Household legal expenses insurance has the potential to be used in cases ranging from clinical negligence to product liability, says Rebecca Conway

Insurers have historically seen legal expenses insurance (LEI) as a low cost add-on to core household policies. Low prices have been sustained on the basis that there is low awareness of the benefits provided and therefore low claims frequency.

But under FSA regulation clients should be given key facts on the benefits of the cover which will raise their awareness of its existence.

Penetration of household LEI, however, is highest among socio-economic groups A and B, representing an articulate and well informed policyholder base.

If a policyholder has a legal problem and is unaware of the benefits provided by the policy his first port of call will generally be a discussion with a solicitor.

Prior to the Court of Appeal case of Sarwar v Alam in 2001, solicitors were reluctant to explore the availability of LEI for fear of losing the case to the provider's own panel solicitor. Solicitors therefore pursued cases on a private client basis without claiming on the LEI cover.

Sarwar, however, set a precedent that solicitors must check the availability of LEI before entering into any other form of funding agreement with the client. This has probably been the largest single reason why the claims experience on LEI accounts has increased over the past four years.

Professional claimants
Predictions of further dramatic rises in claims frequency are probably alarmist and currently without justification.

The policy will only support a claim that has a reasonable chance of succeeding. Occasionally, policyholders will be absolutely convinced that they have a cast iron case when in fact they do not have a leg to stand on from a legal viewpoint.

Managing these claims will always be challenging and require specialist and experienced claim staff, especially when policyholders are being represented by a non-panel solicitor who has an incentive to persuade the LEI provider to accept the claim as his fees will be covered, win or lose.

The majority of claims arising under this cover, however, will be fairly straightforward and the LEI market has solicitors who are highly commercial in their approach and employ leading edge technology to ensure efficiency. Claim costs, in general, can remain well controlled and these firms tend to be those that secure places on providers' panels.

Claims that can significantly affect policy costs are the unusual ones. Many policyholders would not expect such claims to be covered, but in fact they often fall within the standard sections unless exclusions are applied.

A good example is clinical negligence. These claims are notoriously difficult to assess, since to succeed it must be shown that the claimant has suffered injury as a direct result of advice or treatment that has fallen below that of a reasonably competent professional.

Although claims frequency is very low, costs are disproportionately high as a large proportion of cases will have to be abandoned following a costly preliminary investigation.

Injuries arising from defective products will also be covered unless excluded. While some of these will be straightforward, for example falls from collapsing garden chairs or hammocks, others will be highly complex.

A current example of this is a spate of claims arising from the anti-depressant drug Seroxat, which may cause suicidal thoughts in young people. Another is claims arising from the drug Sabril, used to treat epilepsy which may have caused vision defects and blindness.

In addition, recent newspaper reports indicate that the families of as many as 2,000 British patients who died after using the painkiller Vioxx, could join a potential multi-billion dollar lawsuit against the drug's manufacturer. These claims could potentially be covered.

Accidents at work follow a similar profile. The majority are straightforward trips and slips, but a minority are highly complex such as asbestos related conditions, which may involve multiple defendants and relate to employment up to 40 or 50 years prior to the claim.

Another area of evolving law affecting personal injury relates to psychological injury including post traumatic stress disorder. Claims involving these elements can be highly specialist and problematic in terms of outcome.

Contract cover for consumer goods claims will be generally straightforward - faulty washing machines or holiday nightmares. However, unless there are specific exclusions, financial mis-selling cases could be covered.

Given that the LEI add-on is an important source of revenue for many intermediaries, it would be naïve to think that the only response to the evolving market environment is to increase prices. The position is far more complex than this. There needs to be a combination of bespoke policy wordings for different customers and cost effective claims handling. IT

' Rebecca Conway is claims manager of Arc Legal Assistance