to the innocent party “.

You may well ask why your insurance brokers do not disclose to you the arrangements that they have with another company about your business. You are entitled to know what is going on – it is your business – and the question is, why are you not told. An insurance broker’s ability to refer you to another company generally arises as a result of you buying what is known as a “Non-fault Legal Expenses Insurance Policy“, whenever you buy your car insurance. It normally costs you around £20.00 and you are generally told that it is in your interest to take it to avoid any expense should you be involved in a road traffic accident which is not your fault. I would make the point that if you are involved in a road traffic accident which is not your fault, there is absolutely no reason for you to be involved in any expense whatsoever – all expenses and outlay can be recovered in full from the party who is to blame.

The point in taking out an insurance policy is to protect you from risk. A Non-Fault Legal Expenses Policy, in our opinion, does not protect you from any risk – it is simply a means by which your insurance broker can profit by referring you onto a Claims Company and that Claims Company, as the court in the above case pointed out, is also in the business of making a financial profit.

  1. The first thing a company to which your insurance broker has referred you to does is to arrange to hire you a car. You will generally be told that you will be able to recover the costs of it from the other driver – you should know however that you are in fact fully responsible for the payment of the hire of that vehicle and there is no guarantee you will recover it in full, irrespective of what you have been told by your Broker or by the Company to which you have been referred. You may often be told that if you don’t do what you are told to do by these companies, that you will be involved in expense.  You should not be put off by these tactics and in our opinion, we strongly recommend that you take independent legal advice from a solicitor, who is under a duty of care to you to look after your interests and you should be able to get that advice without expense. That independent legal advice should be sought from your solicitor before signing anything whatsoever in relation to car hire or anything else.
  2. The next thing these companies will do is arrange for your car to be repaired and what you don’t know is they are actually getting a kick-back from the repairing garage for referring your car to them, and/or a percentage of the repair costs.
  3. The next step is that you receive a telephone call from a firm of solicitors you have probably never heard of, or a number of letters from them. If you haven’t taken independent legal advice from your own solicitor by the time you receive letters from the likes of MIS or any other company, as soon as you do receive them, you should take them to your own solicitor for his advice before signing any agreement.

Numerous people have ended up in court as a result of signing agreements for these companies. The way to avoid doing so is to realise that when you pay £20.00 to your insurance broker for the Legal Expenses Policy, you are in effect giving him the opportunity to take control of your business in the event that you have an accident. Even if you have done that, you are fully entitled to consult with your own solicitor and as indicated, there is no reason why you should be involved in any expense whatsoever.

In order to avoid a lot of the confusion and the stress in dealing with your insurance broker and Claims Companies after an accident, it is our firm recommendation that you do not pay around £20.00 to your insurance broker for a Non Fault Legal Expenses Policy that he wishes to sell to you, irrespective of what you are told. It is quite clear that this policy is used by your Broker to trigger the involvement of other parties and the consequence is that you lose control of your business. As indicated above, even if that has happened, you should in our opinion still take independent legal advice from a solicitor in order to protect your interests. The main insurance brokers dealing with MIS, from our experience, are Open & Direct and Hughes. Another Insurance Brokerage that has an arrangement with a Claims Management Company is Oakland Insurance and the handling agent for them is Proximo. Proximo is based at Park House, Chester, England and they refer your case to a firm of solicitors who are based at that same address.

The following is some of the terms and conditions, contained in their documentation that you will be required to sign up to by them – “No. 8 Referral Fees – As indicated above your claim has been referred to us by Provincewide (Oakland Insurance – Larne). The handling agent for Provincewide (Oakland Insurance – Larne) is Proximo. We are required by the Solicitors Regulation Authority to disclose any referral payment to you. For this Proximo will receive a fee of between £600.00 and £800.00 plus VAT from the costs we recover on your file”.

The above scenario is another reason why we strongly recommend that you take independent legal advice from your solicitor.